(Name, Telephone, E-mail and/or Facsimile number
and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(g)
of the Act:
Indicate the number of outstanding shares of
each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company that prepares
its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards
1
provided pursuant to Section
13(a) of the Exchange act.
¨
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
If “Other” has been checked in
response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As used in this Annual Report, the “Corporation”
or “Company” refers to Medicure Inc., a Canadian public company existing under the
Canada Business Corporations
Act
.
The Company uses the Canadian dollar as its
reporting currency. Unless otherwise indicated, all references to dollar amounts in this Annual Report are to Canadian dollars.
As of December 31, 2018, the rate for Canadian dollars was US $1.00 for CND $1.3642. See also Item 3 –
Key Information
for more detailed currency and conversion information.
Except as noted, the information set forth
in this Annual Report is as of April 29, 2019 and all information included in this document should only be considered correct as
of such date.
Medicure Inc. cautions readers that certain
important factors (including without limitation those set forth in this Form 20-F) may affect the Company’s actual results
in the future and could cause such results to differ materially from any forward-looking statements that may be deemed to have
been made in this Form 20-F annual report, or that are otherwise made by or on behalf of the Company. This Annual Report contains
forward-looking statements and information which may not be based on historical fact, which may be identified by the words “believes,”
“may,” “plan,” “will,” “estimate,” “continue,” “anticipates,”
“intends,” “expects,” and similar expressions and the negative of such expressions. Such forward-looking
statements include, without limitation, statements regarding:
Such forward-looking statements and information
involve a number of assumptions as well as known and unknown risks, uncertainties and other factors that may cause the actual results,
events or developments to be materially different from any future results, events or developments expressed or implied by such
forward-looking statements and information including, without limitation:
These factors should be considered carefully
and readers are cautioned not to place undue reliance on such forward-looking statements and information. The Company disclaims
any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements
and information contained herein to reflect future results, events or developments, except as otherwise required by applicable
law. Additional risks and uncertainties relating to the Company and its business can be found in the “Risk Factors”
section of this Annual Report.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS
A. Directors and Senior Management
Not applicable
B. Advisers
Not applicable
C. Auditors
Not applicable
ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE
Not applicable
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The selected financial data of the Company
as at December 31, 2018 and 2017, and for the fiscal years ended December 31, 2018, 2017 and 2016, was extracted from the audited
consolidated financial statements of the Company included in this Annual Report on Form 20-F. The information contained in the
selected financial data is qualified in its entirety by reference to the more detailed consolidated financial statements and related
notes included in Item 18 -
Financial Statements
, and should be read in conjunction with such financial statements and with
the information appearing in Item 5 -
Operating and Financial Review and Prospects
. The selected financial data of the Company
as at December 31, 2016 and 2015, and December 31, 2014 and for the year ended December 31, 2015 and the seven months ended December
31, 2014 was extracted from the audited financial statements of the Company not included in this Annual Report.
Under International Financial Reporting Standards (in Canadian
dollars):
Statement of
Financial Position
Data
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
(as at period end)
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Current Assets
|
|
|
89,586,820
|
|
|
|
114,558,882
|
|
|
|
55,211,748
|
|
|
|
17,448,554
|
|
|
|
3,874,097
|
|
Property and Equipment
|
|
|
316,013
|
|
|
|
221,622
|
|
|
|
10,300,639
|
|
|
|
230,162
|
|
|
|
33,161
|
|
Intangible Assets
|
|
|
1,705,250
|
|
|
|
1,756,300
|
|
|
|
100,864,817
|
|
|
|
1,411,992
|
|
|
|
1,096,946
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
47,485,572
|
|
|
|
-
|
|
|
|
-
|
|
Other Assets
|
|
|
12,153,330
|
|
|
|
12,394,881
|
|
|
|
862,891
|
|
|
|
2,166,170
|
|
|
|
1,556,315
|
|
Total Assets
|
|
|
103,761,413
|
|
|
|
128,931,685
|
|
|
|
214,725,667
|
|
|
|
21,256,878
|
|
|
|
6,560,519
|
|
Current Liabilities
|
|
|
16,932,250
|
|
|
|
43,673,908
|
|
|
|
61,560,600
|
|
|
|
10,352,462
|
|
|
|
4,377,498
|
|
Non-current Liabilities
|
|
|
3,235,618
|
|
|
|
4,548,617
|
|
|
|
114,881,163
|
|
|
|
6,442,865
|
|
|
|
6,094,037
|
|
Total Liabilities
|
|
|
20,167,868
|
|
|
|
48,222,525
|
|
|
|
176,441,763
|
|
|
|
16,795,327
|
|
|
|
10,471,535
|
|
Net Assets / (Deficiency)
|
|
|
83,593,545
|
|
|
|
80,709,160
|
|
|
|
36,193,904
|
|
|
|
4,461,551
|
|
|
|
(3,911,016
|
)
|
Capital Stock, Warrants and Contributed Surplus
|
|
|
132,464,098
|
|
|
|
134,579,798
|
|
|
|
133,476,698
|
|
|
|
128,304,590
|
|
|
|
122,406,511
|
|
Accumulated Other Comprehensive Income
|
|
|
1,267,717
|
|
|
|
673,264
|
|
|
|
681,992
|
|
|
|
1,071,735
|
|
|
|
298,329
|
|
Deficit
|
|
|
(50,138,270
|
)
|
|
|
(54,543,902
|
)
|
|
|
(97,964,786
|
)
|
|
|
(124,947,427
|
)
|
|
|
(126,615,856
|
)
|
Non-controlling Interest
|
|
|
-
|
|
|
|
-
|
|
|
|
2,090,000
|
|
|
|
-
|
|
|
|
-
|
|
Statement of Net Income (for the fiscal year ended on)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Sales
|
|
|
29,109,365
|
|
|
|
27,132,832
|
|
|
|
29,304,800
|
|
|
|
22,083,128
|
|
|
|
5,264,395
|
|
Loss on Settlement of Debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,595
|
)
|
|
|
-
|
|
Net Income for the Period from continuing operations
|
|
|
3,925,639
|
|
|
|
11,496,693
|
|
|
|
3,624,323
|
|
|
|
1,668,429
|
|
|
|
1,195,596
|
|
Net income for the Period from discontinued operations
|
|
|
-
|
|
|
|
31,924,191
|
|
|
|
23,358,318
|
|
|
|
-
|
|
|
|
-
|
|
Comprehensive Income (Loss) for the Period
|
|
|
4,520,092
|
|
|
|
43,412,156
|
|
|
|
26,560,245
|
|
|
|
2,474,488
|
|
|
|
1,339,134
|
|
Income Per Share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.25
|
|
|
|
0.74
|
|
|
|
0.24
|
|
|
|
0.12
|
|
|
|
0.10
|
|
Diluted
|
|
|
0.24
|
|
|
|
0.63
|
|
|
|
0.21
|
|
|
|
0.11
|
|
|
|
0.09
|
|
Income Per Share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
-
|
|
|
|
2.04
|
|
|
|
1.56
|
|
|
|
-
|
|
|
|
-
|
|
Diluted
|
|
|
-
|
|
|
|
1.76
|
|
|
|
1.35
|
|
|
|
-
|
|
|
|
-
|
|
Income Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.25
|
|
|
|
2.78
|
|
|
|
1.80
|
|
|
|
0.12
|
|
|
|
0.10
|
|
Diluted
|
|
|
0.24
|
|
|
|
2.39
|
|
|
|
1.56
|
|
|
|
0.11
|
|
|
|
0.09
|
|
Weighted-Average Number of Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding – Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,791,396
|
|
|
|
15,636,853
|
|
|
|
15,002,005
|
|
|
|
13,461,609
|
|
|
|
12,204,827
|
|
Diluted
|
|
|
16,563,663
|
|
|
|
18,138,080
|
|
|
|
17,316,401
|
|
|
|
15,765,570
|
|
|
|
13,843,126
|
|
Weighted-Average Number of Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding – Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,791,396
|
|
|
|
15,636,853
|
|
|
|
15,002,005
|
|
|
|
13,461,609
|
|
|
|
12,204,827
|
|
Diluted
|
|
|
16,563,663
|
|
|
|
18,138,080
|
|
|
|
17,316,401
|
|
|
|
15,765,570
|
|
|
|
13,843,126
|
|
Weighted-Average Number of Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,791,396
|
|
|
|
15,636,853
|
|
|
|
15,002,005
|
|
|
|
13,461,609
|
|
|
|
12,204,827
|
|
Diluted
|
|
|
16,563,663
|
|
|
|
18,138,080
|
|
|
|
17,316,401
|
|
|
|
15,765,570
|
|
|
|
13,843,126
|
|
Dividends
No cash dividends have been declared nor are
any intended to be declared in the foreseeable future. The Company is not subject to legal restrictions respecting the payment
of dividends except that they may not be paid if the Company is, or would after the payment be, insolvent. Dividend policy will
be based on the Company's cash resources and needs and it is anticipated that all available cash will be required to further the
Company’s research and development activities for the foreseeable future.
Exchange Rates
Unless otherwise indicated, all reference
to dollar amounts are to Canadian dollars. On April 26, 2019, the rate of exchange of the Canadian dollar, based on the daily
exchange rate in Canada as published by the Bank of Canada, was US$1.00 = Canadian $1.3460. The exchange rates published by the
Bank of Canada and made available on its website,
www.bankofcanada.ca
, are nominal quotations — not buying or selling
rates — and are intended for statistical or analytical purposes.
The following tables set out the exchange rates,
based on the daily noon rates in Canada as published by the Bank of Canada for the conversion of Canadian Dollars into U.S. Dollars,
for the periods indicated:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period End
|
|
|
1.3642
|
|
|
|
1.2545
|
|
|
|
1.3427
|
|
|
|
1.3840
|
|
|
|
1.1601
|
|
Average for the Period*
|
|
|
1.2957
|
|
|
|
1.2986
|
|
|
|
1.3248
|
|
|
|
1.2787
|
|
|
|
1.1083
|
|
High for the Period
|
|
|
1.3642
|
|
|
|
1.3743
|
|
|
|
1.4590
|
|
|
|
1.4004
|
|
|
|
1.1536
|
|
Low for the Period
|
|
|
1.2288
|
|
|
|
1.2128
|
|
|
|
1.2544
|
|
|
|
1.1680
|
|
|
|
1.0740
|
|
|
*
|
The average rate for each period is the average of the
daily closing rates on the last day of each month during the period.
|
|
|
High
|
|
|
Low
|
|
April 2019
|
|
|
1.3493
|
|
|
|
1.3316
|
|
March 2019
|
|
|
1.3438
|
|
|
|
1.3260
|
|
February 2019
|
|
|
1.3298
|
|
|
|
1.3095
|
|
January 2019
|
|
|
1.3600
|
|
|
|
1.3144
|
|
December 2018
|
|
|
1.3642
|
|
|
|
1.3191
|
|
November 2018
|
|
|
1.3302
|
|
|
|
1.3088
|
|
October 2018
|
|
|
1.3142
|
|
|
|
1.2803
|
|
September 2018
|
|
|
1.3188
|
|
|
|
1.2803
|
|
August 2018
|
|
|
1.3152
|
|
|
|
1.2917
|
|
July 2018
|
|
|
1.3255
|
|
|
|
1.3017
|
|
June 2018
|
|
|
1.3310
|
|
|
|
1.2913
|
|
May 2018
|
|
|
1.3020
|
|
|
|
1.2775
|
|
April 2018
|
|
|
1.2908
|
|
|
|
1.2552
|
|
March 2018
|
|
|
1.3088
|
|
|
|
1.2830
|
|
February 2018
|
|
|
1.2809
|
|
|
|
1.2288
|
|
January 2018
|
|
|
1.2535
|
|
|
|
1.2293
|
|
B. Capitalization and Indebtedness
Not applicable
C. Reasons for the Offer and Use of Proceeds
Not applicable
D. Risk Factors
An investment in the Company's common shares
is highly speculative and subject to a number of risks. Only those persons who can bear the risk of the entire loss of their investment
should participate. An investor should carefully consider the risks described below and the other information that the Company
furnishes to, or files with, the Securities and Exchange Commission and with Canadian securities regulators before investing in
the Company's common shares.
Uncertainties and risks include, but are not
limited to, the risk that the Company may face with respect to importing raw materials, increased competition, acquisitions, contract
manufacturing arrangements, delays or failure in obtaining product approvals from the FDA, general business and economic conditions,
market trends, product development, regulatory, and other approvals and marketing.
The following are significant factors known
to us that could materially harm our business, financial position, or operating results or could cause our actual results to differ
materially from our anticipated results or other expectations, including those expressed in any forward-looking statement made
in this report. The risks described are not the only risks facing us. Additional risks and uncertainties not currently known to
us, or that we currently deem to be immaterial, also may adversely affect our business, financial position, and operating results.
If any of these risks actually occur, our business, financial position, and operating results could suffer significantly. As a
result, the market price of our common stock could decline and investors could lose all or part of their investment.
The fact that the Company currently derives
nearly all of its revenue from a single product, AGGRASTAT
®
, exposes the Company to the risks inherent in
the establishment and maintenance of a developing business enterprise, such as those related to product acceptance, competition
and viable operations management, and the long-term profitability of the Company remains uncertain.
At December 31, 2018, with the exception of
AGGRASTAT
®
and ZYPITAMAG
TM
, the Company’s commercial products are in the development stage and
accordingly, its business operations are subject to all of the risks inherent in the establishment and maintenance of a developing
business enterprise, such as those related to product acceptance, competition and viable operations management.
The long-term profitability of the Company’s
operations is uncertain, and any profitability may not be sustained. The Company’s long-term profitability will depend in
significant part on its ability to maintain or expand sales of AGGRASTAT
®
, and to acquire and/or develop other commercially
viable drug products. This in turn depends on numerous factors which remain uncertain, including the following:
|
(a)
|
the success of the Company’s research and development activities;
|
|
(b)
|
obtaining regulatory approvals to market any of its development products;
|
|
(c)
|
the ability to contract for the manufacture of the Company’s products according to schedule
and within budget, given the Company’s limited experience and lack of internal capabilities for manufacturing;
|
|
(d)
|
the ability to develop, implement and maintain appropriate systems and structures to market and
operate within applicable regulatory, industry and legal guidelines;
|
|
(e)
|
the ability to identify, negotiate and complete business development transactions (e.g. the sale,
purchase, or license of pharmaceutical products or services) with third parties;
|
|
(f)
|
the ability to maintain current or higher pricing and margins for the Company’s products;
|
|
(g)
|
the ability to successfully prosecute and defend its patents and other intellectual property; and
|
|
(h)
|
the ability to successfully market the Company’s products, including AGGRASTAT
®
,
given that it has limited resources.
|
Further, if the Company does achieve sustained
profitability, it may not be able to increase profitability in the future.
There is no assurance that the Company will
be successful in growing the sales of ZYPITAMAG
TM
in the United States and its territories, and its failure to do so
could have a material adverse effect on the Company’s long-term profitability.
During 2017, the Company acquired an exclusive
license to sell and market ZYPITAMAG
TM
in the United States and its territories for an initial term of seven years,
with extensions to the term available. ZYPITAMAG
TM
, used for the treatment of patients with primary hyperlipidemia or
mixed dyslipidemia, was approved early in 2017 by the FDA for sale and marketing in the United States and its territories, and
the Company launched the product using its existing commercial infrastructure in May 2018.
ZYPITAMAG competes in a highly competitive
class of products and to date, the rate of uptake of ZYPITAMAG
TM
has been slow resulting in minimal sales of ZYPITAMAG
TM
recorded for the year ended December 31, 2018. There is no assurance that the Company will be successful in growing the sales of
ZYPITAMAG
TM
in 2019 and beyond as there is no assurance that a viable market for ZYPITAMAG
TM
will develop.
The failure of the Company to grow sales of ZYPITAMAG
TM
, or to establish a viable market for the product, could have
a material adverse effect on the Company’s long-term profitability.
There is no assurance that the Company will
be successful in launching SNP in the United States and its territories, and its failure to do so could have a material adverse
effect on the Company’s long-term profitability.
On August 13, 2018, the Company announced that
the FDA approved its ANDA for SNP. SNP is indicated for the immediate reduction of blood pressure for adult and pediatric patients
in hypertensive crisis. The product is also indicated for producing controlled hypotension in order to reduce bleeding during surgery
and for the treatment of acute congestive heart failure. The filing of the ANDA was previously announced by the Company on December
13, 2016. The Company expects to launch the product in the second quarter of 2019.
SNP will be launched into a genericized market
with several competitors already selling generic versions of the product and as such there is no assurance that the Company will
be successful in launching SNP in 2019 and growing sales for the product. The failure of the Company to successfully launch and
grow sales of SNP, or to establish a viable market for the Company’s version of the product, could have a material adverse
effect on the Company’s long-term profitability.
There is no assurance that the Company will
be successful in marketing ReDS
TM
in the United States and its territories, and its failure to do so could have a material
adverse effect on the Company’s long-term profitability.
Subsequent
to December 31, 2018, on January 28, 2019, the Company entered into an agreement with Sensible Medical Innovations Inc. ("Sensible")
to become the exclusive marketing partner for ReDS™ in the United States. ReDS™ is a non-invasive, FDA-cleared
medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management
of congestive heart failure. ReDS™ was already being marketed to United States hospitals by Sensible and the Company has
begun marketing ReDS™ immediately using its existing commercial organization. Under the terms of the agreement, Medicure
will receive a percentage of total U.S. sales revenue of the device and must meet minimum annual sales quotas.
At the time of the signing of the marketing
agreement, ReDS
TM
was available commercially in the United States, however, there is no assurance that the Company will
be successful in its marketing efforts regarding ReDS
TM
and achieve significant sales growth in 2019 as planned, or
at all. Further, there is no assurance that a viable market for ReDS
TM
will develop after the marketing efforts begin.
The failure of the Company to successfully market and grow sales of ReDS
TM
, or to establish a viable market for the
product, could have a material adverse effect on the Company’s long-term profitability.
The commercial launch and marketing of PREXXARTAN
®
(valsartan) oral solution has been placed on hold by the Company and the Company may not commercially launch the product.
On October 31, 2017, the Company announced
that it had acquired an exclusive license to sell and market PREXXARTAN
®
(valsartan) oral solution, which treats
hypertension, in the U.S. and its territories from Carmel for a seven-year term with extensions to the term available. Medicure
acquired the license rights for an upfront payment of U.S.$100,000, with an additional U.S.$400,000 payable on final FDA approval.
Carmel would also be entitled to receive royalties and milestone payments from the net revenues of PREXXARTAN
®
.
PREXXARTAN
®
had been granted tentative approval by the FDA and the tentative approval was converted to final approval
on December 19, 2017
.
As announced on March 19, 2018
and up-dated on March 28, 2018, all PREXXARTAN
®
related activities were placed on hold by the Company pending
the resolution of a dispute that Medicure became aware of between the owner of the New Drug
Application (“
NDA
”), Carmel and the third-party manufacturer of the product. The Company was also named in
a civil claim in Florida between the third-party manufacturer and Carmel. The claim disputed the rights granted to Medicure
by Carmel in regards to PREXXARTAN
®
. More recently the claim against the Company has been withdrawn, however
the dispute between Carmel and the third-party manufacturer continues.
Medicure had intended to launch PREXXARTAN
®
during the first half of 2018 and to date, only an up-front payment of U.S.$100,000, has been made to Carmel in regards to PREXXARTAN
®
and the Company has reserved all of its rights under the license agreement with Carmel for PREXXARTAN
®
.
As a result of the uncertainty surrounding
the marketing rights for PREXXARTAN
®
, marketing activities remain on hold in regards to the product. There can be
no assurances that the Company launches the product commercially in 2019 or future years. Further, there is no assurance that the
Company will be successful in its launching PREXXARTAN
®
and achieve sales results as planned, or at all. Further,
there is no assurance that a viable market for PREXXARTAN
®
will develop if the marketing efforts begin.
The Company may never receive regulatory
approval in the United States, Canada or abroad for any of its products in development. Therefore, the Company may not be able
to sell any therapeutic products currently under development.
The Company’s failure to maintain or
obtain necessary regulatory approvals to fully market its current and future development stage products in one or more significant
markets may adversely affect its business, financial condition and results of operations. The process involved in obtaining regulatory
approval from the competent authorities to market therapeutic products is long and costly and may delay product development. The
approval to market a product may be applicable to a limited extent only or it may be refused entirely.
While the Company’s approved product
portfolio has grown during 2018 and into 2019 to AGGRASTAT
®
, ZYPITAMAG
TM
, PREXXARTAN
®
,
which is currently on hold, SNP, which is expected to be launched in the second quarter of 2019 and ReDS
TM
, with a marketing
agreement entered into subsequent to December 31, 2018, the Company still has products that are currently in the research and development
stages. The Company may never develop another commercially viable drug product approved for marketing. To obtain regulatory approvals
for its products and to achieve commercial success, human clinical trials must demonstrate that the new chemical entities are safe
for human use and that they show efficacy, and generic drug products under development need to show analytical equivalence and
/or bioequivalence to the referenced product on the market. Unsatisfactory results obtained from a particular study or clinical
trial relating to one or more of the Company’s products may cause the Company to reduce or abandon its commitment to that
program.
If the Company fails to successfully complete
its development projects, it will not obtain approval from the FDA and other international regulatory agencies, to market its these
products. Regulatory approvals also may be subject to conditions that could limit the market its products can be sold in or make
either products more difficult or expensive to sell than anticipated. Also, regulatory approvals may be revoked at any time for
various reasons, including for failure to comply with regulatory requirements or poor performance of its products in terms of safety
and effectiveness.
The Company’s business, financial condition
and results of operations are likely to be adversely affected if it fails to maintain or obtain regulatory approvals in the United
States, Canada and abroad to market and sell its current or future drug products, including any limitations imposed on the marketing
of such products.
If the Company fails to acquire and develop
additional product candidates or approved products, it will impair the Company’s ability to grow its business and to increase
value for shareholders.
Currently, the Company generates its commercial
product revenue only from AGGRASTAT
®
and ZYPITAMAG
TM
with additional products being launched in 2019.
A component of the Company’s plan to generate additional revenue is its intention to develop and/or to acquire or license,
and then develop and/or market, additional product candidates or approved products. The success of this growth strategy depends
upon the Company’s ability to identify, select and then to develop, acquire or license products that meet the criteria it
has established. Due to the fact the Company has limited financial capacity, and limited value in its equity, relative to
other companies in the industry, it has a limited number of product opportunities to choose from. Moreover, the Company’s
ability to research and develop its own, or other acquired/licensed products, is limited by the extent of its internal scientific
research capabilities. In addition, proposing, negotiating and implementing an economically viable acquisition or license is a
lengthy and complex process. Other companies, including those with substantially greater financial, marketing and sales resources,
may compete with the Company for the acquisition or license of product candidates and approved products. The Company may not be
able to acquire or license the rights to additional product candidates and approved products on terms that it finds acceptable,
or at all. Moreover, the Company may not have the human, technical, financial, manufacturing and/or clinical resources to successfully
develop additional products.
The Company may not receive regulatory approval
in the United States to further expand or otherwise improve the approved indications and/or dosing information contained within
AGGRASTAT
®
’s prescribing information. Therefore, the Company may not be able to continue to materially increase
sales of AGGRASTAT
®
.
In fiscal 2014 the Company was able to obtain
revisions to AGGRASTAT
®
’s prescribing information and these revisions have had a positive, material impact
on sales of AGGRASTAT
®
. The Company believes that further revisions to AGGRASTAT
®
’s prescribing
information will put the Company in a better position to maximize the revenue potential for AGGRASTAT
®
. To make
such changes, the Company may need to conduct appropriate clinical trials, obtain positive results from those trials, or otherwise
provide support in order to obtain regulatory approval for the proposed indications and dosing regimens. The Company’s failure
to obtain additional regulatory approvals from the FDA to expand or otherwise improve the approved indications and/or dosing information
contained within AGGRASTAT
®
’s prescribing information may adversely affect the Company’s ability to
materially increase sales. The process involved in obtaining such regulatory approval is long and costly and may require additional
investments that may not be reasonably achievable by the Company. The regulatory authorities have substantial discretion in the
approval process and may refuse to accept any application. Varying interpretations of the data obtained from pre-clinical and clinical
testing could delay, limit or prevent regulatory approval of a new indication for a product. Furthermore, the approval to modify
the prescribing information may be applicable to a limited extent only or it may be refused entirely.
The current approved prescribing information
for AGGRASTAT
®
does not include all of the dosing information and therapeutic indications for which a physician
may wish to use the product. Although health care professionals may utilize a product at doses and for indications outside of the
approved prescribing information, the Company is prohibited from promoting such uses.
To obtain regulatory approvals to modify the
prescribing information, the Company must supply sufficient information supporting the safety and efficacy of such uses to the
FDA, which in turn must review and deem this information to be sufficient to modify the label in the agreed upon fashion. Unsatisfactory
or insufficient results obtained from any particular study or clinical trial relating to the Company’s products may cause
the Company to reduce or abandon its efforts to expand or otherwise improve the approved indications and/or dosing information
contained within AGGRASTAT
®
’s prescribing information.
If the Company does not comply with federal,
state and foreign laws and regulations relating to the health care business, it could face substantial penalties.
The Company and its customers are subject to
extensive regulation by the United States federal government, and the governments of the states in which the business is conducted.
In the United States, the laws that directly or indirectly affect the Company’s ability to operate its business include the
following:
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the Federal Anti-Kickback Law, which prohibits persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an
individual or furnishing or arranging for a good or service for which payment may be made under federal health care programs such
as Medicare and Medicaid;
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other Medicare laws and regulations that prescribe the requirements for coverage and payment for
services performed by the Company’s customers, including the amount of such payment;
|
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the Federal False Claims Act, which imposes civil and criminal liability on individuals and entities
who submit, or cause to be submitted, false or fraudulent claims for payment to the government;
|
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the Federal False Statements Act, which prohibits knowingly and willfully falsifying, concealing
or covering up a material fact or making any materially false statement in connection with delivery of or payment for health care
benefits, items or services; and
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various state laws that impose similar requirements and liability with respect to state healthcare
reimbursement and other programs.
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If the Company’s operations are found
to be in violation of any of the laws and regulations described above or any other law or governmental regulation to which the
Company or its customers are or will be subject, the Company may be subject to civil and criminal penalties, damages, fines, exclusion
from the Medicare and Medicaid programs and the curtailment or restructuring of its operations. Similarly, if the Company’s
customers are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative
impact on the Company. Any penalties, damages, fines, curtailment or restructuring of the Company’s operations would adversely
affect its ability to operate its business and financial results. Any action against the Company for violation of these laws, even
if the Company is able to successfully defend against it, could cause it to incur significant legal expenses, divert management’s
attention from the operation of the business and damage the Company’s reputation.
Due to the fact that a material amount of the
use of AGGRASTAT
®
is outside of the FDA approved indications contained within AGGRASTAT
®
’s
prescribing information, the Company may be at a greater risk than would be the case if the product was almost exclusively used
within the approved prescribing information.
AGGRASTAT
®
must compete with
a variety of existing drugs, including generic versions of those existing drugs, and may in the future have to compete with new
drugs, which may limit the use of AGGRASTAT
®
and adversely affect the Company’s revenue.
Due to the incidence and severity of cardiovascular
diseases, the market for anticoagulant and antiplatelet therapies is large and competition is intense. There are a number of anticoagulant
and antiplatelet drugs recently approved, currently on the market, awaiting regulatory approval or in development. AGGRASTAT
®
must compete with these drugs, and may in the future have to compete with new drugs, to the extent that AGGRASTAT
®
and such drugs are approved for the same or similar indications.
AGGRASTAT
®
competes primarily
with other platelet inhibitors, in particular the other GP IIb/IIIa inhibitors, ReoPro
®
(abciximab) (sold by Eli
Lilly and Company) and Integrilin
®
(eptifibatide) (a branded drug sold by Merck & Co., Inc.), in addition
to generic eptifibatide sold by other companies. It also competes with a number of oral platelet inhibitors, which can be used
alone or in conjunction with anticoagulants, most notably with heparin (sold generically by a number of companies), and with a
recently approved injectable platelet inhibitor, Kengreal
®
(cangrelor) (sold by Chiesi Farmaceutics S.p.A. Inc.).
In addition, some alternative methods of treatment, such as the use of Angiomax
®
(bivalirudin) (sold by The Medicines
Company, Inc.), also compete with AGGRASTAT
®
. These competing products are all marketed by large pharmaceutical
companies with significantly more resources and experience than the Company.
There still remains many hospitals in the United
States where AGGRASTAT
®
is not available on the hospital formulary, and it can be very difficult and time consuming
to have AGGRASTAT
®
added to formulary for use by health care professionals. In many cases, competing treatment approaches
may have FDA approval for dosing regimens and/or therapeutic indications that are outside of AGGRASTAT
®
’s
approved prescribing information. The risk of bleeding associated with AGGRASTAT
®
may cause physicians to choose
an alternative therapy. Although AGGRASTAT
®
is positioned as a relatively low-cost therapy, in certain circumstances
other treatment approaches are lower cost and may for this reason be preferred by health care professionals - in particular where
oral antiplatelet agents are deemed suitable.
ZYPITAMAG
TM
competes with
a variety of existing drugs and may compete against other new drugs, which may limit the use of ZYPITAMAG
TM
and potentially
affect the Company’s revenue.
Due to the incidence and severity of cardiovascular
diseases, the market for antihyperlipidemics is large and competition is intense. There are a number of approved antihyperlipidemic
drugs approved, currently on the market, awaiting regulatory approval or in development. ZYPITAMAG
TM
will compete with
these drugs to the extent ZYPITAMAG
TM
and any of these drugs are approved for the same or similar indications.
Although ZYPITAMAG
TM
is
positioned as a relatively low-cost therapy, in certain circumstances, other treatment approaches are lower cost and may for
this reason be preferred by health care professionals.
The development of generic treatment options
may decrease or eliminate the cost advantage that AGGRASTAT
®
currently enjoys, which could negatively impact the
Company’s sales.
AGGRASTAT
®
is a branded pharmaceutical
product for which there is currently no generic alternative available in the Company’s market. AGGRASTAT
®
’s
reduced cost relative to other products was one of the advantages being used by the Company to promote and increase sales of AGGRASTAT
®
.
Distributors of generic products typically price products significantly below the branded alternative, and these distributors
are always seeking to introduce these generic alternatives of pharmaceuticals. There is a risk that new generic products
will be introduced that compete with AGGRASTAT
®
and that their low pricing would reduce AGGRASTAT
®
’s
relative cost advantage, and therefore negatively impact the maintenance and growth of sales by the Company. As at December 31,
2018, there are generic versions of a competing product, eptifibatide, that are commercially available and are now competing directly
against AGGRASTAT
®
. Additional generic competitors are expected to enter the market in the months and years ahead,
and it is anticipated that these will result in further reductions to the price of eptifibatide.
Moreover, due to the recent growth in sales
of AGGRASTAT
®
, there is increased probability that generic companies will attempt to enter the U.S. market before
the last AGGRASTAT
®
patent expires. If this occurs, the Company will have to defend its patent position and market
exclusivity for AGGRASTAT
®
against larger, better funded and more experienced generic companies. The entry of a
generic version of AGGRASTAT
®
into the market would have a major negative effect on both the volume and profitability
of the Company’s AGGRASTAT
®
sales.
Further to this, as announced on November 16,
2018, the Company filed a patent infringement action against Gland Pharma Ltd. (“
Gland
”) in the U.S. District
Court for the District of New Jersey, alleging infringement of U.S. Patent No. 6,770,660 (“the
’660 patent
”).
The patent infringement action was in response
to Gland’s filing of an ANDA seeking approval from the FDA to market a generic version of AGGRASTAT
®
before
the expiration of the ’660 patent. The ’660 patent is listed in FDA’s Orange Book for AGGRASTAT
®
.
Medicure will vigorously defend the ’660 patent and will pursue the patent infringement action against Gland and all other
legal options available to protect its patent rights.
The Company may not be able to hire or retain
the qualified scientific, technical and management personnel it requires.
The Company’s business prospects and
operations depend on the continued contributions of certain of the Company’s executive officers and other key management
and technical personnel, certain of whom would be difficult to replace.
The Company’s subsidiary, Medicure International,
Inc., contracts with third parties to perform a significant amount of its research and development activities. Because of the specialized
scientific nature of the Company’s business, the loss of services of any one or more of these parties may require the Company
to attract and retain replacement qualified scientific, technical and management personnel. Competition in the biotechnology industry
for such personnel is intense and the Company may not be able to hire or retain a sufficient number of qualified personnel, which
may compromise the viability, pace and success of its research and development activities.
Also, certain of the Company’s management
personnel are officers and/or directors of other companies and organizations, some publicly-traded, and will only devote part of
their time to the Company. Although the Company has key person insurance for Dr. Albert Friesen, President and Chief Executive
Officer, the Company does not have key person insurance in effect in the event of a loss of any other management, scientific or
other key personnel. The loss of the services of one or more of the Company’s current executive officers or key personnel
or the inability to continue to attract qualified personnel could have a material adverse effect on the Company’s business
prospects, financial results and financial condition.
The Company faces substantial technological
competition from many biotechnology and pharmaceutical companies with much greater resources, and it may not be able to effectively
compete.
Technological and scientific competition in
the pharmaceutical and biotechnology industry is intense. The Company competes with other companies in Canada, the United States
and abroad to develop products designed to treat similar conditions. Most of these other companies have substantially greater financial,
technical and scientific research and development resources, manufacturing and production and sales and marketing capabilities
than the Company. Smaller companies may also prove to be significant competitors, whether acting independently or through collaborative
arrangements with large pharmaceutical and biotechnology companies. Developments by other companies may adversely affect the competitiveness
of the Company’s products or technologies or the commitment of its research and marketing collaborators to its programs or
even render its products obsolete.
The pharmaceutical and biotechnology industry
is characterized by extensive drug discovery and drug research efforts and rapid technological and scientific change. Competition
can be expected to increase as technological advances are made and commercial applications for biopharmaceutical products increase.
The Company’s competitors may use different technologies or approaches to develop products similar to the products which
it is developing, or may develop new or enhanced products or processes that may be more effective, less expensive, safer or more
readily available before or after the Company obtains approval of its products. The Company may not be able to successfully compete
with its competitors or their products and, if it is unable to do so, the Company’s business, financial condition and results
of operations may suffer.
The Company may be unable to establish collaborative
and commercial relationships with third parties, in which case the Company’s business, financial position and operating results
could be materially adversely affected.
The Company’s success may depend to some
extent on its ability to enter into and to maintain various arrangements with corporate partners, licensors, licensees and others
for the research, development, clinical trials, manufacturing, marketing, sales and commercialization of its products. These relationships
are crucial to the Company’s intention to license to or contract with other pharmaceutical companies for the manufacturing,
marketing, sales and/or distribution of any its current or future products. There can be no assurance that any licensing or other
agreements will be established on favourable terms, if at all. The failure to establish successful collaborative arrangements may
negatively impact the Company’s ability to develop and commercialize its products, and may adversely affect its business,
financial condition and results of operations.
The Company is currently dependent on third
parties for the production of AGGRASTAT
®
, and the loss of or other disruption to such third-party relationships
could have a material adverse effect on the Company’s business, financial position and operating results.
The Company’s subsidiary, Medicure International,
Inc., has a supply contract for raw materials (active pharmaceutical ingredient) used in the manufacture of AGGRASTAT
®
with a contract manufacturer which was approved by the FDA as the approved source of the raw material for AGGRASTAT
®
.
The Company’s subsidiary, Medicure Pharma,
Inc., has both vial and bag manufacturers of final product that are approved by the FDA.
If either the supply of raw material or the
final product manufacturing agreement for AGGRASTAT
®
is terminated or interrupted, or if, in the event of termination,
the Company and its subsidiaries are unable to find a replacement raw material supplier or manufacturer, or obtain regulatory approval
for commercial use of product made by a new raw material supplier or a new finished product manufacturer, the Company’s business,
financial position and operating results could be materially adversely affected. It is also important to note that the establishment
of new manufacturing sources of pharmaceutical raw materials or finished products takes a prolonged period of time.
The Company is currently dependent on a
third-party manufacturer for the supply of ZYPITAMAG
TM
, and the loss or other disruption to the supply arrangement could
have a material adverse effect on the Company’s business, financial position and operating results.
The Company’s subsidiary, Medicure Pharma,
Inc., has entered into a supply arrangement with a third-party manufacturer of ZYPITAMAG
TM
which will expire on December
6, 2024.
If the supply arrangement is interrupted, or
if the Company and Medicure Pharma, Inc. are unable to renew or replace the supply arrangement, or if the Company and Medicure
Pharma, Inc. are unable to obtain regulatory approval for commercial use of product made by a new supplier, the Company’s
business, financial position and operating results could be materially adversely affected. It is also important to note that the
establishment of new manufacturing sources of pharmaceutical raw materials or finished products takes a prolonged period of time.
The Company is currently dependent on third
parties for the production of SNP, and the loss of or other disruption to such third-party relationships could have a material
adverse effect on the Company’s business, financial position and operating results.
The Company’s subsidiary, Medicure International,
Inc., has a supply contract for raw materials (active pharmaceutical ingredient) used in the manufacture of SNP with a contract
manufacturer which was approved by the FDA as the approved source of the raw material for SNP.
The Company’s subsidiary, Medicure Pharma,
Inc., has a contracted manufacturer of final product that is approved by the FDA.
If either the supply of raw material or the
final product manufacturing agreement for SNP is terminated or interrupted, or if, in the event of termination, the Company and
its subsidiaries are unable to find a replacement raw material supplier or manufacturer, or obtain regulatory approval for commercial
use of product made by a new raw material supplier or a new finished product manufacturer, the Company’s business, financial
position and operating results could be materially adversely affected. It is also important to note that the establishment of new
manufacturing sources of pharmaceutical raw materials or finished products takes a prolonged period of time.
ReDS
TM
will be manufactured by
Sensible, the Company’s partner in regards to the technology and as a result the Company is dependent on their manufacturing
for the supply of ReDS
TM
devices and the loss or other disruption to this supply could have a material adverse effect
on the Company’s business, financial position and operating results.
The Company’s subsidiary, Medicure Pharma,
Inc., has entered into a marketing agreement regarding the sale of ReDS
TM
in the United States.
If the supply of product is interrupted,
or if the Company and Sensible, are unable to find replacement suppliers, the Company’s business, financial position
and operating results could be materially adversely affected.
Loss of product inventory could have a material
adverse effect on the Company’s financial results and financial condition.
If the Company’s existing inventories
of AGGRASTAT
®
and/or ZYPITAMAG
TM
are contaminated, exhausted due to stock-out, or otherwise lost, the
Company’s financial results and financial condition could be adversely affected, particularly if the third-party suppliers
of raw materials or final product are unable to meet any additional demands that may be placed on them by the Company in its efforts
to make up depleted inventory.
Consolidation and the formation of strategic
partnerships among and between wholesale distributors, chain drug stores, and group purchasing organizations has resulted in a
smaller number of companies, each controlling a larger share of pharmaceutical distribution channels.
Drug wholesalers and retail pharmacy chains,
which represent an essential part of the distribution chain for generic pharmaceutical products, have undergone, and are continuing
to undergo, significant consolidation. This consolidation may result in declines in the Company’s sales volumes if a customer
is consolidated into another company that purchases products from a competitor. In addition, the consolidation of drug wholesalers
and retail pharmacy chains could result in these groups gaining additional purchasing leverage and consequently increasing the
product pricing pressures facing the Company’s business and enabling those groups to charge the Company increased fees. Additionally,
the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care
organizations and similar institutions potentially enable those groups to extract price discounts on the Company’s products.
The result of these developments may have a material adverse effect on the Company’s business, financial position, and operating
results.
The use of legal, regulatory, and legislative
strategies by competitors, both branded and generic, including “authorized generics,” citizen's petitions, and legislative
proposals, may increase the costs to develop and market the Company’s generic products, could delay or prevent new product
introductions, and could reduce significantly the Company’s profit potential. These factors could have a material adverse
effect on the Company’s business, financial position, and operating results.
The Company’s competitors, both branded
and generic, often pursue legal, regulatory, and/or legislative strategies to prevent or delay competition from generic alternatives
to branded products. These strategies include, but are not limited to:
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entering into agreements whereby other generic companies will begin to market an authorized generic,
a generic equivalent of a branded product, at the same time generic competition initially enters the market;
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launching a generic version of their own branded product at the same time generic competition initially
enters the market;
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filing citizen petitions with the FDA or other regulatory bodies, including timing the filings
so as to thwart generic competition by causing delays of generic product approvals;
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seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate
bioequivalence or meet other approval requirements;
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initiating legislative and regulatory efforts to limit the substitution of generic versions of
branded pharmaceuticals;
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filing suits for patent infringement that may delay regulatory approval of generic products;
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introducing “next-generation” products prior to the expiration of market exclusivity
for the reference product, which often materially reduces the demand for the first generic product;
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obtaining extensions of market exclusivity by conducting clinical trials of branded drugs in pediatric
populations or by other potential methods;
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persuading regulatory bodies to withdraw the approval of branded name drugs for which the patents
are about to expire, thus allowing the branded company to obtain new patented products serving as substitutes for the products
withdrawn; and
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seeking to obtain new patents on drugs for which patent protection is about to expire.
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If the Company cannot compete with such strategies, its business,
financial position, and operating results could be adversely impacted.
The pharmaceutical industry is subject to
regulation by various federal authorities, including the FDA and the DEA, and state governmental authorities. Failure to comply
with applicable legal and regulatory requirements can lead to sanctions which could have a material adverse effect on the Company’s
business, financial position and operating results.
Federal and state statutes and regulations
govern or influence the testing, manufacturing, packing, labeling, storage, record keeping, safety, approval, advertising, promotion,
sale, and distribution of the Company’s products. Noncompliance with applicable legal and regulatory requirements can trigger
action by various federal authorities, including the FDA and the DEA, as well as state governmental authorities. This can lead
to a broad range of consequences which could have a material adverse effect on the Company’s business, financial position
and operating results. The potential sanctions include warning letters, fines, seizure of products, product recalls, total or partial
suspension of production and distribution, refusal to approve NDAs/aNDAs or other applications or revocation of approvals previously
granted, withdrawal of product from marketing, injunctions, withdrawal of licenses or registrations necessary to conduct business,
disqualification from supply contracts with the government, civil penalties, debarment, and criminal prosecution.
The Company’s research, product development,
and manufacturing activities involve the controlled use of hazardous materials, and it may incur significant costs in complying
with numerous laws and regulations.
The Company is subject to laws and regulations
enforced by the FDA and the DEA, and other regulatory statutes including the Occupational Safety and Health Act (“
OSHA
”),
the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other current
and potential federal, state, local, and foreign laws and regulations governing the use, manufacture, storage, handling, and disposal
of its products, materials used to develop and manufacture such products, and resulting waste products.
The Company cannot completely eliminate the
risk of contamination or injury, by accident or as the result of intentional acts, from these materials. In the event of an accident,
the Company could be held liable for any damages that result, and any resulting liability could exceed its resources. The Company
may also incur significant costs in complying with environmental laws and regulations in the future. The Company is also subject
to laws generally applicable to businesses, including but not limited to, federal, state, and local regulations relating to wage
and hour matters, employee classification, mandatory healthcare benefits, unlawful workplace discrimination, and whistle-blowing.
Any actual or alleged failure to comply with any regulation applicable to our business or any whistle-blowing claim, even if without
merit, could result in costly litigation, regulatory action or otherwise harm our business, financial position, and operating results.
The Company relies on third parties to assist
with its research and development projects and clinical studies. If these third parties do not perform as required or expected,
we may not be able to obtain regulatory approval for or commercialize the subject products.
The Company relies on third parties to assist
with its clinical studies. If these third parties do not perform as required or expected, or if they are not in compliance with
FDA rules and regulations, our clinical studies may be extended, delayed or terminated, or may need to be repeated, and we may
not be able to obtain regulatory approval for or commercialize the products being tested in such studies. Further, we may be required
to audit or redo previously completed trials or recall already-approved commercial products.
The Company may fail to obtain acceptable
prices or appropriate reimbursement for its products and its ability to successfully commercialize its products may be impaired
as a result.
Government and insurance reimbursements for
healthcare expenditures play an important role for all healthcare providers, including physicians, medical device companies, pharmaceutical
companies, medical supply companies, and companies, such as the Company, that offer or plan to offer various products in the United
States and other countries. The Company’s ability to earn sufficient returns on its products will depend in part on the extent
to which reimbursement for the costs of such products, related therapies and related treatments will be available from government
health administration authorities, private health coverage insurers, managed care organizations, and other organizations. In the
United States, the Company’s ability to have its products and related treatments and therapies eligible for Medicare or private
insurance reimbursement is and will remain an important factor in determining the ultimate success of its products. If, for any
reason, Medicare or the insurance companies decline to provide reimbursement for the Company’s products and related treatments,
the Company’s ability to commercialize its products would be adversely affected. There can be no assurance that the Company’s
products and related treatments will be eligible for reimbursement.
There has been a trend toward declining
government and private insurance expenditures for many healthcare items. Third-party payers are increasingly challenging the price
of medical products and services.
If purchasers or users of the Company’s
products and related treatments are not able to obtain appropriate reimbursement for the cost of using such products and related
treatments, they may forgo or reduce such use. Even if the Company’s products and related treatments are approved for reimbursement
by Medicare and private insurers, as is the case with AGGRASTAT
®
, the amount of reimbursement may be reduced at
times, or even eliminated. This would have a material adverse effect on the Company’s business, financial condition, and
results of operations.
Significant uncertainty exists as to the reimbursement
status of newly approved healthcare products, and there can be no assurance that adequate third-party coverage will be available
for new products developed or acquired by the Company.
The Company does not have significant manufacturing
experience and has limited marketing resources and may never be able to successfully manufacture or market certain of its products.
The Company has limited experience in commercial
manufacturing and has limited resources for marketing or selling its products. The Company may never be able to successfully manufacture
and market certain of its development products. If any other of its development products are approved for sale, the Company intends
to contract with and rely on third parties to manufacture, and possibly also to market and sell its products. Accordingly, the
quality, timing and commercial success of such products may be outside of the Company’s control. Failure of, or delays by,
a third-party manufacturer to comply with good manufacturing practices or similar quality control regulations or satisfy regulatory
inspections may have a material adverse effect on the Company and its products. Failure of, or delays by, a third party in the
marketing or selling of the Company’s products or failure of the Company to successfully market and sell such products likewise
may have a material adverse effect on the Company and its products.
The Company has limited product liability
insurance and may not be able to obtain adequate product liability insurance in the future.
The sale and use of the Company’s commercial
and development products, and the conduct of clinical studies involving human subjects, entails product and professional liability
risks that are inherent in the testing, production, marketing and sale of pharmaceuticals to humans. While the Company has taken,
and intends to continue to take, what it believes are appropriate precautions, there can be no assurance that it will avoid significant
liability exposure. Although the Company currently carries product liability insurance, there can be no assurance that it has sufficient
coverage, or can in the future obtain sufficient coverage at a reasonable cost. An inability to obtain insurance on economically
feasible terms or to otherwise protect against potential product liability claims could inhibit or prevent the commercialization
of products developed by the Company. The obligation to pay any product liability claim or recall for a product may have a material
adverse effect on its business, financial condition and future prospects. In addition, even if a product liability claim is not
successful, adverse publicity and the time and expense of defending such a claim may significantly impact the Company’s business.
If the Company is unable to successfully
protect its intellectual proprietary rights, its competitive position will be adversely affected.
The patent positions of pharmaceutical companies
are generally uncertain and involve complex legal, scientific and factual issues. The Company’s success depends significantly
on its ability to:
|
a)
|
obtain and maintain U.S. and foreign patents, including defending those patents against adverse
claims;
|
|
b)
|
secure patent term extensions for the patents covering its approved products;
|
|
c)
|
protect trade secrets;
|
|
d)
|
operate without infringing the proprietary rights of others; and
|
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e)
|
prevent others from infringing its proprietary rights.
|
The Company’s success will depend to
a significant degree on its ability to obtain and protect its patents and protect its proprietary rights in unpatented trade secrets.
The Company owns or jointly owns numerous patents
from the United States Patent Office and other jurisdictions. The Company has additional pending United States patent applications
along with applications pending in other jurisdictions. The Company’s pending and any future patent applications may not
be accepted by the United States Patent and Trademark Office or any other jurisdiction in which applications may be filed. Also,
processes or products that may be developed by the Company in the future may not be patentable. Errors or ill-advised decisions
by Company staff and/or contracted patent agents may also affect the Company’s ability to obtain or maintain valid patent
protection.
The patent protection afforded to biotechnology
and pharmaceutical companies is uncertain and involves many complex legal, scientific and factual questions. There is no clear
law or policy involving the degree of protection afforded under patents. As a result, the scope of patents issued to the Company
may not successfully prevent third parties from developing similar or competitive products. Competitors may develop similar or
competitive products that do not conflict with the Company’s patents. Litigation may be commenced by the Company to prevent
infringement of its patents. Litigation may also commence against the Company to challenge its patents that, if successful, may
result in the narrowing or invalidating of such patents. It is not possible to predict how any patent litigation will affect the
Company’s efforts to develop, manufacture or market its products. However, the cost of litigation to prevent infringement
or uphold the validity of any patents issued to the Company may be significant, in which case its business, financial condition
and results of operations may suffer. Patents provide protection for only a limited period of time, and much of such time can occur
well before commercialization commences.
The U.S. Congress is considering patent
reform legislation. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing
the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations.
This combination of events has created uncertainty with respect to the value of patents, once obtained, and the Company’s
ability to obtain patents in the future. Depending on decisions by the U.S. Congress, the federal courts, and the United States
Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that would weaken the
Company’s ability to obtain new patents or to enforce its existing patents and patents that it might obtain in the future.
Disclosure and use of the Company’s proprietary
rights in unpatented trade secrets not otherwise protected by patents are generally controlled by written agreements. However,
such agreements will not provide the Company with adequate protection if they are not honoured, others independently develop an
equivalent technology, disputes arise concerning the ownership of intellectual property, or its trade secrets are disclosed improperly.
To the extent that consultants or other research collaborators use intellectual property owned by others in their work with the
Company, disputes may also arise as to the rights to related or resulting know-how or inventions.
Others could claim that the Company infringes
on their proprietary rights, which may result in costly, complex and time-consuming litigation.
The Company’s success will depend partly
on its ability to operate without infringing upon the patents and other proprietary rights of third parties. The Company is not
currently aware that any of its products or processes infringes the proprietary rights of third parties. However, despite its best
efforts, the Company may be sued for infringing on the patent or other proprietary rights of third parties at any time in the future.
Such litigation, with or without merit, is
time-consuming and costly and may significantly impact the Company’s financial condition and results of operations, even
if it prevails. If the Company does not prevail, it may be required to stop the infringing activity or enter into a royalty or
licensing agreement, in addition to any damages it may have to pay. The Company may not be able to obtain such a license or the
terms of the royalty or license may be burdensome for it, which may significantly impair the Company’s ability to market
its products and adversely affect its business, financial condition and results of operations.
The Company is subject to stringent governmental
regulation, in the future may become subject to additional regulations and if it is unable to comply, its business may be materially
harmed.
Pharmaceutical companies operate in a high-risk
regulatory environment. The FDA and other national health agencies can be very slow to approve a product and can also withhold
product approvals. In addition, these health agencies also oversee many other aspects of the Company’s operations, such as
research and development, manufacturing, and testing and safety regulation of products. As a result, regulatory risk is normally
higher than in other industry sectors.
The Company is or may become subject to various
federal, provincial, state and local laws, regulations and recommendations. The Company and third parties providing manufacturing,
research and/or development services to the Company is subject to various laws and regulations, relating to product emissions,
use and disposal of hazardous or toxic chemicals or potentially hazardous substances, infectious disease agents and other materials,
and laboratory and manufacturing practices used in connection with the activities. If the Company, or its contracted third party,
fails to comply with these regulations, the Company may be fined or suffer other consequences that could materially affect the
Company’s business, financial condition or results of operations.
The pharmaceutical sales and marketing industry
within which the Company operates is a complex legal and regulatory environment. The failure to comply with applicable laws, rules
and regulations may result in civil and criminal legal proceedings. As those rules and regulations change or as governmental interpretation
of those rules and regulations evolve, prior conduct may be called into question. The Company may become subject of federal and/or
state governmental investigations into pricing, marketing, and reimbursement of its prescription drug product. Any such investigation
could result in related restitution or civil litigation on behalf of the federal or state governments, as well as related proceedings
initiated against the Company by or on behalf of consumers and private payers. Such proceedings may result in trebling of damages
awarded or fines in respect of each violation of law. Criminal proceedings may also be initiated against the Company. Any of these
consequences could materially and adversely affect the Company’s financial results.
The Company is unable to predict the extent
of future government regulations or industry standards; however, it should be assumed that government regulations or standards
will increase in the future. New regulations or standards may result in increased costs, including costs for obtaining permits,
delays or fines resulting from loss of permits or failure to comply with regulations.
The Company’s products may not gain
market acceptance, and as a result it may be unable to generate significant revenues.
Except for AGGRASTAT
®
and ZYPITAMAG
TM
,
at December 31, 2018 none of the Company’s products are being marketed commercially and many do not have the required manufacturing
approvals or capabilities, clinical data and regulatory approvals necessary to be marketed in any jurisdiction; future clinical
or preclinical results may be negative or insufficient to allow the Company to successfully market any of its products under development;
and obtaining needed data and results may take longer than planned, and may not be obtained at all.
Even if the Company’s products under
development are approved for sale, they may not be successful in the marketplace. Market acceptance of any of the Company’s
products will depend on a number of factors, including: demonstration of clinical effectiveness and safety; the potential advantages
of its products over alternative treatments; the availability of acceptable pricing and adequate third-party reimbursement; and
the effectiveness of marketing and distribution methods for the products. Providers, payors or patients may not accept the Company’s
products, even if they prove to be safe and effective and are approved for marketing by the FDA and other national regulatory authorities.
The Company anticipates that its initial development product will not be sold commercially during 2019. If the Company’s
products do not gain market acceptance among physicians, patients, and others in the medical community, its ability to generate
significant revenues from its products would be limited.
The Company may not achieve its projected
development and commercial goals in the time frames it announces and expects.
The Company sets goals for and may from time
to time make public statements regarding timing of the accomplishment of objectives related to AGGRASTAT
®
, ZYPITAMAG
TM
and/or its products under development, that are material to the Company’s success, such as the commencement and completion
of clinical trials, anticipated regulatory approval dates, and timing of product launches. The actual timing of these events can
vary dramatically due to factors such as delays or failures in the Company’s clinical trials, the uncertainties inherent
in the regulatory approval process, and delays in achieving product development, manufacturing or marketing milestones. There can
be no assurance that the Company’s clinical trials will be completed, that it will make regulatory submissions or receive
regulatory approvals as planned, or that it will be able to adhere to its current schedule for the scale-up of manufacturing and
launch of any of its products. If the Company fails to achieve one or more of these milestones as planned, that could materially
affect its business, financial condition or results of operations.
The Company’s business involves the
use of hazardous material, which requires it to comply with environmental regulations.
The Company’s research and development
processes and commercial activities may involve the controlled storage, use, and disposal of hazardous materials and hazardous
biological materials. The Company and the third-party service providers conducting manufacturing, research and development for
the Company, are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of such materials
and certain waste products. Although the Company believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result,
and any such liability could exceed its resources. There can be no assurance that the Company will not be required to incur significant
costs to comply with current or future environmental laws and regulations, or that its business, financial condition, and results
of operations will not be materially or adversely affected by current or future environmental laws or regulations.
The Company’s insurance may not provide
adequate coverage with respect to environmental matters.
Environmental regulations could have a material
adverse effect on the results of the Company’s operations and its financial position.
The Company is subject to a broad range of
environmental regulations imposed by federal, state, provincial, and local governmental authorities. Such environmental regulation
relates to, among other things, the handling and storage of hazardous materials, the disposal of waste, and the discharge of contaminants
into the environment. Although the Company believes that it is in material compliance with applicable environmental regulation,
as a result of the potential existence of unknown environmental issues and frequent changes to environmental regulation and the
interpretation and enforcement thereof, there can be no assurance that compliance with environmental regulation or obligations
imposed thereunder will not have a material adverse effect on the Company in the future.
There have been claims made against
the Company’s holdback receivable with respect to representation and warranties.
The holdback receivable of US$10 million,
originated on October 2, 2017 as a part of the Apicore Sale Transaction. On February 13, 2019, the Company
received
notice from the Buyer in the Apicore Sales Transaction of potential claims against the holdback receivable in respect of representations
and warranties under the Apicore Sales Transaction, with the maximum exposure of the claims being the total holdback receivable.
The notice did not contain sufficiently detailed information to enable the Company to assess the merits of the claims. The Company
will proceed diligently to investigate the potential claims and attempt to satisfactorily resolve them with a view to having the
holdback receivable released.
Uncertainty exists as a result of the claims made against the holdback receivable and this
uncertainty could lead to receiving less than the holdback receivable balance, with the maximum exposure being the total holdback
receivable. Additionally, the collection of any funds regarding the holdback receivable may take an extended period of time to
realize.
The Company operates in an industry that
is more susceptible to legal proceedings. The Company may become involved in litigation.
The Company operates in an industry consisting
of firms that are more susceptible to legal proceedings than firms in other industries. This susceptibility is due to several factors,
including but not limited to, the fact that the Company’s shares and those of its competitors are publicly traded, and the
uncertainty and complex regulatory environment involved in the development and sale of pharmaceuticals. The Company intends to
vigorously defend such actions if and when they arise. Defense and prosecution of legal claims can be expensive and time consuming,
may adversely affect the Company regardless of the outcome due to the diversion of financial, management and other resources away
from the Company’s primary operations, and could impact the Company’s ability to continue as a going concern in the
longer term. In addition, a negative judgment against the Company, even if the Company is planning to appeal such a decision, or
even a settlement in a case, could negatively affect the cash reserves of the Company, and could have a material negative effect
on the development and sale of its products.
Indemnification obligations to the Company’s
directors and senior management may adversely affect its financial condition.
The Company has entered into agreements pursuant
to which it will indemnify the directors and senior management in respect of certain claims made against them while acting in their
capacity as such. If the Company is called upon to perform its indemnity obligations, the Company’s financial condition will
be adversely affected. The Company is not currently aware of any matters pending or under consideration that may result in indemnification
payments to any of its present or former directors or senior management.
The Company is exposed to foreign exchange
movements since all of its sales are denominated in U.S. currency.
The majority of the Company’s sales revenues
and a substantial portion of its selling, general and administrative expenses are denominated in U.S. dollars. The Company does
not utilize derivatives, such as foreign currency forward contracts and futures contracts, to manage its exposure to currency risk
and as a result a change in the value of the Canadian dollar against the U.S. dollar could have a negative impact on the Company’s
business prospects, financial results and financial condition. In the future, the Company may begin to utilize foreign exchange
rate mitigation and management strategies, however any such efforts, if they are not based on accurate predictions of future fluctuations
in foreign exchange rates, may actually have a negative impact on the Company.
The Company may need to raise additional
capital through the sale of its securities, resulting in dilution to its existing shareholders. Such funds may not be available,
or may not be available on reasonable terms, adversely affecting the Company’s operations.
To meet future cash needs or product acquisition
requirements the Company may need to rely on the taking on of debt and/or the sale of such securities for future financing, resulting
in dilution to its existing shareholders. The Company’s long-term capital requirements may be significant and will depend
on many factors, including revenue and revenue growth, continued scientific progress in its product discovery and development program,
progress in the maintenance and expansion of its sales and marketing capabilities, progress in its pre-clinical and clinical evaluation
of products and product candidates, time and expense associated with filing, prosecuting and enforcing its patent claims and costs
associated with obtaining regulatory approvals. In order to meet such capital requirements, the Company will consider contract
fees, collaborative research and development arrangements, debt financing, public financing or additional private financing (including
the issuance of additional equity securities) to fund all or a part of particular programs.
The Company is exposed to risks given its
significant dependence on revenue from the sale of AGGRASTAT
®
.
The Company is largely dependent upon revenue
from the sale of AGGRASTAT
®
. If revenue from the sale of AGGRASTAT
®
is not maintained, the Company
may have to reduce substantially or eliminate expenditures for research and development, testing, production and marketing of its
proposed products, or obtain funds through arrangements with corporate partners that require it to relinquish rights to certain
of its technologies, assets or products.
The Company’s effective tax rates
could increase.
The Company has operations in various countries
that have differing tax laws and rates. The Company’s tax reporting is supported by current domestic tax laws in the countries
in which the Company operates and the application of tax treaties between the various countries in which the Company operates.
The Company’s income tax reporting is subject to audit by domestic and foreign authorities. The effective tax rate of the
Company may change from year to year based on changes in the mix of activities and income earned among the different jurisdictions
in which the Company operates, changes in tax laws in these jurisdictions, changes in the tax treaties between various countries
in which the Company operates, changes in the Company’s eligibility for benefits under those tax treaties and changes in
the estimated values of tax provisions and deferred tax assets. Tax laws, regulations and administrative practices in various jurisdictions
may be subject to significant change, with or without notice, due to economic, political and other conditions, and significant
judgment is required in evaluating and estimating our provision and accruals for these taxes. Such changes could result in a substantial
increase in the effective tax rate on all or a portion of the Company’s income.
The Company’s provision for income
taxes is based on certain estimates and assumptions made by management. The Company’s consolidated income tax rate is affected
by the amount of pre-tax income earned in our various operating jurisdictions, the availability of benefits under tax treaties,
and the rates of taxes payable in respect of that income. The Company enters into many transactions and arrangements in the ordinary
course of business in respect of which the tax treatment is not entirely certain. The Company therefore makes estimates and judgements
based on knowledge and understanding of the applicable tax laws and tax treaties and the application of those tax laws and tax
treaties to the Company’s business, in determining the Company’s consolidated tax provision. For example, certain countries
could seek to tax a greater share of income than the Company will allocate to the business in such countries. The final outcome
of any audits by taxation authorities may differ from the estimates and assumptions that the Company may use in determining our
consolidated tax provisions and accruals. This could result in a material adverse effect on the Company’s consolidated income
tax provision, financial condition and the net income for the period in which such determinations are made.
The Company’s provision for tax liabilities,
deferred tax assets and any related valuation allowances are effect by events and transactions arising in the ordinary course of
business, acquisitions of assets and businesses and non recurring items. The assessment of the appropriate amount of valuation
allowance against the deferred tax assets is dependent upon several factors, including estimates of the realization of deferred
income tax assets, which realization will be primarily based on future taxable income, including the reversal of existing taxable
temporary differences. Significant judgement is applied to determine the appropriate amount of valuation allowance to record. Changes
in the amount of any valuation allowance required could materially increase or decrease our provision for income taxes in a given
period.
Future issuance of the Company’s common
shares will result in dilution to its existing shareholders. Additionally, future sales of the Company’s common shares into
the public market may lower the market price which may result in losses to its shareholders.
As of December 31, 2018, the Company had 15,547,812
common shares issued and outstanding. A further 1,394,642 common shares are issuable upon exercise of outstanding stock options
(of which 1,044,892 were exercisable at December 31, 2018) and another 900,000 common shares are issuable upon exercise of share
purchase warrants, all of which may be exercised in the future resulting in dilution to the Company’s shareholders. The Company’s
stock option plan allowed for the issuance of stock options to purchase up to a maximum of 20% of the outstanding common shares
at the time of the approval of the stock option plan, which resulted in a fixed number of stock options allowed to be granted totaling
2,934,403.
By Articles of Amendment filed by the Company
under the
Canada Business Corporations Act
on November 1, 2012, a consolidation of shares was completed to reduce the total
number of outstanding shares.
Additionally, on May 16, 2018, the Company
announced that the TSX Venture Exchange ("
TSXV
") accepted the Company's notice of intention to make a normal course
issuer bid ("
NCIB
"). Under the terms of the NCIB, the Company may acquire up to an aggregate of 794,088 common
shares. During the year ended December 31, 2018 the Company repurchased and cancelled 441,400 common shares. The aggregate price
paid for these common shares totaled $3,021,340. As a result of the NCIB, during the year ended December 31, 2018 the Company recorded
$479,993 directly in its retained deficit representing the difference between the aggregate price paid for these common shares
and a reduction of the Company’s share capital totaling $3,501,333.
However, as described above, the Company may
from time to time be required to finance its operations through the sale of equity securities. In addition, it may be required
to issue equity securities as consideration for services or asset acquisition transactions. Sales of substantial amounts of the
Company’s common shares into the public market, or even the perception by the market that such sales may occur, may lower
the market price of its common shares.
The Company’s common shares may experience
extreme price and volume volatility which may result in losses to its shareholders.
The Company’s common shares historically
have been subject to extreme price and volume volatility. For example, during the period from January 1, 2018 to December 31, 2018,
the high and low closing trading prices of the Company’s common shares on the TSX-V were CDN$7.55 and CDN$5.71, respectively,
with a total trading volume of 3,665,500 shares. Daily trading volume on the TSX-V of the Company’s common shares for the
period from January 1, 2018 to December 31, 2018 has fluctuated, with a high of 679,000 shares and a low of no shares traded, averaging
approximately 20,437 shares per trading day.
The Company expects that the trading price
of its common shares will continue to be subject to wide fluctuations in response to a variety of factors including announcement
of material events by the Company, such as the dependence of revenue on a single product, the status of required regulatory approvals
for its products, competition by new products or new innovations, fluctuations in its operating results, general and industry-specific
economic conditions and developments pertaining to patent and proprietary rights. The trading price of the Company’s common
shares may be subject to wide fluctuations in response to a variety of factors and/or announcements concerning such factors, including:
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actual or anticipated period-to-period fluctuations in financial results;
|
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·
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litigation or threat of litigation;
|
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·
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failure to achieve, or changes in, financial estimates of individual investors and/or by securities
analysts;
|
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·
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new or existing products or generic equivalents to products or services or technological innovations
by the Company or its competitors;
|
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·
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comments or opinions by securities analysts or major shareholders;
|
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·
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conditions or trends in the pharmaceutical, biotechnology and life science industries;
|
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·
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significant acquisitions, strategic partnerships, joint ventures or capital commitments;
|
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·
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results of, and developments in, the Company’s manufacturing, research and development efforts,
including results and adequacy of, and developments in, its manufacturing activities, development activities, clinical trials and
applications for regulatory approval;
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·
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additions or departures of key personnel;
|
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·
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sales of the Company’s common shares, including by holders of the notes on conversion or
repayment by the Company in common shares;
|
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·
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economic and other external factors or disasters or crises;
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·
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limited daily trading volume; and
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·
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developments regarding the Company’s patents or other intellectual property or that of its
competitors.
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In addition, the securities markets in the
United States and Canada have recently experienced a high level of price and volume volatility, and the market price of securities
of pharmaceutical companies have experienced wide fluctuations in price which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies.
There may not be an active, liquid market
for the Company’s common shares.
There is no guarantee that an active trading
market for the Company’s common shares will be maintained on the TSX-V. Investors may not be able to sell their shares quickly
or at the latest market price if trading in its common shares is not active.
If there are substantial sales of the Company’s
common shares, the market price of its common shares could decline.
Sales of substantial numbers of the Company’s
common shares could cause a decline in the market price of its common shares. The Company has three significant shareholders that
each own more than 10% of the outstanding common shares of the Company as of December 31, 2018. Any sales by existing shareholders
or holders of options or warrants may have an adverse effect on the Company’s ability to raise capital and may adversely
affect the market price of its common shares.
The Company has no history of paying dividends,
does not intend to pay dividends in the foreseeable future and may never pay dividends.
Since incorporation, the Company has not paid
any cash or other dividends on its common shares and does not expect to pay such dividends in the foreseeable future as all available
funds will be invested to finance the growth of its business. The Company will need to achieve significant and prolonged profitability
prior to any dividends being declared, which may never happen.
If the Company is classified as a “passive
foreign investment company” for United States federal income tax purposes, it could have significant and adverse tax consequences
to United States holders of its common shares.
The Company believes it was a “passive
foreign investment company” (“
PFIC
”) in one or more previous taxable years, but does not believe that
it was a PFIC for the taxable years ended December 31, 2018 or December 31, 2017, and does not expect that it will be a PFIC for
the taxable year ending December 31, 2019. (See more detailed discussion in Item 10E –
Taxation
). However, there can
be no assurance that the United States Internal Revenue Service (“
IRS
”) will not challenge the determination
made by the Company concerning its PFIC status or that the Company will not be a PFIC for the current taxable year or any subsequent
taxable year. U.S. Holders who own common shares of the Company while it is a PFIC could have significant and adverse tax consequences.
Risks associated with material weaknesses
within the Company’s financial reporting and review process
In connection with its review of the Company’s
Internal Control over Financial Reporting, the Company has identified material weaknesses with the Company’s financial reporting
and review process, involving the accounting and reporting for complex transactions, due to limited staff not allowing for appropriate
reviews of such transactions. Any failure to remediate the material weaknesses, to implement the required new or improved control,
or difficulties encountered in the implementation, could cause the Company to fail to meet its reporting obligations on a timely
basis or result in material misstatements in the annual or interim financial statements. Inadequate internal control over financial
reporting could also cause investors to lose confidence in the Company’s reported financial information, which could cause
the Company’s stock price to decline.
New risks emerge from time to time. It is not
possible for the Company’s management to predict all risks. The forward-looking statements contained in this document are
made only as of the date of this document. The Company undertakes no obligation to update or revise any forward-looking statement,
whether as a result of new information, future events, or otherwise.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
On December 22, 1999, the Company was formed
by the amalgamation of Medicure Inc. with Lariat Capital Inc. pursuant to the provisions of the
Business Corporations Act
(Alberta). The Company was continued from Alberta to the federal jurisdiction by Certificate of Continuance issued pursuant to
the provisions of the
Canada Business Corporations Act
on February 23, 2000.
The Company’s current legal and commercial
name is Medicure Inc. and its current registered office and head office is 2-1250 Waverley Street, Winnipeg, Manitoba, Canada,
R3T 6C6.
In August 2006, the Company acquired the U.S.
rights to its first commercial product, AGGRASTAT
®
Injection (tirofiban hydrochloride) in the United States and
its territories (Puerto Rico, Virgin Islands and Guam) for US$19,000,000.
In September 2007, the Company monetized a
percentage of its current and potential future commercial revenues by entering into a debt financing agreement with Birmingham
Associates Ltd. (
“Birmingham
”), an affiliate of Elliott Associates, L.P. (“
Elliott
”) for
proceeds of US$25 million. This debt was subsequently settled in July 2011 for consideration that included a royalty payable by
the Company to Birmingham based on future commercial AGGRASTAT
®
sales until 2023. The royalty is based on four percent
of the first $2,000,000 of quarterly AGGRASTAT
®
sales, six percent on the portion of quarterly sales between $2,000,000
and $4,000,000 and eight percent on the portion of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the
preceding quarter.
In February 2008, the Company announced that
its pivotal Phase III MEND-CABG II clinical trials with MC-1 did not meet the primary endpoint and as a result was not sufficient
to support the filings. As a result, the Company announced a restructuring plan that resulted in the organization reducing its
head count by approximately 50 employees and full-time consultants. The restructuring and downsizing in March 2008 conserved capital
for ongoing operations.
Since March 2008, the Company has continued
to focus on the sale and marketing of AGGRASTAT
®
. The Company has also explored and implemented a number of cost
savings measures and has further downsized its operations. All these measures were initiated due to the restructuring plan announced
towards the end of fiscal 2008. These activities assisted in further reducing the Company’s use of capital, in particular
its investment in research and development programs, but have moved forward certain programs on a limited and focused fashion such
as the development and implementation of a new clinical, product and regulatory strategy for AGGRASTAT
®
and the
development of additional generic cardiovascular products.
During calendar years 2014, 2015 and 2016,
as a part of its effort to expand sales of AGGRASTAT
®
, the Company began to significantly increase the number of
employees and otherwise increase expenses related to sales and marketing of AGGRASTAT
®
, and related to General and
Administrative costs of the Company.
On December 14, 2017 and subsequently up-dated
on March 7, 2018, the Company announced it had acquired, from Zydus Cadila (
“Zydus
”), an exclusive license to
sell and market a branded cardiovascular drug, ZYPITAMAG
TM
(pitavastatin magnesium) in the United States and its territories
for a term of seven years with extensions to the term available. ZYPITAMAG
TM
is used for the treatment of patients with
primary hyperlipidemia or mixed dyslipidemia and was approved earlier in 2017 by the FDA for sale and marketing in the United
States. The Company launched the product using its existing commercial infrastructure during May 2018.
Subsequent
to December 31, 2018, on January 28, 2019, the Company entered into an agreement with Sensible Medical Innovations Inc. ("Sensible")
to become the exclusive marketing partner for ReDS™ in the United States. ReDS™ is a non-invasive, FDA-cleared
medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management
of congestive heart failure. ReDS™ was already being marketed to United States hospitals by Sensible and the Company has
begun marketing ReDS™ immediately using its existing commercial organization. Under the terms of the agreement, Medicure
will receive a percentage of total U.S. sales revenue of the device and must meet minimum annual sales quotas.
During 2018, the Company received approval
from the FDA for its first ANDA for SNP and expects to launch the product in mid 2019. As well, the Company is
focused on the development of additional cardiovascular generic drugs which is expected to transform the Company’s commercial
suite of products to more than five approved products in 2020.
In 2019, the Company plans to further maintain
selling, general and administrative expenditure levels as it continues to focus on the sale of AGGRASTAT
®
and ZYPITAMAG
TM,
,
the sale of ReDS
TM
, the commercial launch of SNP and the development of additional generic cardiovascular products.
The Company’s future operations are dependent
upon its ability to maintain sales of AGGRASTAT
®
, to increase sales of ZYPITAMAG
TM
and ReDS
TM
,
the commercial launch of SNP and the development and/or acquisition of new products and/or secure additional capital, which may
not be available under favorable terms or at all.
If the Company is unable to maintain sales
of AGGRASTAT
®
, grow sales of ZYPITAMAG
TM
, successfully launch SNP, grow sales of ReDS
TM
, develop
and/or acquire new products, and/or raise additional capital, management will consider other strategies including cost curtailments,
delays of research and development activities, asset divestures and/or monetization of certain intangible assets.
On July 18, 2011, the Company borrowed $5,000,000
from the Government of Manitoba, under the Manitoba Industrial Opportunities Program (“
MIOP
”), to assist with
settling the Company’s debt to Birmingham. Effective August 1, 2013, the Company renegotiated this debt and received an additional
two-year deferral of principal repayments. Under the renegotiated terms, the loan continued to be interest only until August 1,
2015, when blended payments of principal and interest commenced, and the loan maturity date was extended to July 1, 2018. On November
6, 2017, the Company repaid the MIOP loan from funds on hand from the proceeds of the Apicore Sale Transaction.
On July 3, 2014, the Company and its newly
formed and wholly owned subsidiary, Medicure U.S.A. Inc. (“
Medicure USA
”), entered into an arrangement whereby
they acquired a minority interest in a pharmaceutical manufacturing business known as Apicore, along with an option to acquire
all of the remaining issued shares within the next three years. Specifically, the Company and Medicure USA acquired a 6.09% equity
interest (5.33% on a fully-diluted basis) in two newly formed holding companies of which Apicore LLC and Apicore US LLC were to
be wholly-owned operating subsidiaries. The Company's equity interest and certain other rights, including the option rights were
obtained by the Company for services provided in its lead role in structuring a US$22.5 million majority interest purchase and
financing of Apicore. There was no cash outflow in connection with the acquisition of the minority interest in Apicore. The business
and operations of Apicore were distinct from the Company, and the Company’s primary operating focus continued to remain on
the sale and marketing of AGGRASTAT
®
.
O
n November 17,
2016, in connection with the exercise of the Company’s acquisition of the controlling ownership in Apicore, the Company received
a term loan (the “
Term Loan
”) from Crown Capital Fund IV LP, an investment fund managed by Crown Capital Partners
Inc. (“
Crown
”) (TSX: CRN) for $60,000,000 of which $30,000,000 was syndicated to the Ontario Pension Board (“
OPB
”)
a limited partner in Crown’s funds. Under the terms of the loan agreement with Crown, the loan bears interest at a fixed
rate of 9.5% per annum, compounded monthly and payable on an interest only basis, maturing in 48 months, and is repayable in full
upon maturity.
On November 17, 2017, the Company repaid the Crown loan from funds on hand from the proceeds of the Apicore
Sale Transaction. Additionally, the Company incurred an early prepayment penalty of $2,400,000 relating to the early repayment
of the Term Loan.
The Term Loan was used by the Company, acting
through its wholly owned subsidiary, Medicure Mauritius Limited, to exercise the Company’s option rights to purchase interests
in Apicore, Inc. and Apicore LLC. The 2016 Apicore Transaction was closed on December 1, 2016. Apicore, Inc. and Apicore LLC are
affiliated entities that together operate the Apicore pharmaceutical business and are referred to together as “Apicore”.
Apicore is a process research and development and Active Pharmaceutical Ingredients (“
APIs
”) manufacturing service
provider for the worldwide pharmaceutical industry. The acquisition brought the Company’s indirect ownership interests in
Apicore, Inc. to 64% (or approximately 59% on a fully diluted basis), and the Company’s indirect ownership in Apicore LLC.
to 64% (basic and fully-diluted). Five percent of Medicure’s ownership in Apicore LLC was then held by Apigen Investments
Limited (“
Apigen
”), a Company which owned 100 percent of Apicore LLC, before the Acquisition.
Medicure continued to have additional option
rights until July 3, 2017 to acquire additional shares in Apicore, Inc. and Apicore LLC at predetermined prices consistent with
the value reflected in the 2016 Apicore Transaction. On July 3, 2017, the Company announced that its option to acquire additional
shares in Apicore, which otherwise would have expired, had been extended. The option covered an additional minority interest in
Apicore (the “
Minority Interest
”) representing approximately 32% of the fully diluted shares of Apicore.
On July 10, 2017, the Company, acting through
Medicure Mauritius Limited, exercised the Company’s option rights to acquire the Minority Interest in Apicore Inc. and Apicore
LLC from Apicore’s founding shareholders. The 2017 Apicore Transaction closed on July 12, 2017 and allowed for the acquisition
of all of the shares of Apicore Inc. and Apicore LLC held by the founding shareholders (representing approximately 32% of the fully
diluted ownership of Apicore) for US$24.5 million, being the price provided for under the option. This acquisition brought Medicure’s
ownership in Apicore Inc. to approximately 98% (94% on a fully diluted basis).
On July 10, 2017, the Company announced that Apicore repaid the U.S.$9.8
million secured loan previously provided to Apicore by Medicure. Additionally, Apicore provided a U.S.$14.8
million loan to Medicure bearing interest at 12% per annum with a term of three years. These funds were
obtained from Apicore's current business which includes API sales, aNDA development partnership payments, and royalty and
upfront payments from aNDA commercial partnerships. The loan proceeds were used by Medicure to help satisfy
the purchase price of the 2017 Apicore Transaction.
During the year ended December 31, 2017, employees
and former directors of Apicore exercised 292,500 stock options to acquire 292,500 Class E common shares of Apicore for gross proceeds
to the company of U.S.$280,125. These shares, as well as 112,500 Class E common shares previously issued for gross proceeds of
U.S.$48,375 were then purchased by the Company upon the employees and former directors exercising their put right to the Company.
This resulted in the Company acquiring 405,000 Class E common shares of Apicore for a total cost of U.S.$1,974,772 during 2017.
As a result of the employees and former directors exercising their put right to the Company, the liability to repurchase Apicore
Class E common shares on the statement of financial position in the Company’s consolidated financial statements was reduced.
On October 3, 2017, the Company announced that
it sold its interests in Apicore (the “
Sales Transaction
”) to an arm’s length, pharmaceutical company
(the “
Buyer
”). Under the Apicore Sale Transaction, the Company would receive net proceeds of approximately U.S.$105
million of which approximately U.S.$55 million was received on October 3, 2017, with the remainder to be received in early 2018.
These funds received and to be received by the Company were after payment of all transaction costs, the cashing in of Apicore’s
employee stock options, the redemption of the remaining shares of Apicore not owned by Medicure and other adjustments. Over the
18 months following the close of the transaction, additional payments could have become payable under the Apicore Sale Transaction,
in the form of contingent payments, including an earn out payment based on the achievement of certain financial results by Apicore
following closing and other customary adjustments.
On
February 1, 2018, the Company announced that it had received the deferred purchase price proceeds of
approximately U.S.$50 million from the Buyer as a result of the Apicore Sale Transaction. The U.S.$50 million was
included in the total net proceeds of U.S.$105 million described earlier. The Company did not receive any contingent payments
based on an earn out formula as certain financial results within the Apicore business were not met following the Apicore Sale
Transaction. Additionally, up to U.S.$10 million became payable in 2019 based on the release of certain holdback funds
(Refer to “Update on Holdback Funds from Apicore Sale”).
The funds received from the Apicore sales transaction
will be invested and used to for business and product development purposes and to fund operations as needed.
B. Business Overview
Plan of Operation
Medicure is a pharmaceutical company focused
on the development and commercialization of therapies for the United States cardiovascular market. The Company’s present
focus is the sale and marketing of its cardiovascular products, AGGRASTAT
®
owned by its subsidiary, Medicure International
Inc. and ZYPITAMAG
TM
, licensed by Medicure International Inc. and subsequent to December 31, 2018, the sale and marketing
of the ReDS
™
medical device. The products are distributed in the United States
and its territories through the Company’s U.S. subsidiary, Medicure Pharma, Inc. The Company’s registered office and
head office is located at 2-1250 Waverley Street, Winnipeg, Manitoba, R3T 6C6.
In December 2017, the Company acquired an exclusive
license to sell ZYPITAMAG
TM
in the U.S. and on May 1, 2018 the Company announced the commercial launch of ZYPITAMAG
TM
.
The Company received approval from the FDA for its first ANDA for SNP and expects to launch the product in mid 2019.
Subsequent
to December 31, 2018, on January 28, 2019, the Company entered into an agreement with Sensible Medical Innovations Inc. ("Sensible")
to become the exclusive marketing partner for ReDS™ in the United States. ReDS™ is a non-invasive, FDA-cleared
medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management
of congestive heart failure. ReDS™ was already being marketed to United States hospitals by Sensible and the Company has
begun marketing ReDS™ immediately using its existing commercial organization. Under the terms of the agreement, Medicure
will receive a percentage of total U.S. sales revenue of the device and must meet minimum annual sales quotas.
In addition,
Medicure invested US$10.0 million in Sensible for a 7.71% equity stake on a fully diluted basis.
The Company’s research and development
program is focused on making selective research and development investments in certain additional acute cardiovascular generic
and reformulation product opportunities, as well as continuing the development and implementation of its regulatory, brand and
life cycle management strategy for AGGRASTAT
®
. The Company is also continuing to explore neurological treatment
applications of its legacy product P5P (MC-1, TARDOXAL
TM
). The Company is actively seeking to acquire, license and/or
enter into marketing partnerships for additional products as evidenced by the in licensing of ZYPITAMAG
TM
in December
2017 and the marketing partnership for ReDS
™
in January 2019. The Company is
focused on the development of additional cardiovascular generic drugs which is expected to transform the Company’s commercial
suite of products to more than five approved products in 2020.
The increased sales of AGGRASTAT
®
experienced over recent years and the staged acquisition and subsequent sale of the Apicore business completed in 2016 and 2017
have dramatically improved the Company’s financial position compared to previous years.
The ongoing focus of the Company includes AGGRASTAT
®
,
ZYPITAMAG
TM
, sales and marketing of ReDS
™
, the launch of SNP and
the development of additional generic cardiovascular products. In parallel with the Company’s ongoing commitment to support
AGGRASTAT
®
, its valued customers and the continuing efforts of the commercial organization, the Company is in the
process of developing and further implementing its regulatory, brand and life cycle management strategy for AGGRASTAT
®
.
The objective of this effort is to further expand AGGRASTAT
®
’s share of the glycoprotein GP IIb/IIIa (“
GPI
”)
inhibitor market in the United States. GPIs are injectable platelet inhibitors used in the treatment of patients with acute coronary
syndrome (“
ACS
”). The marketing and sales of ZYPITAMAG
TM
became a key focus of the Company during
2018.
The Company has financed its operations principally
through the net revenue received from the sale of AGGRASTAT
®
, the sale of its equity securities, the issuance and
subsequent exercises of warrants and stock options, interest on excess funds held, and the issuance of debt. As announced on October
3, 2017, the Company sold the Apicore business for net proceeds to Medicure of approximately US$105 million, as well as additional
contingent payments. These funds generated from the sale of Apicore were partially used to repay the Company’s long-term
debt and the remaining funds will be invested and used to finance the Company’s operations, development and growth moving
forward.
Recent Developments
|
·
|
Update on Holdback Funds from Apicore Sale
|
Subsequent to December
31, 2018, on February 13, 2019, the Company announced that it had received notice from the purchaser of Medicure's interests
in Apicore of potential claims against funds held back in respect of representations and warranties under the Apicore
sale agreement. The notice did not contain sufficiently detailed information to enable Medicure to assess the merits of the
claims with the maximum exposure of the claims being the total holdback receivable. The Company will proceed diligently to
investigate the potential claims and attempt to satisfactorily resolve them with a view to having the holdback funds released. In conjunction with the sale of Medicure's interests in Apicore, representation and warranty
insurance was obtained by the purchaser that could result in mitigation of the potential claims.
|
·
|
Agreement to Market ReDS
™
device
|
Subsequent to December 31, 2018,
on January 28, 2019 the Company announced it had entered into an agreement with Sensible to become the exclusive marketing partner
for ReDS™ in the United States. ReDS is a non-invasive, FDA-cleared medical device that provides an accurate, actionable
and absolute measurement of lung fluid which is important in the management of congestive heart failure. The lung fluid measurements
are used in guiding treatment and monitoring a heart failure patient's condition and may lead to a significant decrease in readmissions
and hospital costs. Clinical studies have shown an 87% reduction in heart failure readmission rates for patients using the
ReDS
™
system at home for three months post-discharge versus those who were treated
with usual care alone. ReDS
™
is already marketed to U.S. hospitals by Sensible
and Medicure expects to begin marketing ReDS
™
immediately using its existing
commercial organization. Under the terms of the agreement, Medicure will receive a percentage of total U.S. sales revenue
of the device and must meet minimum annual sales quotas.
In addition, Medicure invested US$10.0
million in Sensible for a 7.71% equity stake on a fully diluted basis. In connection with the investment, Medicure's President
and CEO, Dr. Albert D. Friesen, has been appointed to the Board of Directors of Sensible.
|
·
|
Filing of Patent Infringement Action
|
On November 16, 2018, the Company
announced that it had filed a patent infringement action against Gland Pharma Ltd. (“
Gland
”) in the U.S. District
Court for the District of New Jersey, alleging infringement of U.S. Patent No. 6,770,660 (“the
’660 patent
”).
The patent infringement action was
in response to Gland’s filing of an ANDA seeking approval from the FDA to market a generic version of AGGRASTAT
®
before the expiration of the ’660 patent. The ’660 patent is listed in FDA’s Orange Book for AGGRASTAT
®
.
Medicure will vigorously defend the ’660 patent and will pursue the patent infringement action against Gland and all other
legal options available to protect its patent rights.
|
·
|
FDA Approval of Sodium Nitroprusside Injection
|
On August 13, 2018, the Company
announced that the FDA approved its ANDA for SNP. SNP is indicated for the immediate reduction of blood pressure for adult and
pediatric patients in hypertensive crisis. The product is also indicated for producing controlled hypotension in order to reduce
bleeding during surgery and for the treatment of acute congestive heart failure. The filing of the ANDA was previously announced
by the Company on December 13, 2016. The Company continues to develop two additional generic versions of acute cardiovascular drugs
and explore other potential development opportunities.
|
·
|
Normal Course Issuer Bid
|
On May
16, 2018, the Company announced that the TSX Venture Exchange ("
TSXV
") accepted the Company's notice of intention
to make a normal course issuer bid ("
NCIB
"). In the opinion of the Company, its common shares have been trading
at prices that do not reflect its underlying value. Accordingly, the Company believes that purchasing its common shares for cancellation,
at present pricing, represents an opportunity to enhance value for its shareholders.
Under
the terms of the NCIB, the Company may acquire up to an aggregate of 794,088 common shares. The NCIB commenced on May
28, 2018 and will end on May 27, 2019, or on such earlier date as the Company may complete its maximum purchases under the NCIB.
The actual number of common shares which will be purchased, if any, and the timing of such purchases will be determined by the
Company. All common shares purchased by the Company will be purchased on the open market through the facilities of TSXV by PI Financial
Corp. ("
PI
") acting on behalf of the Company in accordance with the policies of the TSXV and will be surrendered
by the Company to its transfer agent for cancellation. The prices that the Company will pay for common shares purchased will be
the market price of the shares at the time of purchase.
The Company
also announced that it has entered into an automatic share purchase plan with PI (the “
Plan
”) in order to facilitate
repurchases of its common shares under the NCIB. Under the Plan, PI may purchase common shares under the NCIB at times when the
Company would ordinarily not be permitted to do so, due to regulatory restrictions or self-imposed blackout periods.
Purchases
under the Plan will be made by PI based upon parameters prescribed by the TSXV, applicable Canadian securities laws and terms of
the Plan.
During the year ended December 31,
2018 the Company repurchased and cancelled 441,400 common shares. The aggregate price paid for these common shares totaled $3,021,340.
As a result of the NCIB, during the year ended December 31, 2018 the Company recorded $479,993 directly in its retained deficit
representing the difference between the aggregate price paid for these common shares and a reduction of the Company’s share
capital totaling $3,501,333.
Subsequent to December 31, 2018,
the Company repurchased an additional 159,900 common shares to be cancelled for an aggregate cost of $999,826.
|
·
|
Acquisition of ZYPITAMAG
TM
License
|
On December 14, 2017 and subsequently
up-dated on March 7, 2018, the Company announced it had acquired from Zydus, an exclusive license to sell and market a branded
cardiovascular drug, ZYPITAMAG
TM
(pitavastatin magnesium) in the United States and its territories for a term of seven
years with extensions to the term available. ZYPITAMAG
TM
is used for the treatment of patients with primary hyperlipidemia
or mixed dyslipidemia and was approved in July 2017 by the FDA for sale and marketing in the United States. On May 1, 2018
the Company announced the commercial availability of ZYPITAMAG
TM
in retail pharmacies throughout the United States.
The Company’s product launch has utilized its existing commercial infrastructure.
On October 3, 2017, the
Company announced that it sold its interests in Apicore (the “
Apicore Sale Transaction
”) to an arm’s
length, pharmaceutical company (the “
Buyer
”). Under the Apicore Sale Transaction, the Company received net
proceeds of approximately U.S.$105 million of which approximately U.S.$55 million was received on October 3, 2017, with the
remainder received in early 2018. There is also a holdback receivable that became due in 2019. These funds received
and yet to be received by the Company were after payment of all transaction costs, the compensation paid to holders of
Apicore’s employee stock options, the redemption of the remaining shares of Apicore not owned by Medicure and other
adjustments.
On
February 1, 2018, the Company announced that it had received the deferred purchase price proceeds of
approximately U.S.$50 million from the Buyer as a result of the Apicore Sale Transaction. The U.S.$50 million was
included in the total net proceeds of U.S.$105 million described earlier. The Company did not receive any contingent payments
based on an earn out formula as certain financial results within the Apicore business were not met following the Apicore Sale
Transaction. Additionally, up to U.S.$10 million became payable in 2019 based on the release of certain holdback funds (Refer
to “Update on Holdback Funds from Apicore Sale”).
|
·
|
Licensing of PREXXARTAN
®
|
On October 31, 2017, the Company
announced that it had acquired an exclusive license to sell and market PREXXARTAN
®
(valsartan) oral solution, which
treats hypertension, in the U.S. and its territories from Carmel for a seven-year term with extensions to the term available. Medicure
acquired the license rights for an upfront payment of U.S.$100,000, with an additional U.S.$400,000 payable on final FDA approval.
Carmel would also be entitled to receive royalties and milestone payments from the net revenues of PREXXARTAN
®
.
PREXXARTAN
®
had been granted tentative approval by the FDA and the tentative approval was converted to final approval
on December 19, 2017
.
As announced on March 19, 2018
and up-dated on March 28, 2018, all PREXXARTAN
®
related activities were placed on hold by the Company pending
the resolution of a dispute that Medicure became aware of between the owner of the New Drug Application
(“
NDA
”), Carmel and the third-party manufacturer of the product. The Company was also named in a civil
claim in Florida between the third-party manufacturer and Carmel. The claim disputed the rights granted to Medicure by Carmel
in regards to PREXXARTAN
®
. More recently the claim against the Company has been withdrawn, however the dispute
between Carmel and the third-party manufacturer continues.
Medicure had intended to launch
PREXXARTAN
®
during the first half of 2018. To date, only an up-front payment of U.S.$100,000, has been made to Carmel
in regards to PREXXARTAN
®
and the Company has reserved all of its rights under the license agreement with Carmel
for PREXXARTAN
®
.
|
·
|
Granting of Stock Options
|
On December 19, 2017, the Company
announced that
its Board of Directors had approved the grant of an aggregate of 576,000 stock
options to certain directors, officers, employees, management company employees and consultants of the Company pursuant to its
stock option plan of which 476,000 were issued in 2017, with the remaining 100,000 stock options issued on January 8, 2018. These
options, which were subject to the approval of the TSXV, are set to expire on the fifth anniversary of the date of grant and were
issued at an exercise price of $7.20 per share.
On
February 1, 2018, the Company announced that its Board of Directors had approved the grant of 100,000 stock options to an officer
of the Company pursuant to its stock option plan. These options, which were subject to the approval of the TSXV, are set to expire
on the fifth anniversary of the date of grant and were issued at an exercise price of $7.30 per share.
Commercial:
In fiscal 2007, the Company through its wholly
owned Barbadian subsidiary, Medicure International Inc., acquired the U.S. rights to its first commercial product, AGGRASTAT
®
,
in the United States and its territories (Puerto Rico, Virgin Islands, and Guam). AGGRASTAT
®
, a GPI, is used for
the treatment of ACS, including unstable angina (chest pain) (“
UA
”), which is characterized by chest pain when
one is at rest, and non Q wave myocardial infarction (“
MI
”). AGGRASTAT
®
is indicated to reduce
the rate of thrombotic cardiovascular events (combined endpoint of death, myocardial infarction, or refractory ischemia/repeat
cardiac procedure) in patients with non ST elevation acute coronary syndrome (“
NSTE ACS
”). Under a contract
with Medicure International Inc., the Company’s wholly owned U.S. subsidiary, Medicure Pharma Inc., continues to support,
market and distribute the product. Through a services agreement with Medicure Inc., work related to AGGRASTAT
®
is
primarily conducted by staff based in Winnipeg, Canada, with support from third party contractors.
Net revenue from the sale of AGGRASTAT
®
for the year ended December 31, 2018 increased by 4% over the net revenue from the sale of AGGRASTAT
®
for the year
ended December 31, 2017.
Hospital demand for AGGRASTAT
®
continued to increase compared to the prior year with the number of new hospital customers using AGGRASTAT
®
continuing
to increase leading to patient market share held by the product increasing to over 50% during the year ended December 31, 2017
and to approximately 65% as at December 31, 2018. The Company's commercial team continues to work on expanding its customer base,
however this continued increase in the customer base for AGGRASTAT
®
has not directly resulted in corresponding revenue
increases as the Company continues to face increased competition resulting from further genericizing of the Integrilin market which
has created pricing pressures on AGGRASTAT
®
. The Company
continues to expect strong performance from the AGGRASTAT
®
brand, primarily its patient market share, but diversifying
revenues away from a single product became increasingly important for the Company during 2018 and continues to occur
during 2019.
The number of new customers reviewing and implementing
AGGRASTAT
®
increased sharply since October 11, 2013 as a result of FDA approval of the High Dose Bolus (“
HDB
”)
regimen for AGGRASTAT
®
and due to the increased marketing and promotional efforts of the Company.
As all of the Company’s sales are denominated
in U.S. dollars and the U.S. dollar improved in value against the Canadian dollar during the second half of 2018 when compared
to the 2017, Canadian dollar revenue growth increased, however it was offset by the increasing price pressures facing AGGRASTAT
®
when comparing the two periods.
On December 14, 2017 and subsequently up-dated
on March 7, 2018, the Company announced it had acquired from Zydus, an exclusive license to sell and market a branded cardiovascular
drug, ZYPITAMAG
TM
in the United States and its territories for a term of seven years with extensions to the term available.
ZYPITAMAG
TM
is used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia and was approved
in July 2017 by the FDA for sale and marketing in the United States. On May 1, 2018 the Company announced the commercial availability
of ZYPITAMAG
TM
in retail pharmacies throughout the United States. The Company’s product launch has utilized its
existing commercial infrastructure. While not an in-hospital product like AGGRASTAT
®
, ZYPITAMAG
TM
adds
to the Company’s cardiovascular portfolio and expands the Company’s reach to new patients. ZYPITAMAG
TM
contributed
$652,000 of revenue to the Company during year ended December 31, 2018 and although early into the commercial availability of the
product the Company continues to work towards growing the ZYPITAMAG
TM
brand.
Going forward and contingent on sufficient
finances being available, the Company intends to further expand revenue through marketing and promotional activities, strategic
investments related to AGGRASTAT
®
and ZYPITAMAG
TM
, the launch of SNP and the sales and marketing of ReDS
™
,
as well as the licensing, acquisition and/or development of other cardiovascular products that fit the commercial organization.
On August 13, 2018, the Company announced that
the FDA has approved its ANDA for SNP. SNP is indicated for the immediate reduction of blood pressure for adult and pediatric patients
in hypertensive crisis. The product is also indicated for producing controlled hypotension in order to reduce bleeding during surgery
and for the treatment of acute congestive heart failure. The filing of the ANDA was previously announced by the Company on December
13, 2016. The Company continues to develop two additional generic versions of acute cardiovascular drugs and explore other potential
development opportunities.
Research and Development:
The Company’s research and development
activities are predominantly conducted by its wholly-owned Barbadian subsidiary, Medicure International Inc.
AGGRASTAT
®
One of the primary ongoing research and development
activities is the continued development and further implementation of a new regulatory, brand and life cycle management strategy
for AGGRASTAT
®
. The extent to which the Company is able to invest in this plan is dependent upon the availability
of sufficient finances and the expected returns from those investments.
An important aspect of the AGGRASTAT
®
strategy was the revision of its approved prescribing information. On October 11, 2013, the Company announced that the FDA approved
the AGGRASTAT
®
HDB regimen, as requested under Medicure's sNDA. The AGGRASTAT
®
HDB regimen (25 mcg/kg
within 5 minutes, followed by 0.15 mcg/kg/min) has become the recommended dosing for the reduction of thrombotic cardiovascular
events in patients with NSTE ACS.
The Company believes that further expanded
indications and dosing regimens could provide added value to further maximize the revenue potential for AGGRASTAT
®
.
The Company is currently exploring the potential to make such changes, and the Company may need to conduct appropriate clinical
trials, obtain positive results from those trials, or otherwise provide support in order to obtain regulatory approval for such
proposed indications and dosing regimens.
On April 23, 2015, the Company announced that
the FDA approved a revision to the duration of the bolus delivery for the AGGRASTAT
®
HDB regimen. The dosing change
and label modification was requested by the Company to help health care professionals more efficiently meet patient-specific administration
needs and to optimize the implementation of AGGRASTAT
®
at new hospitals. The newly approved labeling supplement
now allows the delivery duration of the AGGRASTAT
®
HDB (25 mcg/kg) to occur anytime within 5 minutes, instead of
the previously specified duration of 3 minutes. This change was part of the Company’s ongoing regulatory strategy to expand
the applications for AGGRASTAT
®
.
On September 10, 2015, the Company announced
that it submitted a sNDA to the FDA to expand the label for AGGRASTAT
®
to include the treatment of patients presenting
with ST-segment elevation myocardial infarction (“
STEMI
”). If approved for STEMI, AGGRASTAT
®
would be the first in its class of GPIs to receive such a label in the United States.
In previous communication with the Company,
the FDA’s Division of Cardiovascular and Renal Drug Products indicated its willingness to review and evaluate this label
change request based substantially on data from the On-TIME 2 study, with additional support from published studies and other data
pertinent to the use of the AGGRASTAT
®
HDB regimen in the treatment of STEMI. The efficacy and safety of the HDB
regimen in STEMI has been evaluated in more than 20 clinical studies involving over 11,000 patients and is currently recommended
by the ACCF/AHA Guideline for the Management of STEMI.
On July 7, 2016, the Company received a Complete
Response Letter (“
CRL
”) from the FDA for its sNDA requesting an expanded indication for patients presenting
with STEMI. The FDA issued the CRL to communicate that its initial review of the application was completed; however, it could not
approve the application in its present form and requested additional information. The Company continues to work directly with the
FDA to address these comments.
The sNDA filing was accompanied by a mandatory
U.S.$1.2 million user fee paid by Medicure International Inc. to the FDA. In December 2016, the Company received a waiver and full
refund of the user fee which had been paid and expensed during fiscal 2015.
On September 1, 2016, the Company announced
that it had received approval from the FDA for its bolus vial product format for AGGRASTAT
®
.
This product format is a concentrated, 15 ml
vial containing sufficient drug to administer the FDA approved, HDB of 25 mcg/kg given at the beginning of treatment. AGGRASTAT
®
is also sold two other sizes, a 100 ml vial and a 250 ml bag. The existing, pre-mixed products continue to be available, providing
a convenient concentration for administering the post-HDB maintenance infusion of 0.15 mcg/kg/min. (Approved Dosing: Administer
intravenously 25 mcg/kg within 5 minutes and then 0.15 mcg/kg/min for up to 18 hours). Commercial launch of the bolus vial occurred
during the fourth quarter of 2016 and the Company continues to believe this product format will have a positive impact on hospital
utilization of AGGRASTAT
®
.
Another aspect of the AGGRASTAT
®
strategy is to advance studies related to the contemporary use and future regulatory positioning of the product. On May 10, 2012,
the Company announced the commencement of enrolment in a clinical trial of AGGRASTAT
®
entitled “Shortened
AGGRASTAT
®
Versus Integrilin in Percutaneous Coronary Intervention” (“
SAVI-PCI
”). SAVI
PCI is a randomized, open-label study enrolling patients undergoing percutaneous coronary intervention (“
PCI
”)
at sites across the United States. The study was designed to evaluate whether patients receiving the HDB regimen of AGGRASTAT
®
(25 mcg/kg bolus over 3 minutes) followed by an infusion of 0.15 mcg/kg/min for a shortened duration of 1 to 2 hours will have
outcomes that are similar, or “non-inferior,” to patients receiving a 12 to 18-hour infusion of Integrilin® (eptifibatide)
(Merck & Co., Inc.) at its FDA approved dosing regimen.
The primary objective of SAVI-PCI is to demonstrate
AGGRASTAT
®
is non-inferior to Integrilin with respect to the composite endpoint of death, PCI-related myocardial
infarction, urgent target vessel revascularization, or major bleeding within 48 hours following PCI or hospital discharge. The
secondary objectives of this study include the assessment of safety as measured by the incidence of major bleeding.
The first patient was enrolled in June 2012.
Enrolment was completed during the fourth quarter of 2018 and analysis of the results is currently under way.
Cardiovascular Generic and Reformulation
Products
Through an ongoing research and development
investment, the Company is exploring new product opportunities in the interest of developing future sources of revenue and growth.
On August 13, 2018, the Company announced that
the FDA has approved its ANDA for SNP. SNP is indicated for the immediate reduction of blood pressure for adult and pediatric patients
in hypertensive crisis. The product is also indicated for producing controlled hypotension in order to reduce bleeding during surgery
and for the treatment of acute congestive heart failure. The filing of the ANDA was previously announced by the Company on December
13, 2016.
The Company’s intention is that SNP
will be
launched using its existing commercial organization and infrastructure in mid
2019.
The Company is focused on the development of two additional cardiovascular generic drugs. When combined with the ANDA described
above and the recent acquisition of an exclusive license for ZYPITAMAG
TM
, the Company expects to transform its commercial
suite of products from two products as of December 31, 2018 to up to five approved products in 2020.
The Company had been devoting a modest amount
of resources to its research and development programs, including, but not limited to the development of TARDOXAL
TM
(pyridoxal
5 phosphate (“
P5P
”) formerly known as MC-1) for neurological conditions such as Tardive Dyskinesia. This work
included, but was not limited to, working with the FDA to better understand and refine the next steps in development of the product.
The advancement of TARDOXAL
TM
is currently on hold. The Company changed its focus from TARDOXAL
TM
to other
uses of P5P and continues to devote time and resources to the advancement of P5P development.
The following table summarizes the Company’s
research and development programs, their therapeutic focus and their stage of development.
Product Candidate
|
|
Therapeutic focus
|
|
Stage of Development
|
AGGRASTAT
®
|
|
Acute Cardiology
|
|
Approved/Marketed – Additional studies underway
|
ZYPITAMAG
TM
|
|
Primary Hyperlipidemia or Mixed Dyslipidemia
|
|
Approved/Marketed
|
ReDS
TM
|
|
Heart Failure – Medical Device
|
|
Approved/Marketed
|
PREXXARTAN
®
|
|
Hypertension
|
|
Approved – Commercial launch on hold
|
SNP
|
|
Acute Cardiology
|
|
ANDA approved – pre-launch activities underway
|
Generic ANDA 2
|
|
Acute Cardiology
|
|
Formulation development underway
|
Generic ANDA 3
|
|
Acute Cardiology
|
|
Formulation development underway
|
TARDOXAL
TM
/P5P
|
|
TD/Neurological indications
|
|
On hold/Regulatory and clinical planning underway
|
Other Products
The Company is investing in the research and
development of other new product development opportunities. The Company is also exploring opportunities to grow the business through
acquisition. The Company has evaluated and continues to evaluate the acquisition or license of other approved commercial products
with the objective of further broadening its product portfolio and generating additional revenue.
As at December 31, 2018, the Company had numerous
issued United States patents (see Item 5 –
Operating and Financial Review and Prospects – C. Research and Development,
Patents and Licenses, Etc.
below).
Competitors’ Current Products
AGGRASTAT
®
, is owned by the
Company’s subsidiary, Medicure International, Inc., and is sold in the United States of America through the Company’s
subsidiary, Medicure Pharma, Inc. AGGRASTAT
®
is indicated to reduce the rate of thrombotic cardiovascular events
(combined endpoint of death, myocardial infarction, or refractory ischemia/repeat cardiac procedure) in patients with non-ST elevation
acute coronary syndrome (NSTE-ACS).
AGGRASTAT
®
competes in a market segment commonly referred to as the anti-thrombotic market (treatments to remove or prevent formation
of blood clots). More specifically, AGGRASTAT
®
is an antiplatelet drug which affects thrombus (blood clot) formation
by preventing the aggregation of platelets in the blood stream. Of the different classes of antiplatelet drugs, AGGRASTAT
®
is a representative of the glycoprotein IIB/IIIA inhibitors drug class. There are three of these agents approved for use,
including a
bciximab
(ReoPro
®
),
eptifibatide
(Integrilin
®
),
and tirofiban (AGGRASTAT
®
). All three are proprietary drugs and only eptifibatide has generic equivalents, which
were introduced beginning in December 2015. Of the two directly competing agents, AGGRASTAT
®
is most closely comparable
to eptifibatide (Integrilin) as they are both highly potent, small molecule drugs that have reversible antiplatelet effects.
The launch of the injectable antiplatelet agent,
cangrelor (Kengreal
TM
), by The Medicines Company, occurred in 2015 and has had some impact on the use and sale of GPIs,
including AGGRASTAT
®
.
The initial launch of generic versions of eptifibatide
(Integrilin) occurred in December 2015 and could impact the utilization of AGGRASTAT
®
in the future.
Due to the incidence and severity of cardiovascular
diseases, the market for antihyperlipidemics is large and competition is intense. There are a number of approved antihyperlipidemic
drugs currently on the market, awaiting regulatory approval or in development. ZYPITAMAG
TM
will compete with
these drugs to the extent ZYPITAMAG
TM
and any of these drugs are approved for the same or similar indications.
Although ZYPITAMAG
TM
would be positioned
as a relatively low-cost therapy, in certain circumstances, other treatment approaches are lower cost and may for this reason be
preferred by health care professionals.
SNP will be launched into a genericized market
with several competitors already selling generic versions of the product and as such there is no assurance that the Company will
be successful in launching SNP in 2019 and growing sales for the product. The failure of the Company to successfully launch and
grow sales of SNP, or to establish a viable market for the Company’s version of the product, could have a material adverse
effect on the Company’s long-term profitability.
Competitors’ Products in Development
At present the Company is not aware of any
other glycoprotein IIb/IIIa inhibitors in mid to late stage clinical development. However, the choice and use of AGGRASTAT
®
may be affected by the continued advancement of new antithrombotic and antiplatelet agents, including the recently approved oral
antiplatelet agents, ticagrelor (Brilinta
®
) and prasugrel (Effient
®
). Any future launch of generic
version of AGGRASTAT
®
and/or of other competitive drugs may also be expected to impact utilization of the Company’s
drug. Many companies, including large pharmaceutical and biotechnology companies, are conducting development of products that are
intended to address the same or a similar medical need. Many of these companies have much larger financial and other resources
than the Company does, including those related to research and development, manufacturing, and sales and marketing. The Company
also faces competition in recruiting scientific personnel from colleges, universities, agencies, and research organizations who
seek patent protection and licensing agreements for the technologies they develop.
There are a number of approved antihyperlipidemic
drugs currently on the market, awaiting regulatory approval or in development. ZYPITAMAG
TM
will compete with
these drugs to the extent ZYPITAMAG
TM
and any of these drugs are approved for the same or similar indications.
SNP will be launched into a genericized market
with several competitors already selling generic versions of the product and as such there is no assurance that the Company will
be successful in launching SNP in 2019 and growing sales for the product. The failure of the Company to successfully launch and
grow sales of SNP, or to establish a viable market for the Company’s version of the product, could have a material adverse
effect on the Company’s long-term profitability.
Divesture of Apicore
On October 3, 2017, the Company announced
the completion of the Apicore Sale Transaction to the Buyer. Under the Apicore Sale Transaction, the Company received net
proceeds of approximately U.S.$105 million of which approximately U.S.$55 million was received on October 3, 2017, with the
remainder received in early 2018. There is also a holdback receivable of U.S. $10 million that became due in 2019.
These funds received and yet to be received by the Company were after payment of all transaction costs, the compensation paid
to holders of Apicore’s employee stock options, the redemption of the remaining shares of Apicore not owned by Medicure
and other adjustments.
On February
1, 2018, the Company announced that it had received the deferred purchase price proceeds of approximately U.S.$50 million from
the Buyer as a result of the Apicore Sale Transaction. The U.S.$50 million was included in the total net proceeds of U.S.$105 million
described earlier. The Company did not receive any contingent payments based on an earn out formula as certain financial results
within the Apicore business were not met following the Apicore Sale Transaction. Additionally, up to U.S.$10 million became payable
in 2019 based on the release of certain holdback funds (Refer to “Update on Holdback Funds from Apicore Sale”).
Competitive Strategy and Position
The Company is primarily focusing on:
|
·
|
Maintaining and growing AGGRASTAT
®
sales in the United States
|
The Company continues to work to
expand the sales of AGGRASTAT
®
in the United States. The present market for GPIs is based on wholesaler acquisition
cost, of which AGGRASTAT
®
is one of three agents, is approximately U.S.$180 million per year (2017). The use of
AGGRASTAT
®
is recommended by the AHA and ACC Guidelines for the treatment of ACS. AGGRASTAT
®
has
been shown, to reduce the rate of thrombotic cardiovascular events (combined endpoint of death, myocardial infarction, or refractory
ischemia/repeat cardiac procedure) in patients with NSTE ACS.
As stated previously, one of the
Company’s primary ongoing research and development activities is the continued development and further implementation of
a new regulatory, brand and life cycle management strategy for AGGRASTAT
®
.
An important aspect of the AGGRASTAT
®
strategy was the revision of its approved prescribing information. On October 11, 2013, the Company announced that the FDA approved
the AGGRASTAT
®
HDB regimen, as requested under Medicure's supplemental new drug application (“
sNDA
”).
The AGGRASTAT
®
HDB regimen (25 mcg/kg within 5 minutes, followed by 0.15 mcg/kg/min) has become the recommended
dosing for the reduction of thrombotic cardiovascular events in patients with NSTE ACS.
The Company believes that further
expanded indications and dosing regimens could provide added value to further maximize the revenue potential for AGGRASTAT
®
.
The Company is currently exploring the potential to make such changes, and the Company may need to conduct appropriate clinical
trials, obtain positive results from those trials, or otherwise provide support in order to obtain regulatory approval for such
proposed indications and dosing regimens.
On September 1, 2016, the Company
announced that it had received approval from the FDA for its bolus vial product format for AGGRASTAT
®
. The product
format is a concentrated, pre-mixed, 15 ml vial designed specifically for convenient delivery of the AGGRASTAT
®
bolus dose (25 mcg/kg). Development of the bolus vial was in response to feedback from interventional cardiologists and catheterization
lab nurses from across the United States. Commercial launch of the bolus vial took place in October of 2016 and the Company continues
to believe this product format will have a positive impact on hospital utilization of AGGRASTAT
®
.
The Company is also providing funding
for a number of investigator sponsored research projects targeting contemporary utilization of AGGRASTAT
®
relative
to its competitors.
|
·
|
Commercial launch of ZYPITAMAG
TM
|
The Company acquired an exclusive
license to sell and market ZYPITAMAG
TM
in the United States and its territories for a term of seven years with extensions
to the term available. ZYPITAMAG
TM
, used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia,
was approved early in 2017 by the FDA for sale and marketing in the United States and its territories and on May 1, 2018 the Company
launched ZYPITAMAG
TM
commercially in retail pharmacies throughout the United States. The Company’s product launch
has utilized its existing commercial infrastructure. While not an in-hospital product like AGGRASTAT
®
, ZYPITAMAG
TM
adds to the Company’s cardiovascular portfolio and expands the Company’s reach to new patients. ZYPITAMAG
TM
contributed $652,000 of revenue to the Company during the year ended December 31, 2018 and although early into the commercial availability
of the product the Company continues to work towards growing the ZYPITAMAG
TM
brand.
|
·
|
Acquisitions, licensing or marketing partnerships for new commercial products
|
In addition to the acquisitions
of licenses in the United States for ZYPITAMAG
TM
, the Company continues to explore additional opportunities for the
acquisition or licensing of other cardiovascular products that fit the commercial organization.
Subsequent to December 31, 2018,
on January 28, 2019 the Company announced it had entered into an agreement with Sensible to become the exclusive marketing partner
for ReDS™ in the United States. ReDS
™
is a non-invasive, FDA-cleared
medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management
of congestive heart failure. The lung fluid measurements are used in guiding treatment and monitoring a heart failure patient's
condition and may lead to a significant decrease in readmissions and hospital costs. Clinical studies have shown an 87% reduction
in heart failure readmission rates for patients using the ReDS
™
system at home
for three months post-discharge versus those who were treated with usual care alone. ReDS
™
is already marketed to U.S. hospitals by Sensible and Medicure expects to begin marketing ReDS
™
immediately using its existing commercial organization. Under the terms of the agreement, Medicure will receive a percentage
of total U.S. sales revenue of the device and must meet minimum annual sales quotas.
|
·
|
Developing additional cardiovascular generic and reformulation products
|
On August 13, 2018, the Company
announced that the FDA has approved its ANDA for SNP. SNP is indicated for the immediate reduction of blood pressure for adult
and pediatric patients in hypertensive crisis. The product is also indicated for producing controlled hypotension in order to reduce
bleeding during surgery and for the treatment of acute congestive heart failure.
).
The
filing of the ANDA was previously announced by the Company on December 13, 2016.
Medicure has also begun the development
of two additional generic versions of acute cardiovascular drugs and is exploring other potential opportunities.
The Company’s intention
is that SNP will be
launched using its existing commercial organization and
infrastructure in mid 2019.
C. Organizational Structure
Medicure International, Inc., a wholly owned
subsidiary of the Company, was incorporated pursuant to the laws of Barbados, West Indies, on May 23, 2000. Medicure International,
Inc.’s registered office is located at Whitepark House, White Park Road, Bridgetown, Barbados. Medicure International Inc.’s
head office is located at 1
st
Floor Limegrove Centre Holetown, St. James, Barbados.
Medicure Pharma, Inc., a wholly owned subsidiary
of the Company, was incorporated pursuant to the laws of the State of Delaware, United States of America, on September 30, 2005.
Medicure Pharma Inc.’s registered office is 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808. Medicure Pharma,
Inc.’s head office is located at 116 Village Blvd. Suite 202, Princeton, NJ, 08540.
Medicure U.S.A., Inc., a wholly owned subsidiary
of the Company, was incorporated pursuant to the laws of the State of Delaware, United States of America, on June 23, 2014. Medicure
U.S.A. Inc.’s registered office is 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808.
Medicure Mauritius Limited, a wholly owned
subsidiary of the Company was incorporated pursuant to the laws of the Republic of Mauritius on November 17, 2016. Medicure Mauritius
Limited’s registered office is 6
th
floor, Tower A, 1 CyberCity, Ebene, Mauritius.
Apigen Investments Limited, a wholly owned
subsidiary of the Company, was incorporated pursuant to the laws of the Republic of Mauritius on June 27, 2014. Apigen Investments
Limited’s registered office is 4
th
floor, Tower A, 1 CyberCity, Ebene, Mauritius.
Medicure Pharma Europe Limited, a wholly owned
subsidiary of the Company, was incorporated pursuant to the laws of Ireland on October 17, 2017. Medicure Pharma Europe Limited’s
registered office is Block 3, Harcourt Centre, Harcourt Road, Dublin 2.
D. Property, Plant and Equipment
Office Space
Included within the
business and administration
services agreement
entered into with Genesys Venture Inc. (see Item 5F -
Contractual Obligations
), is the use of office
space at Genesys Venture Inc.’s head office located at 1250 Waverley Street in Winnipeg, Manitoba, Canada. As at December
31, 2018, the Company had use of approximately 14,720 square feet.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable
ITEM 5. OPERATING AND FINANCIAL REVIEW
AND PROSPECTS
This section contains forward-looking statements
involving risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under part Item 3D - Risk Factors. The following discussion
of the financial condition, changes in financial conditions and results of operations of the Company for the years ended December
31, 2018 and December 31, 2017 should be read in conjunction with the consolidated financial statements of the Company. The Company’s
consolidated financial statements are presented in Canadian dollars and have been prepared in accordance with IFRS included under
Item 18 to this Annual Report.
Critical Accounting Policies and Estimates
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
Areas where management has made critical judgments
in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements include the determination of the Company’s and its subsidiaries’ functional
currencies.
Information about key assumptions and estimation
uncertainties that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities
within the next financial year are as follows:
|
·
|
t
he
valuation of the holdback receivable
|
|
·
|
the valuation of the royalty obligation
|
|
·
|
the provisions for returns, chargebacks,
rebates and discounts
|
|
·
|
the measurement of intangible assets
|
|
·
|
the measurement of the amount and assessment
of the recoverability of income tax assets
and income tax provisions
|
Valuation of financial instruments
The Company initially recognizes a financial
asset on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
Upon recognition of a financial asset,
classification is made based on the business model for managing the asset and the asset’s contractual cash flow
characteristics. The financial asset is initially recognized at its fair value and subsequently measured as (i) amortized
cost; (ii) fair value through other comprehensive income (“
FVOCI
”); or (iii) fair value through profit or
loss (“
FVTPL
”). Financial assets are classified as FVTPL if they have not been classified and measured at
amortized cost or FVOCI. Upon initial recognition of an equity instrument that is not held-for-trading, the Company may
irrevocably designate the presentation of subsequent changes in the fair value of such equity instrument as FVTPL.
The Company derecognizes a financial asset
when the contractual cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the
financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Financial assets and liabilities are offset
and the net amount presented in the consolidated statements of financial position when, and only when, the Company has a legal
right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The Company has classified all of
its non-derivative financial assets as financial assets measured at amortized cost, except for the consideration receivable
and the holdback receivable, which are classified as FVTPL. The Company has not classified any financial assets as FVOCI.
A non-derivative
financial asset is measured at amortized cost when both of the following conditions are met: (i) the asset is held within a business
model whose objective is to hold assets in order to collect the contractual cash flows; and (ii) the contractual terms of the
financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding. Such assets are recognized initially at fair value plus any directly attributable transaction costs and measured
at amortized cost using the effective interest method subsequent to initial recognition. Financial assets measured at amortized
cost are cash and cash equivalents, short-term investments and accounts receivable.
All financial liabilities are recognized initially
on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Such financial liabilities
are recognized initially at fair value plus any directly attributable transaction costs. All financial liabilities are measured
at amortized cost, except for any financial liabilities measured at FVTPL. A financial liability may no longer be reclassified
subsequent to initial recognition. Subsequent to initial recognition, financial liabilities are measured at amortized cost using
the effective interest method. The Company decognizes a financial liability when its contractual obligations are discharged, cancelled
or when they expire.
The royalty obligation was recorded at
its fair value at the date at which the liability was incurred and subsequently measured at amortized cost using the
effective interest rate method at each reporting date. Estimating fair value for this liability required determining the most
appropriate valuation model which was dependent on its underlying terms and conditions. This estimate also required
determining expected revenue from AGGRASTAT
®
sales and an appropriate discount rate and making assumptions
about them.
Provision for returns, chargebacks, rebates
and discounts
The Company has two commercially available products, AGGRASTAT® and ZYPITAMAG™
(the “
Products
”) which it provides to United States customers. The Products are sold to wholesalers
for resale; with AGGRASTAT® sold by the wholesalers to hospitals, while ZYPITAMAG™ is sold to pharmacies. Revenue from the sale of Products is recognized upon the receipt of goods by a wholesaler, the point
in time in which title and control of the transferred goods pass from the Company to the wholesale customer. At this point in time,
the wholesaler has gained the sole ability to route the goods, and there are no unfulfilled obligations that could affect the wholesaler’s
acceptance of the goods. Delivery of the product occurs when the goods have been shipped to the wholesaler and the wholesaler has
accepted the products in accordance with the terms of the sale.
Sales are made subject to certain discounts
available for prompt payment, volume discounts, rebates or chargebacks. Revenue from these sales is recognized based on the
price specified per the pricing terms of the sales invoices, net of the estimated discounts. Variable consideration is based on
historical information, using the expected value method. Revenue is only recognized to the extent that it is highly probable
that a significant reversal will not occur. A liability is included within accounts payable and accrued liabilities and is measured
for expected payments that will be made to the customers for the discounts in which they are entitled. Sales do not contain an
element of financing as sales are made with a credit terms within the normal operating cycle of the date of the invoice, which
is consistent with market practice.
The measurement of intangible assets
Intangible assets that are acquired separately
are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures are capitalized only
when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are
recognized in profit or loss as incurred.
Licenses are amortized on a straight-line basis
over the contractual term of the acquired license. Patents are amortized on a straight-line basis over the legal life of the respective
patent, ranging from five to twenty years, or its economic life, if shorter. Trademarks are amortized on a straight-line basis
over the legal life of the respective trademark, being ten years, or its economic life, if shorter. Customer lists are amortized
on a straight-line basis over approximately twelve years, or its economic life, if shorter.
Amortization on licenses commences when the
intangible asset is available for use, which would typically be in connection with the commercial launch of the associated product
under the license.
Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated impairment losses. The cost of servicing the Company's patents
and trademarks are expensed as incurred.
The amortization method and amortization period
of an intangible asset with a finite useful life are reviewed at least annually. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period
or method, as appropriate, and are treated as changes in accounting estimates in the consolidated statements of net income and
comprehensive income.
The measurement of the amount and assessment
of the recoverability of income tax assets
The Company and its subsidiaries are generally
taxable under the statutes of their country of incorporation.
Income tax expense comprises current and deferred
taxes. Current taxes and deferred taxes are recognized in profit or loss except to the extent that they relate to a business combination,
or items recognized directly in equity or in other comprehensive income.
Current taxes are the expected tax receivable
or payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date,
and any adjustment to tax receivable or payable in respect of previous years.
The Company follows the liability method of
accounting for deferred taxes. Under this method, deferred taxes are recognized in respect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
taxes are not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to
investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the
foreseeable future. In addition, deferred taxes are not recognized for taxable temporary differences arising on the initial recognition
of goodwill. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse,
based on the tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities
are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax
assets and liabilities on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused
tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will
be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
The Company has provided for income taxes,
including the impacts of tax legislation in various jurisdictions, in accordance with guidance issued by accounting regulatory
bodies, the Canada Revenue Agency, the U.S. Internal Revenue Service, the Barbados Revenue Authority, the Mauritius Revenue Authority,
as well as other state and local governments through the date of the issuance of these Consolidated Financial Statements. Additional
guidance and interpretations can be expected and such guidance, if any, could impact future results. While management continues
to monitor these matters, the ultimate impact, if any, as a result of the application of any guidance issued in the future cannot
be determined at this time.
The Company and its subsidiaries file federal
income tax returns in Canada, the United States, Barbados and other foreign jurisdictions, as well as various provinces and states
in Canada and the United States. The Company and its subsidiaries have open tax years, primarily from 2009 to 2018, with significant
taxing jurisdictions, including Canada, the United States and Barbados. These open years contain certain matters that could be
subject to differing interpretations of applicable tax laws and regulations and tax treaties, as they relate to the amount, timing
or inclusion of revenues and expenses, or the sustainability of income tax positions of the Company and its subsidiaries. Certain
of these tax years may remain open indefinitely.
Tax benefits acquired as part of a business
combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently if information
about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill if it occurred during
the measurement period or in profit or loss, when it occurs subsequent to the measurement period.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
Set out below is the impact of the mandatory
adoption of new standards:
IFRS 9,
Financial Instruments: Classification
and Measurement
("IFRS 9")
Effective January 1, 2018, the Company has
adopted IFRS 9 retrospectively. Prior periods were not restated and no material changes resulted from adoption of this new standard.
IFRS 9 introduced a revised model for classification and measurement of financial instruments, which has resulted in several financial
instrument reclassification changes by the Company. There were no quantitative impacts from adoption of IFRS 9.
Upon recognition of a financial asset, classification
is made based on the business model for managing the asset and the asset’s contractual cash flow characteristics. The financial
asset is initially recognized at its fair value and subsequently classified and measured as (i) amortized cost; (ii) fair value
through other comprehensive income (“FVOCI”); or (iii) fair value through profit or loss (“FVTPL”). Financial
assets are classified as FVTPL if they have not been classified as measured at amortized cost or FVOCI. Upon initial recognition
of an equity instrument that is not held-for-trading, the Company may irrevocable designate the presentation of subsequent changes
in the fair value of such equity instrument as FVTPL.
The Company recognizes a financial liability
on the trade date in which it becomes a party to the contractual provisions of the instrument at fair value plus any directly attributable
costs. Financial liabilities are subsequently measured at amortized cost or FVTPL, and are not subsequently reclassified.
An “expected credit loss” impairment
model applies which requires a loss allowance to be recorded on financial assets measured at amortized cost based on their expected
credit losses. An estimate is made to determine the present value of future cash flows associated with the asset, and if required,
an impairment loss is recorded. The impairment loss reduces the carrying value of the impaired financial asset to the value of
the estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s original
effective interest rate is recorded either directly or through the use of an allowance account and the resulting impairment loss
is recorded in profit or loss.
Below is a summary showing the classification
and measurement basis for the Company’s financial instruments as a result of the adoption of IFRS on January 1, 2018 with
a comparison to the previous classification under IAS 39:
Financial instrument
|
|
Classification under IAS 39
|
|
Classification under IFRS 9
|
Financial assets
|
|
|
|
|
Cash and equivalents
|
|
Loans and receivables
|
|
Amortized cost
|
Short-term investments
|
|
Loans and receivables
|
|
Amortized cost
|
Accounts receivable
|
|
Loans and receivables
|
|
Amortized cost
|
Consideration receivable
|
|
Loans and receivables
|
|
FVTPL
|
Holdback receivable
|
|
Loans and receivables
|
|
FVTPL
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
Other financial liabilities
|
|
Amortized cost
|
Accrued transaction costs
|
|
Other financial liabilities
|
|
Amortized cost
|
Current portion of royalty obligation
|
|
Other financial liabilities
|
|
Amortized cost
|
Royalty obligation
|
|
Other financial liabilities
|
|
Amortized cost
|
License fee payable
|
|
Other financial liabilities
|
|
Amortized cost
|
Other long-term liabilities
|
|
Other financial liabilities
|
|
Amortized cost
|
IFRS 15,
Revenue from Contracts with
Customers
(“IFRS 15”)
Effective January 1, 2018, the Company has
adopted IFRS 15 retrospectively. Prior periods were not restated and no material changes resulted from adoption of this new standard.
IFRS 15 provides a model for the recognition and measurement of gains or losses from sales of some non-financial assets. The core
principle is that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption of the standard
will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively
(for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. There were no
quantitative impacts from adoption of IFRS 15.
IFRS 2,
Share-based Payments
(“IFRS
2”)
Effective January 1, 2018, the Company has
adopted the required amendments to IFRS 2, which provides requirements on the accounting for the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net settlement feature
for withholding tax obligations, and a modification to the terms and conditions of a share-based payments that changes the classification
of the transaction from cash-settled to equity settled. There were no quantitative impacts from adoption of the amendments to IFRS
2.
NEW ACCOUNTING STANDARD NOT YET ADOPTED
As at December 31, 2018, the following standard
has been issued but is not yet effective:
IFRS 16,
Leases
("IFRS 16")
In January 2016, the IASB issued IFRS 16
which requires lessees to recognize assets and liabilities for most leases. Lessees will have a single accounting model for
all leases, with certain exemptions. The new standard is effective January 1, 2019, with limited early application permitted.
The new standard permits lessees to use either a full retrospective or a modified retrospective approach on transition for
leases existing at the date of transition, with options to use certain transition reliefs. The Company has evaluated the
standard and does not expect a material impact on its consolidated financial statements as a result of its adoption.
A. Operating Results
General
Through 2018, the Company was focused on maintaining
and growing the sales AGGRASTAT
®
and the commercial launch and growing the sales of ZYPITAMAG
TM
. The
Company expects to launch SNP in mid 2019 and will additionally focus efforts on the marketing of ReDS
TM
in addition to AGGRASTAT
®
and ZYPITAMAG
TM
.
Historically, the Company concentrated primarily
on research and development and continues to invest a significant amount of funds in research and development activities. To date,
the Company has yet to and may never derive any revenues from its research and development products.
The Company has a limited operating history
and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered with the establishment
of a business in a highly competitive industry, characterized by frequent new product introductions.
Twelve Months Ended December 31, 2018 Compared
to the Twelve Months Ended December 31, 2017
Net AGGRASTAT
®
product sales
for year ended December 31, 2018 were $28.5 million compared to $27.1 million during the year ended December 31, 2017.
The Company currently sells finished AGGRASTAT
®
to drug wholesalers. These wholesalers subsequently sell AGGRASTAT
®
to the hospitals where health care providers
administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT
®
may result in sales of AGGRASTAT
®
to wholesalers that do not track directly with demand for the product at
hospitals.
Hospital demand for AGGRASTAT
®
continued to increase compared to the prior year with the number of new hospital customers using AGGRASTAT
®
continuing
to increase leading to patient market share held by the product increasing to over 50% during the year ended December 31, 2017
and to approximately 65% as at December 31, 2018. The Company's commercial team continues to work on expanding its customer base,
however this continued increase in the customer base for AGGRASTAT
®
has not directly resulted in corresponding revenue
increases as the Company continues to face increased competition resulting from further genericizing of the Integrilin market which
has created pricing pressures on AGGRASTAT
®
. The Company
continues to expect strong performance from the AGGRASTAT
®
brand, primarily its patient market share, but diversifying
revenues away from a single product became increasingly important for the Company during 2018 and continues to occur
during 2019.
The number of new customers reviewing and implementing
AGGRASTAT
®
increased sharply since October 11, 2013 as a result of FDA approval of the High Dose Bolus (“
HDB
”)
regimen for AGGRASTAT
®
and due to the increased marketing and promotional efforts of the Company.
As all of the Company’s sales are
denominated in U.S. dollars and the U.S. dollar improved in value against the Canadian dollar during the second half of 2018
when compared to the 2017, Canadian dollar revenue growth increased, however it was offset by the increasing price pressures
facing AGGRASTAT
®
when comparing the two periods. Net revenue from AGGRASTAT
®
in U.S. dollars
for 2018 totaled $21.9 million compared to $20.9 million in 2017.
ZYPITAMAG
TM
contributed $652,000
of revenue to the Company during the year ended December 31, 2018 and although early into the commercial availability of the product
the Company continues to work towards growing the ZYPITAMAG
TM
brand.
Cost of goods sold represents direct product
costs associated with AGGRASTAT
®
and ZYPITAMAG
TM,
including write-downs for obsolete inventory and amortization
of the related intangible assets.
AGGRASTAT
®
cost of
goods sold for the year ended December 31, 2018 was $3.7 million compared to $3.5 million for the comparable period in the
prior year. For the year ended December 31, 2018, the increases to cost of goods sold is the result of higher volume of
AGGRASTAT product sold offset by a significant write-down of expired inventory during the year ended December 31, 2017.
During the year ended December 31, 2018, the Company wrote-off inventory of $3,000 that had expired or was otherwise
unusable, compared to $385,000 during the year ended December 31, 2017.
ZYPITAMAG
TM
cost of goods sold for
the year ended December 31, 2018 is $142,000 relating to the cost of the ZYPITAMAG
TM
product sold to the Company’s
wholesale customers and $196,000 pertaining to the amortization of the ZYPITAMAG
TM
license for the periods, which is
recorded on the statement of financial position within intangible assets and $92,000 relating to a write-down of inventory that
had expired or was otherwise unusable.
Selling, general and administrative expenses
include salaries and related costs for those employees not directly involved in research and development. The expenditures are
required to support sales and marketing efforts of AGGRASTAT
®
and ZYPITAMAG
TM
, ongoing business development
and corporate stewardship activities. The balance also includes professional fees such as legal, audit, investor and public relations.
Total selling, general, and administrative
expenses for the year ended December 31, 2018 was $19.5 million, compared to $14.9 million for the year ended December 31, 2017.
Selling, general, and administrative expenses related to commercial operations were $15.6 million for the year ended December 31,
2018, compared to $11.5 million for the year ended December 31, 2017. Selling, general, and administrative expenses – Other
were $3.9 million for the year ended December 31, 2018, compared to $3.4 million during the year ended December 31, 2017.
Selling, general and administrative expenses
include salaries and related costs for those employees not directly involved in research and development. The expenditures are
required to support sales and marketing efforts of AGGRASTAT
®
and ZYPITAMAG
TM
as well as ongoing business
development and corporate stewardship activities. The balance also includes professional fees such as legal, audit, investor and
public relations and stock-based compensation.
Commercial sales expenses increased during
the year ended December 31, 2018 as compared to the prior year as sales and marketing costs including the size of the Company’s
commercial team increased between the two periods to support the launch of ZYPITAMAG
TM
an well as on going sales efforts
of the commercial team in regards to the Company’s products.
Selling, general and administrative expenses
– other increased for the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily as a result
of $1,022,000 of stock-based compensation recorded during the year ended December 31, 2018 compared to $491,000 for the year ended
December 31, 2017. After factoring in the difference in stock-based compensation expense between the two periods, the selling,
general and administrative expenses – other increased by approximately $170,000 primarily relating to professional fees resulting
from increased business development activities undertaken by the Company during 2018.
Research and development expenditures include
costs associated with the Company’s clinical development and preclinical programs including salaries, monitoring and other
research costs. The Company expenses all research costs and has not had any development costs that meet the criteria for capitalization
under IFRS. Prepaid research and development costs represent advance payments under contractual arrangements for clinical activity
outsourced to research centers.
Net research and development expenditures for
the year ended December 31, 2018 were $7.3 million, compared to $5.1 million for the year ended December 31, 2017. Research and
development expenditures include costs associated with the Company’s on-going AGGRASTAT
®
development, clinical
development and preclinical programs including salaries, research centered costs and monitoring costs, as well as research and
development costs associated with the development projects being undertaken to develop additional cardiovascular products. The
increase in research and development expenditures for the year ended December 31, 2018 when compared to the year ended December
31, 2017 is as a result of the timing of expenses and work associated with each development project undertaken by the
Company, primarily
the Company’s development of additional generic ANDA cardiovascular products.
Subsequent to December 31, 2018,
on February 13, 2019, the Company received notice from the Buyer in the Apicore Sales Transaction of potential claims
against the holdback receivable in respect of representations and warranties under the Apicore Sales Transaction, with the
maximum exposure of the claims being the total holdback receivable. The notice did not contain sufficiently detailed
information to enable the Company to assess the merits of the claims. The Company will proceed diligently to investigate the
potential claims and attempt to satisfactorily resolve them with a view to having the holdback receivable released. In
consideration of the uncertainty associated with the potential claims asserted by the Buyer, the Company reduced the carrying
value of the holdback receivable by $1,472,999 on the statement of financial position as at December 31, 2018. The Buyer did
not make the required payments on the holdback receivable in February and April 2019.
Intangible assets are reviewed for impairment
on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company recorded an impairment loss of
$636,000 for the year ended December 31, 2017 pertaining to a write-down in the value of the intangible assets relating to the
license acquired for PREXXARTAN
®
due to the on-going litigation surrounding the product.
The amount and timing of
impairments and write-downs may vary substantially from period to period depending on the business and research activities being
undertaken at any one time and changes in the Company's commercial strategy.
The finance income for the year ended
December 31, 2018 relates primarily to interest on cash and investments held by the Company during 2018 partially offset by
accretion on the Company’s royalty obligation, which compares to finance expense for the year ended December 31, 2017
which primarily related to accretion on the Company’s royalty obligation and interest on the Company’s long-term
debt. The Company repaid its long-term debt during the fourth quarter of 2017.
The increase in the foreign exchange gain for
the year ended December 31, 2018 when compared to the year ended December 31, 2017 relates to increases in the US dollar exchange
rate between the two periods combined with the significant increase in US dollar cash and short-term investments held by the Company
during the year ended December 31, 2018.
The income tax expense of $897,000 during the
year ended December 31, 2018 is primarily related to taxable income in the United States during the year ended December 31, 2018.
Income tax recovery of $9.1 million during the year ended December 31, 2017 was primarily the result of the utilization of Canadian
tax losses as part of the sale of the Apicore business and other credits offset by taxable income in the United States.
The loss from discontinued operations for the
year ended December 31, 2017 relates to the Apicore business, which was divested through the Apicore Sale Transaction which was
completed on October 2, 2017. As the Apicore business was divested during 2017, there is no income or loss from discontinued operations
for the year ended December 31, 2018.
For the
year ended December 31, 2018, the Company recorded consolidated net income from continuing operations of $1.9 million or
$0.25 per share ($0.24 per share diluted) compared to consolidated net income from continuing operations of $11.5 million or
$0.74 per share ($0.63 per share diluted) for the year ended December 31, 2017. As discussed above, the main factors
contributing to the net income decrease was higher selling, general and administrative expenses and research and development
expenses for the year ended December 31, 2018 when compared to the year ended December 31, 2017 and the revaluation of the
holdback receivable, offset by higher foreign exchange gains and finance income, net. For the year ended December 31, 2018, the
Company did not record any net income or loss from discontinued operations related to the Apicore business compared to income
from discontinued operations of $31.9 million or $2.04 per share ($1.76 per share diluted) in the year ended December 31,
2017. For the year ended December 31, 2018, the Company recorded net income of $3.9 million or $0.25 per share ($0.24 per
share diluted) compared to net income of $43.4 million or $2.78 per share ($2.39 per share diluted) for the year ended
December 31, 2017.
For the year
ended December 31, 2018, the Company recorded a total comprehensive income of $4.5 million compared to total comprehensive income
of $43.4 million for the year ended December 31, 2017. The change in comprehensive income results from the factors described above
and the fluctuations in the US dollar exchange rate during the periods.
The weighted average number of common shares
outstanding used to calculate basic income per share for the years ended December 31, 2018 and 2017 was 15,791,396 and 15,636,853,
respectively. The weighted average number of common shares outstanding used to calculate diluted income per share for the years
ended December 31, 2018 and 2017 was 16,563,663 and 18,138,080, respectively.
As at December 31, 2018, the Company had 15,547,812
common shares outstanding, 900,000 warrants to purchase common shares and 1,394,642 stock options, of which 1,044,892 were exercisable,
to purchase common shares outstanding.
As at April 29, 2018, the Company had 15,387,912
common shares outstanding, 900,000 warrants to purchase common shares and 1,383,992
stock options, of which 1,077,242 were exercisable, to purchase common shares outstanding.
Twelve Months Ended December 31, 2017 Compared
to the Twelve Months Ended December 31, 2016
Net AGGRASTAT
®
product sales
for year ended December 31, 2017 were $27.1 million compared to $29.3 million in the comparable period in 2016.
The Company currently sells finished AGGRASTAT
®
to drug wholesalers. These wholesalers subsequently sell AGGRASTAT
®
to the hospitals where health care providers
administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT
®
may result in sales of AGGRASTAT
®
to wholesalers that do not track directly with demand for the product at
hospitals.
Hospital demand for AGGRASTAT
®
continued to increase compared to the prior year with the number of new hospital customers using AGGRASTAT
®
continuing
to increase leading to patient market share held by the product increasing to over 50% during the year ended December 31, 2017.
The Company's commercial team continues to work on expanding its customer base, however this continued increase in the customer
base for AGGRASTAT
®
has not directly resulted in corresponding revenue increases as the Company continues to battle
increased competition resulting from further genericizing of the Integrilin market which has created pricing pressures on AGGRASTAT
®
resulting in lower net revenues compared to the previous year. The Company continues to expect growth in the AGGRASTAT
®
brand, primarily its patient market share, but diversifying revenues away from a single product became increasingly important for
the Company during 2017.
The number of new customers reviewing and implementing
AGGRASTAT
®
increased sharply since October 11, 2013 as a result of FDA approval of the HDB regimen for AGGRASTAT
®
and due to the increased marketing and promotional efforts of the Company.
As all of the Company’s sales are denominated
in U.S. dollars and the U.S. dollar deteriorated against the Canadian dollar during the third quarter and into the fourth quarter
of 2017, this restricted the Canadian dollar revenue growth in addition to the increasing price pressures facing AGGRASTAT
®
.
AGGRASTAT
®
cost of goods sold
represents direct product costs associated with AGGRASTAT
®
including write-downs for obsolete inventory and amortization
of the related acquired AGGRASTAT
®
intangible assets.
AGGRASTAT
®
cost of goods sold
for the years ended December 31, 2017 were $3.5 million compared to $3.7 million for the comparable period in the prior year. For
the year ended December 31, 2017, the decreases to cost of goods sold are the result of no amortization of AGGRASTAT® intangible
assets for the year ended December 31, 2017 as the associated intangible assets became fully amortized during the fourth quarter
of 2016. Amortization of AGGRASTAT
®
intangible assets for the year ended December 31, 2016 totaled $1.3 million.
During the year ended December 31, 2017, the Company wrote-off inventory of $385,000 that had expired or was otherwise unusable.
During the year ended December 31, 2016, the Company recorded a recovery on inventory which had been previously written-off totaling
$109,000.
Cost of goods sold for the year ended December
31, 2017, excluding amortization and write-downs or write-ups, totaled $3.1 million compared to $2.5 million for the year ended
December 31, 2016. The increase in cost of goods sold is a result of an increase in the volume of product sold during 2017.
Selling, general and administrative expenses
include salaries and related costs for those employees not directly involved in research and development. The expenditures are
required to support sales and marketing efforts of AGGRASTAT
®
and ongoing business development and corporate stewardship
activities. The balance also includes professional fees such as legal, audit, investor and public relations.
Total selling, general, and administrative
expenditures for the year ended December 31, 2017 were $14.9 million, compared to $15.4 million for the year ended December 31,
2016. Selling, general, and administrative expenditures related to AGGRASTAT
®
were $11.5 million for the year ended
December 31, 2017, compared to $11.7 million for the prior year. Selling, general, and administrative expenditures – Other
were $3.4 million for the year ended December 31, 2017, compared to $3.7 million in the prior year. Selling, general and administrative
expenses include salaries and related costs for those employees not directly involved in research and development. The expenditures
are required to support sales and marketing efforts of AGGRASTAT
®
as well as ongoing business development and corporate
stewardship activities. The balance also includes professional fees such as legal, audit, investor and public relations.
Selling, general and administrative expenditures
– AGGRASTAT
®
remained consistent for the year ended December 31, 2017 as compared to the year ended December
31, 2016 as sales and marketing costs including the size of the Company’s commercial team has remained consistent between
the two periods.
Selling, general and administrative expenditures
– Other decreased for the year ended December 31, 2017 as compared to the year ended December 31, 2016, however these costs
have increased with the exclusion of stock-based compensation expenses for the two periods. Stock-based compensation for the year
ended December 31, 2017 totaled $491,000 as compared to $1.3 million for the year ended December 31, 2016. Excluding stock-based
compensation selling, general and administrative expenses for the year ended December 31, 2017 totaled $2.9 million as compared
to $2.4 million for the year ended December 31, 2016. The increase between the two periods relates to additional professional fees
and costs associated with the Company’s growing business development activities.
Research and development expenditures include
costs associated with the Company’s clinical development and preclinical programs including salaries, monitoring and other
research costs, as well as amortization of non-AGGRASTAT
®
intangible assets. The Company expenses all research costs
and has not had any development costs that meet the criteria for capitalization under IFRS. Prepaid research and development costs
represent advance payments under contractual arrangements for clinical activity outsourced to research centers.
Net research and development expenditures for
the year ended December 31, 2017 were $5.1 million, compared to $3.6 million for the comparable period in the prior year. Research
and development expenditures include costs associated with the Company’s on-going AGGRASTAT
®
development,
clinical development and preclinical programs including salaries, research centered costs and monitoring costs, as well as research
and development costs associated with the development projects being undertaken to develop additional cardiovascular products.
The Company expenses research costs and has not had any development costs that meet the criteria for capitalization under IFRS.
The increase in research and development expenditures, for the year ended December 31, 2017 as compared to the year ended December
31, 2016 is primarily related to the Company’s development of additional cardiovascular drugs to add to its commercial portfolio
of drugs, as well the $1.2 million relating to a refund of the 2015 AGGRASTAT
®
sNDA STEMI filing fee, which was
the result of the Company’s successful application for waiver status under barrier to innovation provision of the United
States Federal, Food, Drug, and Cosmetic Act that reduced research and development expenses in the year ended December 31, 2016.
The original $1.2 million filing fee was expensed through research and development expenses during the year ended December 31,
2015, with the refund recorded when received in 2016. Removing this refund, research and development expenses would have been $4.8
million for the year ended December 31, 2016. The remaining increase relates to the additional research and development work relating
to development projects being undertaken to develop additional cardiovascular products.
Intangible assets are reviewed for impairment
on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company recorded an impairment loss of
$636,000 for the year ended December 31, 2017 pertaining to a write-down in the value of the intangible assets relating to the
license acquired for PREXXARTAN
®
due to the on-going litigation surrounding the product.
It is important to note that historical patterns
of impairment charges or reversals cannot be taken as an indication of future impairments or reversals. The amount and timing of
impairments and write-downs may vary substantially from period to period depending on the business and research activities being
undertaken at any one time and changes in the Company's commercial strategy.
Finance expense for the year ended December
31, 2017 was $837,000, compared to $2.5 million in the comparable period in the prior year. The decrease in finance expense is
primarily due to the Company recording a reduced finance expense relating to accretion on the Company’s royalty obligation
for the year ended December 31, 2017 of $748,000 compared to $2.3 million for the year ended December 31, 2016 relating to the
lower revenues experienced during the year ended December 31, 2017. Interest expenses pertaining to the Crown Loan are recorded
within income from discontinued operations.
The Company recorded a current income tax recovery
of $9.4 million for the year ended December 31, 2017 relating the use of Canadian tax losses and other credits offset by taxable
income in the United States and deferred income tax expense of $333,000 pertaining to changes in temporary differences.
The income from discontinued operations results
from the Apicore Sale Transaction which was completed on October 2, 2017 and resulted in a significant gain for the Company on
the sale. As well, the income from discontinued operations contains the operations of the Apicore business beginning on December
1, 2016. The income from discontinued operations for 2016 reflects only the results of Apicore for the month of December 2016 as
the Company acquired Apicore on December 1, 2016, while the income from discontinued operations for 2017 includes Apicore’s
United States operations from January 1, 2017 to October 2, 2017, the date of the Apicore Sales Transactions and Apicore’s
Indian operations for the full 2017 year. As described, in note 5 to the Company’s consolidated financial statements, the
Company retained ownership in Apicore’s Indian operations until the lapse of the Buyer Option and subsequent to December
31, 2017, Apicore’s Indian operations were sold to a company owned by the former President and Chief Executive Officer of
Apicore Inc. The income from discontinued operations for the year ended December 31, 2016 also includes the revaluation of the
long-term derivative of $0.6 million and a gain on the step acquisition of Apicore of $4.9 million. Additionally, included within
income from discontinued operations are finance expenses relating to the Crown Loan which was obtained to complete the acquisition
of Apicore.
For the year
ended December 31, 2017, the Company recorded consolidated net income from continuing operations of $11.5 million or $0.74 per
share compared to $3.6 million or $0.24 per share for the year ended December 31, 2016. As discussed above, the main factors contributing
to the higher net income was the income tax recovery, partially offset by lower revenues and higher research and development expenses
during the year ended December 31, 2017. For the year ended December 31, 2017, the Company recorded net income from discontinued
operations of $31.9 million or $2.04 per share related to the Apicore business and the Apicore Sale Transaction, compared to $23.4
million or $1.56 per share in the year ended December 31, 2016. For the year ended December 31, 2017, the Company recorded net
income of $43.4 million compared to $27.0 million for the year ended December 31, 2016.
For the year
ended December 31, 2017, the Company recorded a total comprehensive income of $43.4 million compared to total comprehensive income
of $26.6 million for the year ended December 31, 2016. The change in comprehensive income results from the factors described above
and the fluctuations experienced in the US dollar exchange rate during the third and fourth quarters of 2017.
The weighted average number of common shares
outstanding used to calculate basic income per share for the year ended December 31, 2017 was 15,636,853. The weighted average
number of common shares outstanding used to calculate basic income per share for the year ended December 31, 2016 was 15,002,005.
The weighted average number of common shares
outstanding used to calculate diluted income per share for the year ended December 31, 2017 was 18,138,080. The weighted average
number of common shares outstanding used to calculate diluted income per share for the year ended December 31, 2016 was 17,316,401.
As at December 31, 2017, the Company had 15,782,327
common shares outstanding, 900,000 warrants to purchase common shares and 1,602,127 stock options, of which 1,231,127 were exercisable,
to purchase common shares outstanding. At April 30, 2018, the Company had 15,881,760 common shares outstanding, 900,000 warrants
to purchase common shares and 1,671,794 stock options, of which 1,144,794 were exercisable, to purchase common shares outstanding.
B. Liquidity and Capital Resources
Since the Company’s inception, it has
financed operations primarily from net revenue received from the sale of AGGRASTAT
®
, the sale of its equity securities,
the issue and subsequent exercises of warrants and stock options, interest on excess funds held and the issuance of debt.
On October 3, 2017, the Company announced
the completion of the Apicore Sale Transaction to the Buyer. Under the Apicore Sale Transaction, the Company received net
proceeds of approximately U.S.$105 million of which approximately U.S.$55 million was received on October 3, 2017, with the
remainder received in early 2018. There is also a holdback receivable of U.S. $10 million that became due in 2019.
These funds received and yet to be received by the Company were after payment of all transaction costs, the compensation paid
to holders of Apicore’s employee stock options, the redemption of the remaining shares of Apicore not owned by Medicure
and other adjustments.
On February
1, 2018, the Company announced that it had received the deferred purchase price proceeds of approximately U.S.$50 million from
the Buyer as a result of the Apicore Sale Transaction. The U.S.$50 million was included in the total net proceeds of U.S.$105 million
described earlier. The Company did not receive any contingent payments based on an earn out formula as certain financial results
within the Apicore business were not met following the Apicore Sale Transaction. Additionally, up to U.S.$10 million became payable
in 2019 based on the release of certain holdback funds (Refer to “Update on Holdback Funds from Apicore Sale”).
The funds received from the Apicore sales transaction
will be invested and used for business and product development purposes and to fund operations as needed.
Cash provided by operating activities for the
year ended December 31, 2018 was $742,000 million compared to $21.9 million for the comparable period in the prior year. The decrease
in cash from operating activities is primarily due to the divesture of the Apicore business during the year ended December 31,
2017.
Cash from investing activities for the year
ended December 31, 2018 totaled $19.7 million and related to funds received from the Apicore Sale Transaction during the year ended
December 31, 2018 of $65.2 million, partially offset by $44.1 million which was invested in short-term term deposits during the
period, $1.3 million paid in regards to the ZYPITAMAG
TM
license, which was recorded within intangible assets and $197,000
spent on the acquisition of property and equipment. Cash flows from investing activities for the year ended December 31, 2017 totaled
$54.2 million and related to $89.7 million from the proceeds from the Apicore Sale Transaction, $31.6 million used to acquire Class
C common shares of Apicore, $2.6 million used to acquire Class E common shares of Apicore and $1.2 million relating to the acquisition
of property and equipment and $127,000 relating to the PREXXARTAN
®
license.
Cash used in financing activities for the
year ended December 31, 2018 totaled $2.7 million and related to $3.0 million of cash paid to acquire the Company’s
common shares under the normal course issuer bid, which is partially offset by cash received from the exercise of stock
options totaling $363,000. Cash used in financing activities for the year ended December 31, 2017 totaled $83.0 million,
including cash used in financing activities from discontinued operations of $80.9 million which primarily related to the
repayment of the Company’s long-term debt with Crown and the MDC as well as the repayment of the note payable received
from Apicore of $18.5 million subsequent to the completion of the Apicore Sale Transaction. Additionally, the Company paid
$3.2 million to satisfy an amount due to the vendor from the 2016 Apicore Transaction. As well, the Company received $520,000
from the exercise of stock options, $422,000 from the exercise of Apicore stock options, $92,000 from the exercise of
warrants and had $12.8 million released from escrow during the year ended December 31, 2017.
As at December 31,
2018, the Company had unrestricted cash totaling $24.1 million compared to $5.3 million as of December 31, 2017. Additionally,
at December 31, 2018, the Company had short-term investments in the form of term deposits with maturities of greater than three
months and less than one year which totaled $47.7 million. As at December 31, 2018, the Company had working capital of $73.0 million
compared to $70.9 million as at December 31, 2017.
During the year ended December 31, 2018 the
Company repurchased and cancelled 441,400 common shares. The aggregate price paid for these common shares totaled $3,021,340. As
a result of the NCIB, during the year ended December 31, 2018 the Company recorded $479,993 directly in its retained deficit representing
the difference between the aggregate price paid for these common shares and a reduction of the Company’s share capital totaling
$3,501,333.
Subsequent to December 31, 2018, the Company
repurchased an additional 159,900 common shares to be cancelled for an aggregate cost of $999,826.
The Company did not have any long-term debt
recorded in its consolidated financial statements as at December 31, 2018.
C. Research and Development, Patents and
Licenses, Etc.
Research and Development
The Company’s research and development
activities are predominantly conducted by its wholly-owned Barbadian subsidiary, Medicure International Inc.
AGGRASTAT
®
One of the primary ongoing research and development
activities is the continued development and further implementation of a new regulatory, brand and life cycle management strategy
for AGGRASTAT
®
. The extent to which the Company is able to invest in this plan is dependent upon the availability
of sufficient finances and the expected returns from those investments.
An important aspect of the AGGRASTAT
®
strategy was the revision of its approved prescribing information. On October 11, 2013, the Company announced that the FDA approved
the AGGRASTAT
®
HDB regimen, as requested under Medicure's sNDA. The AGGRASTAT
®
HDB regimen (25 mcg/kg
within 5 minutes, followed by 0.15 mcg/kg/min) has become the recommended dosing for the reduction of thrombotic cardiovascular
events in patients with NSTE ACS.
The Company believes that further expanded
indications and dosing regimens could provide added value to further maximize the revenue potential for AGGRASTAT
®
.
The Company is currently exploring the potential to make such changes, and the Company may need to conduct appropriate clinical
trials, obtain positive results from those trials, or otherwise provide support in order to obtain regulatory approval for such
proposed indications and dosing regimens.
On April 23, 2015, the Company announced
that the FDA approved a revision to the duration of the bolus delivery for the AGGRASTAT
®
HDB regimen. The dosing
change and label modification was requested by the Company to help health care professionals more efficiently meet patient-specific
administration needs and to optimize the implementation of AGGRASTAT
®
at new hospitals. The newly approved labeling
supplement now allows the delivery duration of the AGGRASTAT
®
HDB (25 mcg/kg) to occur anytime within 5 minutes,
instead of the previously specified duration of 3 minutes. This change was part of the Company’s ongoing regulatory strategy
to expand the applications for AGGRASTAT
®
.
On September 10, 2015, the Company announced
that it submitted a sNDA to the FDA to expand the label for AGGRASTAT
®
to include the treatment of patients presenting
with ST-segment elevation myocardial infarction (“
STEMI
”). If approved for STEMI, AGGRASTAT
®
would be the first in its class of GPIs to receive such a label in the United States.
In previous communication with the Company,
the FDA’s Division of Cardiovascular and Renal Drug Products indicated its willingness to review and evaluate this label
change request based substantially on data from the On-TIME 2 study, with additional support from published studies and other data
pertinent to the use of the AGGRASTAT
®
HDB regimen in the treatment of STEMI. The efficacy and safety of the HDB
regimen in STEMI has been evaluated in more than 20 clinical studies involving over 11,000 patients and is currently recommended
by the ACCF/AHA Guideline for the Management of STEMI.
On July 7, 2016, the Company received a
Complete Response Letter (“
CRL
”) from the FDA for its sNDA requesting an expanded indication for patients presenting
with STEMI. The FDA issued the CRL to communicate that its initial review of the application was completed; however, it could not
approve the application in its present form and requested additional information. The Company continues to work directly with the
FDA to address these comments.
The sNDA filing was accompanied by a mandatory
U.S.$1.2 million user fee paid by Medicure International Inc. to the FDA. In December 2016, the Company received a waiver and full
refund of the user fee which had been paid and expensed during fiscal 2015.
On September 1, 2016, the Company announced
that it had received approval from the FDA for its bolus vial product format for AGGRASTAT
®
.
This product format is a concentrated,
15 ml vial containing sufficient drug to administer the FDA approved, HDB of 25 mcg/kg given at the beginning of treatment. AGGRASTAT
®
is also sold two other sizes, a 100 ml vial and a 250 ml bag. The existing, pre-mixed products continue to be available, providing
a convenient concentration for administering the post-HDB maintenance infusion of 0.15 mcg/kg/min. (Approved Dosing: Administer
intravenously 25 mcg/kg within 5 minutes and then 0.15 mcg/kg/min for up to 18 hours). Commercial launch of the bolus vial occurred
during the fourth quarter of 2016 and the Company continues to believe this product format will have a positive impact on hospital
utilization of AGGRASTAT
®
.
Another aspect of the AGGRASTAT
®
strategy is to advance studies related to the contemporary use and future regulatory positioning of the product. On May 10, 2012,
the Company announced the commencement of enrolment in a clinical trial of AGGRASTAT
®
entitled “Shortened
AGGRASTAT
®
Versus Integrilin in Percutaneous Coronary Intervention” (“
SAVI-PCI
”). SAVI
PCI is a randomized, open-label study enrolling patients undergoing percutaneous coronary intervention (“
PCI
”)
at sites across the United States. The study was designed to evaluate whether patients receiving the HDB regimen of AGGRASTAT
®
(25 mcg/kg bolus over 3 minutes) followed by an infusion of 0.15 mcg/kg/min for a shortened duration of 1 to 2 hours will have
outcomes that are similar, or “non-inferior,” to patients receiving a 12 to 18-hour infusion of Integrilin® (eptifibatide)
(Merck & Co., Inc.) at its FDA approved dosing regimen.
The primary objective of SAVI-PCI is to
demonstrate AGGRASTAT
®
is non-inferior to Integrilin with respect to the composite endpoint of death, PCI-related
myocardial infarction, urgent target vessel revascularization, or major bleeding within 48 hours following PCI or hospital discharge.
The secondary objectives of this study include the assessment of safety as measured by the incidence of major bleeding.
The first patient was enrolled in June
2012. Enrolment was completed during the fourth quarter of 2018 and analysis of the results is currently under way.
Cardiovascular Generic and Reformulation
Products
Through an ongoing research and development
investment, the Company is exploring new product opportunities in the interest of developing future sources of revenue and growth.
On August 13, 2018, the Company announced
that the FDA has approved its ANDA for SNP. SNP is indicated for the immediate reduction of blood pressure for adult and pediatric
patients in hypertensive crisis. The product is also indicated for producing controlled hypotension in order to reduce bleeding
during surgery and for the treatment of acute congestive heart failure. The filing of the ANDA was previously announced by the
Company on December 13, 2016.
The Company’s intention is that
SNP will be
launched using its existing commercial organization and infrastructure in
mid 2019.
The Company is focused on the development of two additional cardiovascular generic drugs. When combined with the ANDA described
above and the recent acquisition of an exclusive license for ZYPITAMAG
TM
, the Company expects to transform its commercial
suite of products from two products as of August 15, 2018 to up to five approved products in 2020.
The Company had been devoting a modest
amount of resources to its research and development programs, including, but not limited to the development of TARDOXAL
TM
(pyridoxal 5 phosphate (“
P5P
”) formerly known as MC-1) for neurological conditions such as Tardive Dyskinesia.
This work included, but was not limited to, working with the FDA to better understand and refine the next steps in development
of the product. The advancement of TARDOXAL
TM
is currently on hold. The Company changed its focus from TARDOXAL
TM
to other uses of P5P and continues to devote time and resources to the advancement of P5P development.
Other Products
The Company is investing in the research
and development of other new product development opportunities. The Company is also exploring opportunities to grow the business
through acquisition. The Company has evaluated and continues to evaluate the acquisition or license of other approved commercial
products with the objective of further broadening its product portfolio and generating additional revenue.
As at December 31, 2018, the Company had
numerous issued United States patents (see Item 5 –
Operating and Financial Review and Prospects – C. Research and
Development, Patents and Licenses, Etc.
below).
Patents and Licenses
In addition to a number of pending patent
applications, the Company has 3 issued patents from the United States Patent Office providing protection for AGGRASTAT
®
and related its current and historic development compounds. The Company will continue to file patents related to its research
and development activities. The United States patents currently issued to the Company are as follows:
Patent Number
|
|
Issue Date
|
|
Title
|
5,965,581
|
|
October 12, 1999
|
|
Compositions for Inhibiting Platelet Aggregation
|
6,136,794
|
|
October 24, 2000
|
|
Platelet Aggregation Inhibition Using Low Molecular Weight Heparin in Combination with a GP IIb/IIIa Antagonist
|
6,770,660
|
|
August 3, 2004
|
|
Method for Inhibiting Platelet Aggregation
|
Patents 5,965,581, 5,972,967, 5,978,698,
6,136,794, 6,538,112 and 6,770,660 were purchased by the Company from MGI GP, INC. (a Delaware corporation doing business as MGI
PHARMA and its Affiliate, Artery, LLC). Pursuant to an Asset Purchase Agreement dated August 8, 2006, MGI GP, INC. sold the exclusive
use of the patents to the Company in the specified territory (the United States of America including the Commonwealth of Puerto
Rico; Guam; and the United States Virgin Islands). Pursuant to the Asset Purchase Agreement the Company agreed to pay MGI GP, INC.
a one-time fee for the procurement of the acquired assets. The Asset Purchase Agreement was executed August 8, 2006.
Much of the work, including some of the
research methods, that is important to the success of the Company’s business is germane to the industry and may not be patentable.
For this reason, all employees, contracted researchers and consultants are bound by non-disclosure agreements.
Given that the patent applications for
these technologies involve complex legal, scientific and factual questions, there can be no assurance that patent applications
relating to the technology used by the Company will result in patents being issued, or that, if issued, the patents will provide
a competitive advantage or will afford protection against competitors with similar technology, or will not be challenged successfully
or circumvented by competitors.
The Company has filed patents in accordance
with the Patent Cooperation Treaty (the ‘‘
PCT
’’). The PCT is a multilateral treaty that was concluded
in Washington in 1970 and entered into force in 1978. It is administered by the International Bureau of the World Intellectual
Property Organization (the ‘‘
WIPO
’’), headquartered in Geneva, Switzerland. The PCT facilitates
the obtaining of protection for inventions where such protection is sought in any or all of the PCT contracting states (total
of 104 at July 1999). It provides for the filing of one patent application (the ‘‘
international application
’’),
with effect in several contracting states, instead of filing several separate national and/or regional patent applications. At
the present time, an international application may include designation for regional patents in respect of contracting states party
to any of the following regional patent treaties: The Protocol on Patents and Industrial Designs within the framework of the African
Regional Industrial Property Organization, the Eurasian Patent Convention, the European Patent Convention, and the Agreement Establishing
the African Intellectual Property Organization. The PCT does not eliminate the necessity of prosecuting the international application
in the national phase of processing before the national or regional offices, but it does facilitate such prosecution in several
important respects by virtue of the procedures carried out first on all international applications during the international phase
of processing under the PCT. The formalities check, the international search and (optionally) the international preliminary examination
carried out during the international phase, as well as the automatic deferral of national processing which is entailed; give the
applicant more time and a better basis for deciding whether and in what countries to further pursue the application. Further information
may be obtained from the official WIPO internet website (
http://www.wipo.int
).
Although the Company is no longer developing
MC-1 for cardiovascular indications, the Company does have a royalty bearing agreement with its subsidiary in regards to this development
program. On June 1, 2000, the Company entered into the Medicure International Licensing Agreement whereby it licensed the world-wide
development and marketing rights for MC-1, except for Canada, to its wholly owned subsidiary, Medicure International, Inc. As consideration
for the grant of the license, Medicure International, Inc. agreed to pay the Company a fee of $1.00 upon the completion of specified
milestones in the development process, together with a variable royalty of 7% to 9% of net sales of MC-1 (if any sales are ever
in fact made). The term of the Medicure International Licensing Agreement will expire on the date of expiration of the last to
expire patent on MC-1, or in the absence of any such patent, on the 10th anniversary of the date of the first commercial sale of
MC-1 in the country where it was last introduced (if it is ever so introduced). The Medicure International Licensing Agreement
may be terminated under a number of circumstances and, in any event, by either party at any time by providing the other with at
least 90 days prior written notice of its intention to terminate the Medicure International Licensing Agreement.
Medicure International, Inc. subsequently
entered into a development agreement with CanAm on June 1, 2000 to perform research and development of MC-1 and other compounds
at cost, plus a reasonable mark-up not to exceed ten percent of any amount invoiced. The parties to the development agreements
have agreed that the aggregate amount of all invoiced expenditures shall not exceed $30,000,000 over the term of each agreement.
The term of the CanAm development agreement is to expire on the completion of all research and development activities by CanAm
and the written acknowledgment by CanAm and Medicure International, Inc. that no further research projects will be undertaken.
CanAm continues to perform work on AGGRASTAT
®
, TARDOXAL
TM
and other projects under this agreement, however
there is no ongoing research activity related to MC-1.
The development agreements may be terminated
under a number of circumstances and, in any event, by Medicure International, Inc. at any time by providing CanAm with at least
30 days prior written notice of its intention to terminate, or by CanAm at any time by providing Medicure International, Inc.,
with at least 90 days prior written notice of its intention to terminate the development agreement.
The agreements provide that all confidential
information developed or made known during the course of the relationship with the Company is to be kept confidential except in
specific circumstances.
D. Trend Information
Net AGGRASTAT
®
product sales
for year ended December 31, 2018 were $28.5 million compared to $27.1 million during the year ended December 31, 2017.
The Company currently sells finished AGGRASTAT
®
to drug wholesalers. These wholesalers subsequently sell AGGRASTAT
®
to the hospitals where health care providers
administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT
®
may result in sales of AGGRASTAT
®
to wholesalers that do not track directly with demand for the product at
hospitals.
Hospital demand for AGGRASTAT
®
continued to increase compared to the prior year with the number of new hospital customers using AGGRASTAT
®
continuing
to increase leading to patient market share held by the product increasing to over 50% during the year ended December 31, 2017
and to approximately 65% as at December 31, 2018. The Company's commercial team continues to work on expanding its customer base,
however this continued increase in the customer base for AGGRASTAT
®
has not directly resulted in corresponding revenue
increases as the Company continues to face increased competition resulting from further genericizing of the Integrilin market which
has created pricing pressures on AGGRASTAT
®
. The Company
continues to expect strong performance from the AGGRASTAT
®
brand, primarily its patient market share, but diversifying
revenues away from a single product became increasingly important for the Company during 2018 and continues to occur
during 2019.
The number of new customers reviewing and
implementing AGGRASTAT
®
increased sharply since October 11, 2013 as a result of FDA approval of the High Dose Bolus
(“
HDB
”) regimen for AGGRASTAT
®
and due to the increased marketing and promotional efforts of
the Company.
As all of the Company’s sales
are denominated in U.S. dollars and the U.S. dollar improved in value against the Canadian dollar during the second half of
2018 when compared to the 2017, Canadian dollar revenue growth increased, however it was offset by the increasing price
pressures facing AGGRASTAT
®
when comparing the two periods. Net revenue from AGGRASTAT
®
in U.S.
dollars for 2018 totaled $21.9 million compared to $20.9 million in 2017.
ZYPITAMAG
TM
contributed $652,000
of revenue to the Company during the year ended December 31, 2018 and although early into the commercial availability of the product
the Company continues to work towards growing the ZYPITAMAG
TM
brand.
The Company is not aware of any other trends,
uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon the Company’s net
sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported
financial information not necessarily to be indicative of future operating results or financial condition.
E. Off-balance Sheet Arrangements
As of December 31, 2018, the Company does
not have any off-balance sheet arrangements, other than those disclosed below.
F. Contractual Obligations
The following tables set forth the Company’s
contractual obligations as of December 31, 2018:
|
|
Contractual Obligations Payment Due By Period
|
|
(in thousands of
CDN$)
|
|
Total
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Thereafter
|
|
Accounts Payable and Accrued Liabilities
|
|
|
14,378
|
|
|
|
14,378
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income Taxes Payable
|
|
|
1,058
|
|
|
|
1,058
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other Long-term Liabilities
|
|
|
1,201
|
|
|
|
-
|
|
|
|
1,201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase Agreement Commitments
|
|
|
9,225
|
|
|
|
4,006
|
|
|
|
2,240
|
|
|
|
1,275
|
|
|
|
1,294
|
|
|
|
205
|
|
|
|
205
|
|
Total
|
|
$
|
25,862
|
|
|
$
|
19,442
|
|
|
$
|
3,441
|
|
|
$
|
1,275
|
|
|
$
|
1,294
|
|
|
$
|
205
|
|
|
$
|
205
|
|
Payments in connection with the Company’s royalty obligation,
as described below, are excluded from the table above.
Commitments
The Company has entered into a manufacturing
and supply agreement to purchase a minimum quantity of AGGRASTAT
®
unfinished product inventory totaling U.S.$150,000
annually (based on current pricing) until 2024 and a minimum quantity of AGGRASTAT
®
finished product inventory totaling
U.S.$197,900 annually (based on current pricing) until 2022 and between 400,000 and 525,000 euros annually (based on current pricing)
until 2022.
Effective November 1, 2014, the Company
entered into a sub-lease with Genesys Venture Inc. (“GVI”) to lease office space at a rate of $170,000 per annum for
three years ending October 31, 2017. The lease was amended on May 1, 2016 and increased the leased area covered under the lease
agreement at a rate of $212,000 per annum until October 31, 2019. The leased area covered under the lease was again increased,
effective November 1, 2018 at a rate of $306,400 per annum until the end of the term of the lease.
Subsequent to December 31, 2018, effective
January 1, 2019, the Company renewed its business and administration services agreement with GVI, under which the Company is committed
to pay $7,083 per month or $85,000 per year for a one-year term.
Contracts with contract research organizations
are payable over the terms of the associated agreements and clinical trials and timing of payments is largely dependent on various
milestones being met, such as the number of patients recruited, number of monitoring visits conducted, the completion of certain
data management activities, trial completion, and other trial related activities.
On October 31, 2017, the Company acquired
an exclusive license to sell and market PREXXARTAN
®
(valsartan) oral solution in the United States and its territories
with a seven-year term, with extensions to the term available, which has been granted tentative approval by the U.S. Food and
Drug Administration (“FDA”), and which was converted to final approval during 2017. The Company acquired the exclusive
license rights for an upfront payment of U.S.$100,000, with an additional U.S.$400,000 payable on final FDA approval and will
be obligated to pay royalties and milestone payments from the net revenues of PREXXARTAN
®
. The U.S.$400,000 payment
is on hold pending resolution of the dispute between the licensor and the third-party manufacturer of PREXXARTAN
®
and
is recorded within accounts payable and accrued liabilities on the consolidated statements of financial position.
On December 14, 2017 and subsequently updated
on March 7, 2018, the Company announced it had acquired an exclusive license to sell and market a branded cardiovascular drug,
ZYPITAMAG
TM
(pitavastatin magnesium) in the United States and its territories for a term of seven years with extensions
to the term available. The Company has entered into a profit-sharing arrangement resulting in a portion of the net profits from
ZYPITAMAG
TM
being paid to the licensor. To date, no amounts are due and/or payable pertaining to profit sharing on this
product.
The Company periodically enters into research
agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require
the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from research and
development activities undertaken on behalf of the Company. In some cases, the maximum potential amount of future payments that
could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive
termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable
estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification
payments under such agreements and no amount has been accrued in the consolidated financial statements with respect to these indemnification
obligations.
As a part of the Birmingham debt settlement
described in note 11 to the consolidated financial statements, beginning on July 18, 2011, the Company is obligated to pay a royalty
to Birmingham based on future commercial AGGRASTAT
®
sales until 2023. The royalty is based on 4% of the first $2,000,000
of quarterly AGGRASTAT
®
sales, 6% on the portion of quarterly sales between $2,000,000 and $4,000,000 and 8% on
the portion of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the preceding three-month periods ended
February 28, May 31, August 31 and November 30. Birmingham has a one-time option to switch the royalty payment from AGGRASTAT
®
to a royalty on the sale of MC-1. Management has determined there is no value to the option to switch the royalty to MC-1 as the
product is not commercially available for sale and the extended long-term development timeline associated with commercialization
of the product. Royalties for the year ended December 31, 2018 totaled $1,654,380 (2017 – $1,242,587; 2016 – $1,795,089)
with payments made during the year ended December 31, 2018 of $1,538,766, respectively (2017 – $1,829,295; 2016 – $1,712,390).
The Company is obligated to pay royalties
on any future commercial net sales of PREXXARTAN
®
to the licensor of PREXXARTAN
®
. To date, no royalties
are due and/or payable.
In the normal course of business, the Company
may from time to time be subject to various claims or possible claims. Although management currently believes there are no claims
or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s
financial position, results of operations, or cash flows, these matters are inherently uncertain and management’s view of
these matters may change in the future.
During 2018, the
Company
was named in a civil claim in Florida from the third-party manufacturer of
PREXXARTAN
®
against the licensor. The claim disputed the rights granted by the licensor to the Company
with respect to PREXXARTAN
®
. The claim against the Company has since been withdrawn, however the dispute
between the licensor and the third-party manufacturer continues.
On September 10, 2015, the Company submitted
a supplemental New Drug Application (“sNDA”) to the FDA to expand the label for AGGRASTAT
®
. The label
change is being reviewed and evaluated based substantially on data from published studies. If the label change submission were
to be successful, the Company will be obligated to pay 300,000 Euros over the course of a three-year period in equal quarterly
instalments following approval. On July 7, 2016, the Company announced it received a Complete Response Letter stating the sNDA
cannot be approved in its present form and requested additional information. The payments are contingent upon the success of the
filing and as such the Company has not recorded any amount in the consolidated statements of net income (loss) and comprehensive
income (loss) pertaining to this contingent liability.
During 2015, the Company began a
development project of a cardiovascular generic drug in collaboration with Apicore. The Company has entered into a supply and
development agreement under which the Company holds all commercial rights to the drug. In connection with this project, the
Company is obligated to pay Apicore 50% of net profit from the sale of this drug. On August 13, 2018, the Company announced
that the FDA has approved its aNDA for SNP, a generic intravenous cardiovascular product and the Company intends to launch
the product commercially in mid 2019. To date, no amounts are due and/or payable pertaining to profit sharing on this
product.
Claims and Possible Claims
In the normal course of business, the Company
may from time to time be subject to various claims or possible claims. Although management currently believes that aside from the
information noted below, there are no claims or possible claims that if resolved would either individually or collectively result
in a material adverse impact on the Company’s financial position, results of operations, or cash flows, these matters are
inherently uncertain and management’s view of these matters may change in the future.
Subsequent to December 31, 2018,
on February 13, 2019, the Company received notice from the Buyer in the Apicore Sales Transaction of potential claims against
the holdback receivable in respect of representations and warranties under the Apicore Sales Transaction, with the maximum
exposure of the claims being the total holdback receivable. The notice did not contain sufficiently detailed information to enable
the Company to assess the merits of the claims. The Company will proceed diligently to investigate the potential claims
and attempt to satisfactorily resolve them with a view to having the holdback receivable released.
During 2018, the
Company
was named in a civil claim in Florida from the third-party manufacturer of PREXXARTAN
®
against Carmel.
The claim disputed the rights granted by Carmel to the Company with respect to PREXXARTAN
®
. The Company believed
the claim against it was without merit and intended to defend itself against the claim. The claim against the Company has been
subsequently withdrawn, however the dispute between the third-party manufacturer and Carmel continues.
G. Safe Harbor
Statements in Item 5.E and Item 5.F of
this Annual Report on Form 20-F that are not statements of historical fact, constitute “forward-looking statements.”
See “Forward-Looking Statements” on page 1 of this Annual Report. Our Company is relying on the safe harbor provided
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, in
making such forward-looking statements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES
A. Directors and Senior Management
Directors and Senior Management
The members of the board of directors and
senior officers of the Company including a brief biography of each are as follows:
Dr. Albert D. Friesen, Winnipeg, Manitoba,
Canada - Director, Chairman and Chief Executive Officer
The founder, President, CEO and Chair of
the Board of Medicure Inc., Dr. Friesen holds a Ph.D. in protein chemistry from the University of Manitoba. Dr. Friesen played
a key role in founding several health industry companies including the first employee and President of the Winnipeg Rh Institute
for over 20 years, where he oversaw the development of WinRho (then acquired by Cangene Inc. and more recently by Emergent BioSolutions),
ABI Biotechnology (acquired by Apotex Inc.), Viventia Biotech Inc., Genesys Pharma Inc., Waverley Pharma Inc. DiaMedica Inc, Miraculins
Inc., Kane Biotech Inc. and KAM Scientific Inc. Dr. Friesen has experience in the establishment of pharmaceutical production
facilities and has also managed and initiated the research and clinical development of several pharmaceutical candidates.
Dr. Friesen is a founder of the Industrial Biotechnology Association of Canada (IBAC) and past Chairman of its board of directors
and former member of the Industrial Advisory Committee to the Biotechnology Research Institute in Montreal. In addition to
his role with the Company, Dr. Friesen is currently the President and Chairman of Genesys Venture Inc., a biotech incubator, based
in Winnipeg and a member of the Board of Directors of Waverley Pharma Inc, a TSX-V listed company. Dr. Friesen provides his
services to the Company through A.D. Friesen Enterprises Ltd., his private consulting corporation. Dr. Friesen served as
both CEO and President of Medicure Inc. Dr. Friesen’s date of birth is May 19, 1947.
Dr. Arnold Naimark, Winnipeg, Manitoba,
Canada - Director
Dr. Arnold Naimark, O.C., O.M., M.D., L.L.D.,
F.R.C.P.(C), F.R.S.C, FCAHS, FAAAS,. has had a distinguished career in biomedical research, medicine and higher education.
He is President Emeritus and Dean of Medicine Emeritus and Professor of Medicine and Physiology at the University of Manitoba.
He is currently Director of the Centre for the Advancement of Medicine, Chair of Genome Prairie Immediate Past-Chair
of CancerCare Manitoba. Dr. Naimark serves on the National Statistics Council of Canada and is Vice-Chair of the Statistics
Canada Audit Committee. He was formerly on the Research Council of the Canadian Institute for Advanced Research, Chair of Health
Canada’s Ministerial Science Advisory Board, Member of the International Advisory Committee on Research of the Alberta Cancer
Board, Vice-Chair of the Manitoba Health Research Council and Director of the Robarts Research Institute. He is the founding Chairman
of the North Portage Development Corporation, the Canadian Health Services Research Foundation and the Canadian Biotechnology Advisory
Committee. He has served as President of several academic bodies including, the Canadian Physiological Society, the Canadian Society
for Clinical Investigation, the Association of Canadian Medical Colleges, the Association of Universities and Colleges of Canada
and as Chairman of the Association of Commonwealth Universities. Dr. Naimark is an Officer of the Order of Canada, a Member
of the Order of Manitoba and a Fellow of the Royal College of Physicians and Surgeons of Canada, the Royal Society of Canada, and
the Canadian Academy of Health Sciences. He is recipient of the G. Malcolm Brown Award of the Royal College of Physicians
and Surgeons and Medical Research Council of Canada, the Osler Award, the Distinguished Service Award of Ben Gurion University,
the Symons Award of the Association of Commonwealth Universities; and of honorary doctorates from Mount Allison University and
the University of Toronto, and of several other awards and distinctions related to his professional, academic and civic activities.
Date of birth is August 24, 1933.
Gerald P. McDole, Mississauga, Ontario,
Canada, MBA – Director
Mr. McDole is currently a director of one
Canadian healthcare company. Mr. McDole is Past President of AstraZeneca Canada Inc. He was named President and CEO of AstraZeneca
Canada Inc.'s pharmaceutical operations in 1999 and immediately led the merger of Astra Pharma and Zeneca Pharma Inc. Prior to
this, Mr. McDole was president and CEO of Astra Pharma Inc., a position he assumed in 1985 after having served as Executive Vice-President.
Mr. McDole is a member of the Canadian Healthcare Marketing Hall of Fame, and has been recognized by Canadian Healthcare Manager
Magazine with the Who's Who in Healthcare Award in the pharmaceutical category. In recognition of Mr. McDole's outstanding contributions
to the biotech and pharmaceutical industries, the University of Manitoba established The Gerry McDole Fellowship in Health Policy
and Economic Growth. Mr. McDole holds a Bachelor of Science and a Certificate of Business Management from the University of Manitoba,
an MBA from Simon Fraser University, and a Business Administration diploma from the University of Toronto. Date of birth is January
25, 1940.
Peter Quick, Mill Neck, New York, USA
- Director
Peter Quick has over 30 years experience
in the securities and financial services industries. He is a recognized leader in the securities industry with experience in the
domestic and international equities market, equities market making, market structure reform, trading technology and clearing operations.
Mr. Quick is a Partner of Burke and Quick Partners Holdings LLP, the parent company of Burke & Quick Partners LLC a broker
dealer. Mr. Quick was President at the American Stock Exchange from 2000 to 2005. Prior to joining the American Stock Exchange,
he served as President of Quick & Reilly Inc., a Quick & Reilly subsidiary and a national discount brokerage firm. He also
served as President of Quick & Reilly/Fleet Securities. Mr. Quick is a graduate from the University of Virginia with a B.S.
in Engineering and attended Stanford University’s Graduate School of Petroleum Engineering. He served four years active duty
from 1978 to 1982 as an Officer in the United States Navy. He is the former Chairman and a current member of the Board of Directors
of Gain Capital (GCAP: NYSE) and a member of the Boards of Trustees of First of Long Island Corporation (FLIC: NASDAQ) and First
National Bank of Long Island. He is a member of the Board of Directors of Fund for the Poor. Mr. Quick serves as the Mayor of the
Incorporated Village of Mill Neck, NY. He is a former member of the Board of Alliance Capital Money Market Fund, Chicago Stock
Exchange Inc (CHX), The Depository Trust & Clearing Corporation (DTCC), The Midwest Trust Company, Securities Industry Automation
Corporation (SIAC), National Security Clearing Corporation, The American Stock Exchange and the National Association of Security
Dealers Inc), Quick & Reilly, Inc., (NYSE: BQR), Reckson Associates Realty Corp (NYSE: RX) and The Bear Stearns Current Yield
Fund (AMEX:YYY). He is a former Chairman of the Board of Governors of St. Francis Hospital, Roslyn, NY and Mercy Medical Center,
Rockville Centre, NY. Date of birth is February 11, 1956.
Brent Fawkes, Winnipeg, Manitoba, Canada
- Director
Mr.
Fawkes is a Chartered Professional Accountant with over 20 years of experience in accounting and finance. Mr. Fawkes is
currently the Vice President of Finance with Standard Aero Limited, one of the world’s largest independent providers of
a variety of aerospace services serving a diverse array of customers in business and general aviation, airline, military,
helicopter, components and energy markets. In his current role, Mr. Fawkes is responsible for the oversight of the finance
department including external reporting, budgeting and planning and treasury management. Date of birth is December 21,
1969.
James Kinley – Chief Financial
Officer
Effective
September 21, 2011 Mr. James Kinley was appointed as CFO of the Company, replacing Dawson Reimer, who has served as Chief Financial
Officer in an interim capacity since July 15, 2011 until Mr. Kinley’s appointment. Mr. Kinley’s services are provided
to the Company through a Consulting Agreement. Previous to his time at Genesys Venture Inc. and the Company, he was Manager, Financial
Reporting at Manitoba Telecom Services Inc. and was involved in all aspects of financial reporting, including publicly filed documents
such as their financial statements. James is a CPA, CA and holds a Bachelor of Commerce (Hons.) degree from the University
of Manitoba. Date of birth is July 9, 1978.
Management
Dr. Albert D. Friesen - Chairman, Chief
Executive Officer and Director
: Dr. Friesen directs the overall business management of the Company (see “Directors and
Senior Management” under this item).
James Kinley - Chief Financial
Officer
: Mr. Kinley is responsible for the Company’s financial management and accounting practices (see “Directors
and Senior Management” under this item).
B. Compensation
Compensation paid to the directors, and
executive officers of the Company during the year ended December 31, 2018, is described below and stock-based compensation described
in Item 6(E) below:
The Company recorded $47,350 in fees paid
or payable to Board members for attendance at meetings between January 1, 2018 and December 31, 2018 and the chairs of the Audit
and Finance Committee and executive compensation, nominating and corporate governance committee were paid an additional $5,000
each for services as committee chairs.
On October 1, 2001, a compensation agreement
was entered into between the Company and A.D. Friesen Enterprises Ltd., a corporation owned by Dr. Friesen and subsequently amended
on October 1, 2003, October 1, 2005, October 1, 2006, October 1, 2007, July 18, 2011, July 18, 2016 and January 1, 2017. For the
years ended December 31, 2017 and 2018, the Company recorded payable to A.D. Friesen Enterprises Ltd., $315,000 in consulting compensation,
including taxable benefits. Dr. Friesen is eligible for an annual bonus, if certain objectives of the Company are met, as determined
by the Board of Directors. During the year ended December 31, 2017, a bonus of $125,000 was accrued to Dr. Friesen, which was paid
to him during the year ended December 31, 2018.
Dawson Reimer served as the Company’s
as President and Chief Operating Officer and received a salary of $205,000 payable in equal semi-monthly installments and a bonus
at the discretion of the Board of Directors of the Company. On May 9, 2016, the Company announced that the employment agreement
with the Company’s President and Chief Operating Officer had been terminated, effective immediately. Mr. Reimer was paid
$73,458 up to the date of his termination and $222,478 pertaining to severance during the year ended December 31, 2016. All amounts
pertaining to this severance were paid during 2016 and there is no additional liability in this regard.
Effective January 1, 2016, the business
and administration services agreement with GVI no longer included the Chief Financial Officer's services and the Company signed
a consulting agreement with its Chief Financial Officer, through JFK Enterprises Ltd., a company owned by the Chief Financial Officer,
for a one-year term, at a rate of $135,000 annually. During the year ended December 31, 2016, the Company recorded a bonus of $10,000
to its Chief Financial Officer. Effective January 1, 2017, consulting agreement with the Chief Financial Officer, through JFK Enterprises
Ltd., a company owned by the Chief Financial Officer, was renewed for a one-year term, at a rate of $155,000 annually. During the
year ended December 31, 2017, the Company recorded a bonus of $200,000 to its Chief Financial Officer. Effective January 1, 2018,
the Company renewed its consulting agreement with its Chief Financial Officer, through JFK Enterprises Ltd., for a one-year term,
at a rate of $155,000 annually. Effective June 1, 2018, this consulting agreement was converted into an employment agreement with
the Chief Financial Officer.
Graeme Merchant
served the Company as Vice President, Commercial Operations
until the conclusion of his employment in September 2017
and
received a salary of $160,903 during the year ended December 31, 2016.
During the year ended December 31,
2018, the Company paid directors a total of Nil (December 31, 2017: Nil; December 31, 2016: Nil, December 31, 2015: Nil) for
consulting fees.
The Company has agreed to provide its independent
directors $2,000 for each quarterly board meeting they personally attend ($1,000 via telephone), and $1,500 for each quarterly
executive compensation, nominating and corporate governance committee meeting or audit and finance committee meeting they attend
that is not held in conjunction with a regular Board meeting.
For fiscal 2011 and prior, due to the Company’s
financial position, the board had offered and committed not to request, and has therefore not received, any compensation for their
services as independent directors. Subsequent to the debt settlement that occurred on July 18, 2011, the Company began paying the
Board members this amount owing and had paid $54,000 during fiscal 2013 relating to these accrued amounts. During fiscal 2013,
the members of the Board of Directors agreed to further defer payments on amounts owing. Beginning on February 22, 2013 and until
June 30, 2015, these amounts bore interest at a rate of 5.5% per annum. For the year ended December 31, 2015, $4,517 (seven months
ended December 31, 2014 –$10,127 and year ended May 31, 2014 – $14,918) was recorded within finance expense in relation
to these amounts payable to the members of the Company’s Board of Directors. No interest was paid or recorded pertaining
to amounts owing to the Board of Directors for the year ended December 31, 2018. As at December 31, 2018, the Company has $1,000
of accrued compensation owing to the independent members of the Board of Directors relating to Directors fees.
On July 11, 2014, the Company announced
that, subject to all necessary regulatory approvals, it has entered into shares for debt agreements with certain members of the
Board of Directors, pursuant to which the Company will issue 106,490 of its common shares at a deemed price of $1.98 per common
share to satisfy $210,850 of outstanding amounts owing to the Company’s Board of Directors. The shares were issued on January
9, 2015.
On January 27, 2015, the Company announced
that, subject to all necessary regulatory approvals, it has entered into shares for debt agreements with certain members of the
Board of Directors, pursuant to which the Company will issue 75,472 of its common shares at a deemed price of $1.44 per common
share to satisfy $108,680 of outstanding amounts owing to these individuals. The shares were issued on March 20, 2015.
The Company does not provide any cash compensation
for its directors who are also officers of the Company for their services as directors.
No pension, retirement fund and other similar
benefits have been set aside for the officers and directors of the Company.
C. Board Practices
The Board of Directors presently consists
of five directors, who were all elected at the Company’s annual general meeting of the shareholders held on June 27, 2018.
Each director holds office until the next annual general meeting of the Company or until his successor is elected or appointed,
unless his office is earlier vacated in accordance with the By-Laws of the Company, or pursuant to the provisions of the
Canada
Business Corporations Act
.
Dr. Albert D. Friesen has served as a director
of the Company since September 1997. Dr. Arnold Naimark has served as a director of the Company since March 2000. Gerald McDole
has served as a director of the Company since January 2004. Peter Quick has served as a director of the Company since November
2005. Brent Fawkes has served as a director of the Company since January 2013.
As discussed in more detail below, the
Board of Directors maintains an Audit and Finance Committee and an Executive Compensation, Nominating and Corporate Governance
Committee.
Corporate Governance
The Canadian Securities Administrators
(the “
CSA
”) have adopted National Policy 58-201
Corporate Governance Guidelines
, which provides non-prescriptive
guidelines on corporate governance practices for reporting issuers such as the Company. In addition, the CSA have implemented National
Instrument NI 58-101
Disclosure of Corporate Governance Practices
, which prescribes certain disclosure by the Company of
its corporate governance practices. The Company's approach to corporate governance is set forth below.
The Board believes that a clearly defined
system of corporate governance is essential to the effective and efficient operation of the Company. The system of corporate governance
should reflect the Company’s particular circumstances, having always as its ultimate objective, the best long-term interests
of the Company and the enhancement of value for all shareholders.
Directors are considered to be independent
if they have no direct or indirect material relationship with the Company. A “material relationship” is a relationship
which could, in the view of the Company's board of directors, be reasonably expected to interfere with the exercise of a director's
independent judgment.
The Executive Compensation, Nominating
and Corporate Governance Committee has reviewed the independence of each director on the basis of the definition in section 1.4
of National Instrument 52-110 –
Audit Committees
(“
NI 52-110
”). The Board has determined, after
reviewing the roles and relationships of each of the directors, that Dr. Arnold Naimark, Brent Fawkes, Gerald McDole and Peter
Quick are independent from the Company. Only Dr. Albert Friesen is deemed to not be independent from the Company. As part of every
regularly scheduled Board and committee meeting, the independent directors are given the opportunity to meet separately from management
and the non-independent director. Board committees are entirely composed of independent directors who meet without management when
required.
The Board has an orientation program in
place for new directors which the Board feels is appropriate having regard to the current makeup of the Board. Each director receives
relevant corporate and business information on the Company, the Board, and its committees. The directors regularly meet with Management
and are given periodic presentations on relevant business issues and developments.
Presentations are made to the Board from
time to time to educate and keep it informed of changes within the Company and of regulatory and industry requirements and standards.
The Company’s Board has adopted a
Code of Ethics applicable to directors, officers and employees, copies of which are available on the Company’s website (www.medicure.com).
A copy may also be obtained upon request to the Secretary of the Company at its head office, 2-1250 Waverley Street, Winnipeg,
Manitoba, R3T 6C6. The ECNCG Committee regularly monitors compliance with the Code of Ethics and also ensures that Management encourages
and promotes a culture of ethical business conduct.
Audit and Finance Committee
Pursuant to Section 171 of the
Canada
Business Corporations Act
(the “Act”)
,
the Company is required to have an Audit Committee. Section 171(1)
of the Act requires the directors of a reporting corporation to elect from among their number a committee composed of not fewer
than three directors, of whom a majority must not be officers or employees of the corporation or an affiliate of the corporation.
Section 171(3) of the Act provides that, before financial statements are approved by the directors, they must be submitted to the
audit committee for review. Section 171(4) of the Act provides that the auditor must be given notice of, and has the right to appear
before and to be heard at, every meeting of the audit committee, and must appear before the audit committee when requested to do
so by the committee. Finally, section 171(5) of the Act provides that on the request of the auditor, the audit committee must convene
a meeting of the audit committee to consider any matters the auditor believes should be brought to the attention of the directors
or members.
Pursuant to section 6.1 of NI 52-110, the
Company is exempt from the requirements of Parts 3 and 5 of NI 52-110 for the year ended December 31, 2018, by virtue of the Company
being a “venture issuer” (as defined in NI 52-110).
Part 3 of NI 52-110 prescribes certain
requirements for the composition of audit committees of non-exempt companies that are reporting issuers under Canadian provincial
securities legislation. Part 3 of NI 52-110 requires, among other things that an audit committee be comprised of at three directors,
each of whom, is, subject to certain exceptions, independent and financially literate in accordance with the standards set forth
in NI 52-110.
Part 5 of NI 52-110 requires an annual
information form that is filed by a non-exempt reporting issuer under National Instrument 51-102 –
Continuous Disclosure
Obligations
, as adopted the CSA, to include certain disclosure about the issuer's audit committee, including, among other things:
the text of the audit committee's charter; the name of each audit committee member and whether or not the member is independent
and financially literate; whether a recommendation of the audit committee to nominate or compensate an external auditor was not
adopted by the issuer's board of directors, and the reasons for the board's decision; a description of any policies and procedures
adopted by the audit committee for the engagement of non-audit services; and disclosure of the fees billed by the issuer's external
auditor in each of the last two fiscal years for audit, tax and other services.
Notwithstanding the exemption available
under section 6.1 of NI 52-110, as at the date hereof, the Audit and Finance Committee is comprised of four independent directors:
Brent Fawkes (Chair), Gerald McDole, Dr. Arnold Naimark, and Peter Quick. The relevant experience of each member is described above.
(See “Item 6 -
Directors, Senior Management and Employees
”.)
As a result of their education and experience,
each member of the audit committee has familiarity with, an understanding of, or experience in:
|
·
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the accounting principles used by the Company to prepare its financial statements, and the ability
to assess the general application of those principles in connection with estimates, accruals and reserves;
|
|
·
|
reviewing or evaluating financial statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised
by the Company's financial statements, and
|
|
·
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an understanding of internal controls and procedures for financial reporting.
|
Under the Sarbanes-Oxley Act of 2002, the
independent auditor of a public Company is prohibited from performing certain non-audit services. The Audit and Finance Committee
has adopted procedures and policies for the pre-approval of non-audit services, as described in the Audit and Finance Committee
Charter reproduced below.
AUDIT AND FINANCE COMMITTEE CHARTER
GENERAL FUNCTIONS, AUTHORITY, AND ROLE
The purpose of the Audit and Finance Committee
(the “Committee”) is to oversee the accounting, financial reporting and disclosure processes of the Company and the
audits of its financial statements, and thereby assist the Board of Directors of the Company (the “Board”) in monitoring
the following:
(1) the integrity of the financial statements
of the Company;
(2) compliance by the Company with ethical
policies and legal and regulatory requirements related to financial reporting and disclosure;
(3) the appointment, compensation, qualifications,
independence and performance of the Company’s internal and external auditors;
(4) the performance of the Company's independent
auditors;
(5) performance of the Company's internal
controls and financial reporting and disclosure processes; and
(6) that management of the Company has
assessed areas of potential significant financial risk to the Company and taken appropriate measures.
The Committee has the power to conduct
or authorize investigations into any matters within its scope of responsibilities, with full access to all books, records, facilities
and personnel of the Company, its auditors and its legal advisors. In connection with such investigations or otherwise in the course
of fulfilling its responsibilities under this charter, the Committee has the authority to independently retain, and set and pay
compensation to, special legal, accounting, or other consultants to advise it, and may request any officer or employee of the Company,
its independent legal counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants
to, the Committee. The Committee has the power to create specific sub-committees with all of the power to conduct or authorize
investigations into any matters within the scope of the mandate of the sub-committee, with full access to all books, records, facilities
and personnel of the Company, its auditors and its legal advisors.
In the course of fulfilling its specific
responsibilities hereunder, the Committee has authority to, and must, maintain free and open communication between the Company's
independent auditor, Board and Company management. The responsibilities of a member of the Committee are in addition to such member's
duties as a member of the Board.
While the Committee has the responsibilities
and powers set forth in this charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company's
financial statements are complete, accurate, and in accordance with International Financial Reporting Standards (“IFRS”).
This is the responsibility of management and the independent auditor. Nor is it the duty of the Committee to conduct investigations,
to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations
and the Company’s Code of Ethics. Any responsibilities that the Committee has the power to act upon, may be recommended to
the Board to act upon.
MEMBERSHIP
The membership of the Committee will be
as follows:
The Committee shall consist of a minimum
of three members of the Board, appointed from time to time, each of whom is affirmatively confirmed as independent by the Board
in accordance with the definition of independence for audit committee members set out in Appendix I hereto, with such affirmation
disclosed in the Company's Management Information Circular for its annual meeting of shareholders. All members of the Committee
should be “financially literate”, as defined in Appendix I, and at least one of the members shall be an “audit
committee financial expert” as defined in as defined in Appendix I.
The Board will elect, by a majority vote,
one member as chairperson. In the absence of the Chair of the Committee, the members shall appoint an acting Chair.
The members of the Committee shall meet
all independence and financial literacy requirements of The TSX Venture Exchange, and the requirements of such other securities
exchange or quotations system or regulatory agency as may from time to time apply to the Company.
Any member of the Committee may be removed
and replaced at any time by the Board and will automatically cease to be a member of the Committee as soon as such member ceases
to be a Director. The Board may fill vacancies in the Committee by election from among the members of the Board. If and whenever
a vacancy exists on the Committee, the remaining members may exercise all its powers so long as a quorum remains in office.
A quorum shall be a majority of the members
provided that if the number of members is an even number, one half of the number plus one shall constitute a quorum.
A member of the Committee may not, other
than in his or her capacity as a member of the Committee, the Board, or any other Board committee, accept any consulting, advisory,
or other compensatory fee from the Company, and may not be an affiliated person of the Company or any subsidiary thereof.
RESPONSIBILITIES
The responsibilities of the Committee shall
be as follows:
Frequency of Meetings
Meet quarterly or more often as may be
deemed necessary or appropriate in its judgment, either in person or telephonically.
The Committee will meet with the independent
auditor at least annually, either in person or telephonically.
Reporting Responsibilities
Provide to the Board proper Committee minutes.
Report Committee actions to the Board with
such recommendations as the Committee may deem appropriate.
Committee and Charter Evaluation
The Committee shall annually review, discuss
and assess its own performance. In addition, the Committee shall periodically review its role and responsibilities.
Annually review and reassess the adequacy
of this Charter and recommend any proposed changes to the Board for approval.
Whistleblower Mechanism
Adopt and review annually a procedure
through which employees and others can confidentially and anonymously inform the Committee regarding any concerns about the Company's
accounting, internal accounting controls or auditing matters. The procedure shall include responding to and the retention of,
any such complaints.
Legal Responsibilities
Perform such functions as may be assigned
by law, by the Company's certificate of incorporation, memorandum, articles or similar documents, or by the Board.
INDEPENDENT AUDITOR
Nomination, Compensation and Evaluation
The Company’s independent auditor
is ultimately accountable to the Committee and the Board and shall report directly to the Committee. The Committee shall review
the independence and performance of the auditor and annually recommend to the Board the appointment and compensation of the independent
auditor or approve any discharge of auditor when circumstances warrant.
Review of Work
The Committee is directly responsibility
for overseeing the work of the independent auditor engaged to prepare or issue an audit report or perform other audit, review or
attest services for the Company, including the resolution of disagreements between management and the independent auditor regarding
financial reporting.
Approval in Advance of Related Party
Transactions
Pre-approval of all “related party
transactions,” which are transactions or loans between the Company and a related party involving goods, services, or tangible
or intangible assets that are:
(1) material to the Company or the related
party; or
(2) unusual in their nature or conditions.
A related party includes an affiliate,
major shareholder, officer, other key management personnel or director of the Company, a company controlled by any of those parties
or a family member of any of those parties.
Engagement Procedures for Audit and
Non-Audit Services
Approve in advance all audit services to
be provided by the independent auditor. Establish policies and procedures that establish a requirement for approval in advance
of the engagement of the independent auditor to provide permitted non-audit services provided to the Company or its subsidiary
entities and to prohibit the engagement of the independent auditor for any activities or services not permitted by any of the Canadian
provincial securities commissions, the Securities Exchange Commission (“SEC”) or any securities exchange on which the
Company's shares are traded including any of the following non-audit services:
|
·
|
Bookkeeping or other services related to accounting records or financial statements of the Company;
|
|
·
|
Financial information systems design and implementation consulting services;
|
|
·
|
Appraisal or valuation services, fairness opinions, or contributions-in-kind reports;
|
|
·
|
Internal audit outsourcing services;
|
|
·
|
Any management or human resources function;
|
|
·
|
Broker, dealer, investment advisor, or investment banking services;
|
|
·
|
Expert services related to the auditing service; and
|
|
·
|
Any other service the Board determines is not permitted.
|
Hiring Practices
Review and approve the Company’s
hiring policy regarding the partners, employees and former partners and employees of the present and former independent auditor
of the Company. Ensure that no individual who is, or in the past three years has been, affiliated with or employed by a present
or former auditor of the Company or an affiliate, is hired by the Company as a senior officer until at least three years after
the end of either the affiliation or the auditing relationship.
Independence Test
Take reasonable steps to confirm the independence
of the independent auditor, which shall annually include:
|
·
|
Ensuring receipt from the independent auditor of a formal written statement delineating all relationships
between the independent auditor and the Company, consistent with the Independence Standards Board Standard No. 1 and related Canadian
regulatory body standards;
|
|
·
|
Considering and discussing with the independent auditor any relationships or services
|
provided to the Company, including
non-audit services, that may impact the objectivity and independence of the independent auditor; and
|
·
|
As necessary, taking, or recommending that the Board take, appropriate action to oversee the independence
of the independent auditor and evaluate whether it is appropriate to rotate the independent auditor on a regular basis.
|
Audit and Finance Committee Meetings
Notify the independent auditor of every
Committee meeting and permit the independent auditor to appear and speak at those meetings.
At the request of the independent auditor,
convene a meeting of the Committee to consider matters the auditor believes should be brought to the attention of the directors
or shareholders.
Keep minutes of its meetings and report
to the Board for approval of any actions taken or recommendations made.
Restrictions
Confirm with management and the independent
auditor that no restrictions are placed on the scope of the auditors' review and examination of the Company's accounts.
OTHER PROFESSIONAL CONSULTING SERVICES
Engagement Review
As necessary, consider with management
the rationale and selection criteria for engaging professional consulting services firms.
Ultimate authority and responsibility to
select, evaluate and approve professional consulting services engagements.
AUDIT AND REVIEW PROCESS AND RESULTS
Scope
Consider, in consultation with the independent
auditor, the audit scope, staffing and planning of the independent auditor.
Review Process and Results
Consider and review with the independent
auditor the matters required to be discussed by such auditing standards as may be applicable.
Review and discuss with management and
the independent auditor at the completion of annual and quarterly examinations, if any:
|
·
|
The Company's audited and unaudited financial statements and related notes;
|
|
·
|
The Company's Management Discussion & Analysis (“MD&A”) and news releases related
to financial results;
|
|
·
|
The Company’s management certifications of the financial statements and accompanying MD&A
as required under applicable securities laws;
|
|
·
|
The Company’s annual information form (“AIF”), if one is prepared and filed.
|
|
·
|
The independent auditor's audit of the financial statements and its report thereon;
|
|
·
|
Any significant changes required in the independent auditor's audit plan;
|
|
·
|
The appropriateness of the presentation of any non-IFRS related financial information;
|
|
·
|
Any serious difficulties or disputes with management encountered during the course of the audit;
and
|
|
·
|
Other matters related to the conduct of the audit, which are to be communicated to the Committee
under generally accepted auditing standards.
|
Review the management letter, if any, delivered
by the independent auditor in connection with the audit.
Following such review and discussion, if
so determined by the Committee, recommend to the Board that the annual financial statements be included in the Company's annual
report.
Review and discuss with management and
the independent auditor the adequacy of the Company's internal accounting and financial controls that management and the Board
have established and the effectiveness of those systems, and inquire of management and the independent auditor about significant
financial risks or exposures and the steps management has taken to minimize such risks to the Company.
Meet separately with the independent auditor
and management, as necessary or appropriate, to discuss any matters that the Committee or any of these groups believe should be
discussed privately with the Committee.
Review and discuss with management and
the independent auditor the accounting policies which may be viewed as critical, including all alternative treatments for financial
information within IFRS that have been discussed with management, and review and discuss any significant changes in the accounting
policies of the Company and industry accounting and regulatory financial reporting proposals that may have a significant impact
on the Company's financial reports.
Review with management and the independent
auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures, if any, on the Company's financial
statements.
Review with management and the independent
auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise
material issues regarding the Company's financial statements or accounting policies.
Review with the Company's legal counsel
legal matters that may have a material impact on the financial statements, the Company's financial compliance policies and any
material reports or inquiries received from regulators or governmental agencies related to financial matters.
SECURITIES REGULATORY FILINGS
Review filings with the Canadian provincial
securities commissions and the SEC and other published documents containing the Company's financial statements.
Review, with management, prior to public
disclosure, the Company’s financial statements and MD&A and related press releases. The chairperson of the Committee
may represent the entire Committee for purposes of this review.
Ensure that adequate procedures are in
place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s
financial statements, other than the disclosure stated above, and periodically assess the adequacy of those procedures.
RISK ASSESSMENT
Meet periodically with management to review
the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures.
Assess risk areas and policies to manage
risk including, without limitation, environmental risk, insurance coverage and other areas as determined by the Board from time
to time.
Review and discuss with management, and
approve changes to, the Company's Corporate Investment Policy.
LIMITATION ON DUTIES OF AUDIT AND FINANCE
COMMITTEE
In contributing to the Committee’s
discharging of its duties under this charter, each member of the Committee shall be obliged only to exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable circumstances. Nothing in this charter is intended, or
may be construed, to impose on any member of the Committee a standard of care or diligence that is in any way more onerous or
extensive than the standard to which all Board members are subject.
ADOPTION OF CHARTER
This charter was originally adopted by
the Board on August 23, 2004 and revised on January 17, 2012.
APPENDIX I
GLOSSARY OF TERMS
“Independent”
means
a director who has no direct or indirect material relationship with the Company or its subsidiaries.
A “
material relationship”
is a relationship which could, in the view of the Board of the Company, be reasonably expected to interfere with the exercise
of the person’s independent judgment.
For greater certainty, certain individuals
will be deemed not to be independent:
|
a)
|
an individual who is, or has been within
the last three years, an employee or executive officer of the Company;
|
|
b)
|
an individual whose immediate family member
is, or has been within the last three years, an executive officer of the Company;
|
|
c)
|
an individual who is a partner of, or
employed by the Company’s internal or external auditor or who was, within the last three years, a partner or employee of
that audit firm and personally worked on the Company’s audit within that time. For this purpose, “partner” does
not include a fixed income partner;
|
|
d)
|
an individual whose child or stepchild
shares a home with the individual or whose spouse, is a partner of the Company’s internal or external auditor, or is an employee
of the audit firm and participates in its audit, assurance or tax compliance practice or who was within the last three years a
partner or employee of the audit firm and personally worked on the Company’s audit within that time. For this purpose, “partner”
does not include a fixed income partner;
|
|
e)
|
an individual who, or whose immediate
family member, is or has been within the last three years, an executive officer of an entity if any of the Company’s current
executive officers serve or served at the same time on the entity’s compensation committee; and
|
|
f)
|
an individual who received, or whose immediate
family member who is employed as an executive officer of the Company received, more than $75,000 in direct compensation from the
Company during any 12 month period within the last three years. For purposes hereof, direct compensation does not include remuneration
for acting as a member of the Board or of any Board committee or remuneration consisting of fixed amounts of compensation under
a retirement plan for prior service provided that such compensation is not contingent on any way on continued service.
|
For purposes hereof, “
Company”
includes Medicure Inc. and any subsidiaries thereof.
Notwithstanding the foregoing, a person
will not be considered to have a material relationship with the Company solely because he or she:
|
a)
|
has previously acted as an interim chief
executive officer of the issuer, or
|
|
b)
|
acts, or has previously acted, as a chair
or vice-chair of the Board or any Board committee, on a part-time basis.
|
Meaning Of “Independence”
For Audit Committees
In addition to the requirement of being
an Independent Director as described above, members of the Audit Committee will not be considered “independent” for
that purpose where the individual:
|
a)
|
accepts, directly or indirectly, any consulting, advisory or other compensatory fee from the Company
or subsidiary of the Company, other than as remuneration for acting in his or her capacity as a member of the Board or any Board
committee, or as a part-time or vice-chair of the Board or any Board Committee; or
|
|
b)
|
is an affiliated entity (as defined in National Instrument 52-110 Audit Committees) of the Company
or any of its subsidiaries.
|
For purposes hereof, indirect acceptance
by an individual of any consulting, advisory or other compensatory fee includes acceptance of a fee by (i) an individual’s
spouse, minor child or stepchild, or child or stepchild who shares the individual’s home, or (ii) an entity in which such
individual is a partner, member, executive officer or managing director (or comparable position) and which provides accounting,
consulting, legal, investment banking or financial advisory services to the Company or any subsidiary of the Company. Notwithstanding
the foregoing, compensatory fees do not include receipt of fixed amounts of compensation under a retirement plan (including deferred
compensation) for prior service with the issuer if the compensation is not contingent in any way on continued service.
Meaning of “financially literate”
For purposes hereof, an individual is financially
literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be
expected to be raised by the Company’s financial statements.
Meaning of “audit committee financial
expert”
An “audit committee financial expert”
means a person who has the following attributes:
(1) An understanding of generally accepted
accounting principles and financial statements;
(2) The ability to assess the general application
of such principles in connection with the accounting for estimates, accruals and reserves;
(3) Experience preparing, auditing, analyzing
or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable
to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements,
or experience actively supervising one or more persons engaged in such activities;
(4) An understanding of internal controls
over financial reporting;
(5) An understanding of audit committee
functions.
A person shall have acquired such attributes
through:
(1) Education and experience as a principal
financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions
that involve the performance of similar functions;
(2) Experience actively supervising a
principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar
functions;
(3) Experience overseeing or assessing
the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements;
or
(4) Other relevant experience.
Executive Compensation, Nominating
and Corporate Governance Committee
The Executive Compensation, Nominating
and Corporate Governance Committee is responsible for determining the compensation of executive officers of the Company. The current
members of the Committee are Dr. Arnold Naimark (Chair), Gerald McDole, Peter Quick and Brent Fawkes, none of whom is a current
or former executive officer of the Company. The Committee meets at least once a year.
The Committee has developed a policy to
govern the Company's approach to corporate governance issues and provides a forum for concerns of individual directors about matters
not easily or readily discussed in a full board meeting, e.g., the performance of management. The Committee ensures there is a
clear definition and separation of the responsibilities of the Board, the Committees of the Board, the Chief Executive Officer
and other management employees. It also ensures there is a process in place for the orientation and education of new directors
and for continuing education of the Board. The Committee also assesses the effectiveness of the Board and its committees on an
ongoing ad hoc basis. It also reviews at least annually the Company's responsiveness to environmental impact, health and safety
and other regulatory standards.
The Committee reviews the objectives, performance
and compensation of the Chief Executive Officer at least annually and makes recommendations to the Board for change. The Committee
makes recommendations based upon the Chief Executive Officer’s suggestions regarding the salaries and incentive compensation
for senior officers of the Company. The Committee also reviews significant changes to compensation, benefits and human resources
policies and compliance with current human resource management practices, such as pay equity, performance review and staff development.
The Committee is responsible for reviewing and recommending changes to the compensation of directors as necessary.
The charter of the Executive Compensation,
Nominating and Corporate Governance Committee can be found on the Company’s website at
www.medicure.com
.
D. Employees
In addition to the individuals disclosed
in Section A. Directors and Senior Management of this item, the Company has 64 employees through Medicure as at December 31, 2018.
During the year ended December 31, 2018, the Company increased its total employment and plans to continue to increase total employment
during 2019.
E. Share Ownership
The following table discloses the number
of shares (each share possessing identical voting rights), stock options and percent of the shares outstanding held by the directors
and officers of the Company, and their respective affiliates, directly and indirectly, at December 31, 2018.
Title of Class
|
|
Identity of Person or Group
|
|
Amount Owned
|
|
|
Percentage of Class
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
Dr. Albert D. Friesen
(1)
|
|
|
2,397,955
|
(1)
|
|
|
15.42
|
%
|
Common shares
|
|
Dr. Arnold Naimark
|
|
|
38,527
|
|
|
|
0.25
|
%
|
Common shares
|
|
Gerald P. McDole
|
|
|
48,283
|
|
|
|
0.31
|
%
|
Common shares
|
|
Peter Quick
|
|
|
43,611
|
|
|
|
0.28
|
%
|
Common shares
|
|
Brent Fawkes
|
|
|
12,376
|
|
|
|
0.08
|
%
|
Common shares
|
|
James Kinley
|
|
|
47,100
|
|
|
|
0.30
|
%
|
|
(1)
|
Dr. Albert D. Friesen holds 781,267 shares personally or in an RRSP, a Canadian individual retirement
plan. The rest of the shares are held by ADF Family Holding Corp. ADF Enterprises Inc., his wife Mrs. Leona M. Friesen, and CentreStone
Ventures Limited Partnership Fund. Dr. Friesen is the General Partner of CentreStone Ventures Limited Partnership Fund.
|
Incentive Stock Options
The Company has established an Incentive
Stock Option Plan (the ‘‘
Plan
’’) for its directors, key officers, employees and consultants. Options
granted pursuant to the Plan will not exceed a term of ten years and are granted at an option price and on other terms which the
directors determine is necessary to achieve the goal of the Plan and in accordance with regulatory requirements, including those
of the TSX Venture Exchange. Each option entitles the holder thereof to purchase one (1) Common Share of the Company on the terms
set forth in the Plan and in such purchaser’s specific stock option agreement. The option price may be at a discount to market
price, which discount will not, in any event, exceed that permitted by any stock exchange on which the Company’s Common Shares
are listed for trading.
The number of Common Shares allocated to
the Plan, the exercise period for the options, and the vesting provisions for the options will be determined by the board of directors
of the Company from time to time. The Company’s stock option plan allowed for the issuance of stock options to purchase up
to a maximum of 20% of the outstanding common shares at the time of approval of the stock option plan, which resulted in a fixed
number of stock options allowed to be granted totaling 2,934,403. The Plan was adopted by the shareholders of the Company on June
22, 2016.
The Common Shares issued pursuant to the
exercise of options, when fully paid for by a participant, are not included in the calculation of Common Shares allocated to or
within the Plan. Should a participant cease to be eligible due to the loss of corporate office (being that of an officer or director)
or employment, the option shall cease for varying periods not exceeding 90 days. Loss of eligibility for consultants is regulated
by specific rules imposed by the directors when the option is granted to the appropriate consultant. The Plan also provides that
estates of deceased participants can exercise their options for a period not exceeding one year following death.
The following table discloses the stock
options beneficially held by the directors and officers of the Company, and their respective affiliates, directly and indirectly,
as of December 31, 2018. The stock options are subject to the Plan and are for shares of Common Stock of the Company.
Name of Person
|
|
Number of
Shares Subject
to Issuance
|
|
|
Exercise
Price per
Share
|
|
|
Expiry Date
|
Dr. Albert D. Friesen
|
|
|
5,000
|
|
|
$
|
6.16
|
|
|
April 7, 2021
|
|
|
|
414,000
|
|
|
$
|
1.50
|
|
|
July 18, 2021
|
|
|
|
15,000
|
|
|
$
|
7.20
|
|
|
December 19, 2022
|
|
|
|
100,000
|
|
|
$
|
7.30
|
|
|
January 31, 2023
|
|
|
|
7,500
|
|
|
$
|
1.90
|
|
|
July 7, 2024
|
|
|
|
9,000
|
|
|
$
|
1.90
|
|
|
March 27, 2025
|
Dr. Arnold Naimark
|
|
|
667
|
|
|
$
|
0.60
|
|
|
April 16, 2019
|
|
|
|
4,000
|
|
|
$
|
6.16
|
|
|
April 7, 2021
|
|
|
|
5,000
|
|
|
$
|
7.20
|
|
|
December 19, 2022
|
|
|
|
45,000
|
|
|
$
|
0.30
|
|
|
May 10, 2023
|
|
|
|
4,500
|
|
|
$
|
1.90
|
|
|
July 7, 2024
|
|
|
|
7,200
|
|
|
$
|
1.90
|
|
|
March 27, 2025
|
Gerald P. McDole
|
|
|
667
|
|
|
$
|
0.60
|
|
|
April 16, 2019
|
|
|
|
4,000
|
|
|
$
|
6.16
|
|
|
April 7, 2021
|
|
|
|
5,000
|
|
|
$
|
7.20
|
|
|
December 19, 2022
|
|
|
|
45,000
|
|
|
$
|
0.30
|
|
|
May 10, 2023
|
|
|
|
4,500
|
|
|
$
|
1.90
|
|
|
July 7, 2024
|
|
|
|
7,200
|
|
|
$
|
1.90
|
|
|
March 27, 2025
|
Peter Quick
|
|
|
667
|
|
|
$
|
0.60
|
|
|
April 16, 2019
|
|
|
|
4,000
|
|
|
$
|
6.16
|
|
|
April 7, 2021
|
|
|
|
5,000
|
|
|
$
|
7.20
|
|
|
December 19, 2022
|
|
|
|
45,000
|
|
|
$
|
0.30
|
|
|
May 10, 2023
|
|
|
|
4,500
|
|
|
$
|
1.90
|
|
|
July 7, 2024
|
|
|
|
7,200
|
|
|
$
|
1.90
|
|
|
March 27, 2025
|
Brent Fawkes
|
|
|
4,000
|
|
|
$
|
6.16
|
|
|
April 7, 2021
|
|
|
|
5,000
|
|
|
$
|
7.20
|
|
|
December 19, 2022
|
|
|
|
45,000
|
|
|
$
|
0.30
|
|
|
May 10, 2023
|
|
|
|
4,500
|
|
|
$
|
1.90
|
|
|
July 7, 2024
|
|
|
|
7,200
|
|
|
$
|
1.90
|
|
|
March 27, 2025
|
James Kinley
|
|
|
4,000
|
|
|
$
|
6.16
|
|
|
April 7, 2021
|
|
|
|
100,000
|
|
|
$
|
7.20
|
|
|
December 19, 2022
|
|
|
|
7,500
|
|
|
$
|
1.90
|
|
|
July 7, 2024
|
|
|
|
7,200
|
|
|
$
|
1.90
|
|
|
March 27, 2025
|
On
February 1, 2018, the Company announced that its Board of Directors had approved the grant of 100,000 stock options to an officer
of the Company pursuant to its stock option plan. These options, which were subject to the approval of the TSX-V, are set to expire
on the fifth anniversary of the date of grant and were issued at an exercise price of $7.30 per share.
During the year ended December 31, 2018, James Kinley exercised
45,000 stock options to acquire 45,000 common shares of the Company at an exercise price of $0.30.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED
PARTY TRANSACTIONS
A. Major Shareholders
As of December 31, 2018, the following
table sets forth the beneficial ownership of the Company's common shares by each person known by the Company to own beneficially
more than 5% of the issued and outstanding common shares of the Company. Information as to shares beneficially owned, directly
or indirectly, by each nominee or over which each nominee exercises control or direction, not being within the knowledge of the
Company, has been furnished by the respective nominees individually. The Company does not know the majority of the ultimate beneficial
owners of these common shares.
Title of Class
|
|
Identity of Person or Group
|
|
Amount Owned
(3)
|
|
|
Percentage of Class
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
Dr. Albert D. Friesen Winnipeg, Manitoba
|
|
|
2,397,955
|
(1)
|
|
|
15.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
MM Asset Management Inc. Toronto, Ontario
|
|
|
3,977,145
|
|
|
|
25.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
PenderFund Capital Management Ltd
|
|
|
1,899,150
|
|
|
|
12.21
|
%
|
Notes:
|
(1)
|
Dr. Albert Friesen holds 781,267 shares personally or in
an RRSP. The rest of the shares are held by ADF Family Holding Corp., his wife Mrs. Leona M. Friesen, and CentreStone Ventures
Limited Partnership Fund. Dr. Friesen is the General Partner of CentreStone Ventures Limited Partnership Fund.
|
To the best of the Company's knowledge,
it is not owned or controlled, directly or indirectly, by another Company, by any foreign government or by any other natural or
legal person severally or jointly.
As of December 31, 2018, the total number
of issued and outstanding common shares of the Company beneficially owned by the directors and executive officers of the Company
as a group was 2,587,852 (or 16.64% of common shares).
To the best of the Company's knowledge,
there are no arrangements, the operation of which at a subsequent date will result in a change in control of the Company.
The major shareholders do not have any
special voting rights.
Insider Reports under Canadian Securities
Legislation
Since the Company a reporting issuer under
the Securities Acts of each of the provinces of Canada, certain “insiders” of the Company (including its directors,
certain executive officers, and persons who directly or indirectly beneficially own, control or direct more than 10% of its common
shares) are generally required to file insider reports of changes in their ownership of the Company's common shares five days
following the trade under National Instrument 55-104 –
Insider Reporting Requirements and Exemptions
, as adopted
by the Canadian Securities Administrators. Insider reports must be filed electronically five days following the date of the trade
at
www.sedi.ca
. The public is able to access these reports at
www.sedi.ca
.
The U.S. rules governing the ownership
threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13 of the
Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in the Rule 13d-3
under the Exchange Act) of more than 5 per cent of a class of an equity security registered under Section 12 of the Exchange Act.
In general, such persons must file, within 10 days after such acquisition, a report of beneficial ownership with the Securities
and Exchange Commission containing the information prescribed by the regulations under Section 13 of the Exchange Act. This information
is also required to be sent to the issuer of the securities and to each exchange where the securities are traded.
B. Related Party Transactions
Except as disclosed below, the Company
has not, since January 1, 2015, and does not at this time propose to:
|
(1)
|
enter into any transactions which are material to the Company or a related party or any transactions
unusual in their nature or conditions involving goods, services or tangible or intangible assets to which the Company or any of
its former subsidiaries was a party;
|
|
(2)
|
make any loans or guarantees directly or through any of its former subsidiaries to or for the benefit
of any of the following persons:
|
|
(a)
|
enterprises directly or indirectly through one or more intermediaries, controlling or controlled
by or under common control with the Company;
|
|
(b)
|
associates of the Company (unconsolidated enterprises in which the Company has significant influence
or which has significant influence over the Company) including shareholders beneficially owning 10% or more of the outstanding
shares of the Company;
|
|
(c)
|
individuals owning, directly or indirectly, shares of the
Company that gives them significant influence over the Company and close members of such individuals families;
|
|
(d)
|
key management personnel (persons having authority in responsibility for planning, directing and
controlling the activities of the Company including directors and senior management and close members of such directors and senior
management); or
|
|
(e)
|
enterprises in which a substantial voting interest is owned, directly or indirectly, by any person
described in (c) or (d) or over which such a person is able to exercise significant influence.
|
On July 18, 2011, the Company entered into
a consulting agreement with A.D. Friesen Enterprises Ltd. pursuant to which Dr. Albert Friesen serves the Company as its Chief
Executive Officer. The agreement is for a term of five years, at a rate of $180,000 annually. Dr. Friesen is also eligible for
a yearly merit/performance bonus, if any, that the Company’s board of directors, in its sole discretion, may authorize. Effective
July 18, 2016, the Company renewed its consulting agreement with its Chief Executive Officer, through A.D. Friesen Enterprises
Ltd., a company owned by the Chief Executive Officer. for a term of five years, at a rate of $300,000 annually, increasing to $315,000
annually, effective January 1, 2017. The Company may terminate this agreement at any time upon 120 days’ written notice.
As at December 31, 2018 and 2017, there were no amounts included in accounts payable and accrued liabilities payable to A. D. Friesen
Enterprises Ltd. as a result of this consulting agreement. Any amounts payable to A. D. Friesen Enterprises Ltd. are unsecured,
payable on demand and non-interest bearing.
During the year ended December 31, 2017,
the Company recorded a bonus of $125,000 to its Chief Executive Officer which is recorded within the gain on the sale of Apicore,
which was paid during fiscal 2018. During the year ended December 31, 2016, the Company recorded a bonus of $54,380 to its Chief
Executive Officer which is recorded within selling, general and administrative expenses. During the year ended December 31, 2015,
the Company recorded a bonus of $100,000 to its Chief Executive Officer which is recorded within selling, general and administrative
expenses.
On July 11, 2014, the Company announced
that, subject to all necessary regulatory approvals, it has entered into shares for debt agreements with its Chief Executive Officer,
Dr. Albert Friesen and certain members of the Board of Directors, pursuant to which the Company will issue 205,867 of its common
shares at a deemed price of $1.98 per common share to satisfy $407,617 of outstanding amounts owing to CEO and members of the Company’s
Board of Directors. The shares were issued on January 9, 2015.
The Company may terminate the consulting
agreement with the CEO for any reason and at any time upon 120 days’ written notice. In relation to the consulting agreement
with A.D. Friesen Enterprises Ltd. the Company recorded consulting fees payable to A.D. Friesen Enterprises Ltd. During the year
ended December 31, 2018 and 2017, the Company recorded a total of $315,000, respectively, to A.D. Friesen Enterprises Ltd. During
the year ended December 31, 2016, the Company recorded a total of $300,000 to A.D. Friesen Enterprises Ltd. During the year ended
December 31, 2015, the Company recorded a total of $186,000 to A.D. Friesen Enterprises Ltd.
Dr. Friesen, a director, the Chairman and
the Chief Executive Officer of the Company is also the majority shareholder in a management services company, Genesys Venture Inc.
(“
GVI
”) which entered into a management services agreement with the Company as of October 1, 2010. Effective
January 1, 2012, the Company entered into a new business and administration services agreement with GVI under which the Company
is committed to pay $15,833.33 per month or $190,000 per annum along with an additional $500 per month for each office space it
requests and is given access to by GVI. The agreement was for an initial term of one year and shall be automatically renewed for
succeeding terms of one year. Either party may terminate the agreement at any time after June 30, 2012, upon 90 days written notice
to the other party. The Chief Financial Officer's services, accounting, payroll, human resources, and information technology are
provided pursuant to this agreement. The agreement was renewed for the 2013 and 2014 calendar years. Effective November 1, 2014,
the business and administration services agreement was renegotiated for a further 14 month term ending December 31, 2015 at a rate
of $17,917 per month, or $215,000 per year. Effective January 1, 2016, the Company entered into a new business and administration
services agreement with GVI, under which the Company is committed to paying $7,083 per month or $85,000 per year for a one year
term and the agreement no longer includes the services of the Chief Financial Officer. Effective January 1, 2017, the Company renewed
its business and administration services agreement with GVI, under which the Company is committed to pay $7,083 per month or $85,000
per year for a one-year term and effective January 1, 2018, this agreement was renewed for an additional one-year term.
During the year ended December 31, 2018
the Company paid GVI, a company controlled by the Chief Executive Officer, a total of $85,000 (2017 – $85,000; 2016 –
$85,000; 2015 – $215,000, seven months ended December 31, 2014 – $115,000) for business administration services, $227,733
(2017 – $212,000; 2016 – $222,500; 2015 - $176,051, seven months ended December 31, 2014 – $36,500) in rental
costs and $46,950 (2017 – $43,800; 2016 – $41,975; 2015 – $33,575, seven months ended December 31, 2014 –
$25,115) for commercial and information technology support services. As described in note 16(b) to the Company’s audited
consolidated financial statements included in this annual report, the business administration services summarized above are provided
to the Company through a consulting agreement with GVI. The business administration services summarized above are provided to the
Company through a consulting agreement with GVI. Until December 31, 2015, the GVI agreement included the Chief Financial Officer's
services to the Company, as well as accounting, payroll, human resources and some information technology services. The business
and administration services agreement entered into effective January 1, 2016 and subsequently no longer includes the Chief Financial
Officer's services, which effective January 1, 2016, will be paid directly by the Company through a consulting agreement.
Dr. Friesen, a director, the Chairman and
the Chief Executive Officer of the Company also owns a clinical research organization, GVI Clinical Development Solutions Inc.
(“
GVI CDS
”) which entered into the following clinical research contracts with the Company;
Nature of Agreement
|
|
Effective Date
|
|
Terms
|
Regulatory affairs support
|
|
June 22, 2009
|
|
Services provided as needed on an hourly basis
|
Pharmacovigilance and medical affairs support
|
|
January 1, 2014
|
|
Monthly retainer of $2,000, plus hourly charges for pharmacovigilance services outside base services.
|
Pharmacovigilance and medical affairs support
|
|
January 1, 2014
|
|
Monthly retainer of $1,250, plus hourly charges for pharmacovigilance services outside base services.
|
Quality assurance support
|
|
June 1, 2010
|
|
Services provided as needed on an hourly basis.
|
Clincial services
|
|
May 1, 2010
|
|
Services provided as needed on an hourly basis.
|
During the year ended December 31, 2018,
the Company paid GVI CDS $857,917 (2017 – $715,623; 2016 – $592,464, 2015 - $330,764, seven months ended December 31,
2014 – $56,904) for clinical research services.
The Company also has a consulting agreement
with CanAm Bioresearch Inc. (“
CanAm
”), a company controlled by a close family member of Dr. Friesen’s
to provide contract research services. During the year ended December 31, 2018, the Company paid CanAm $393,021 (2017 – $458,424;
2016 – $560,205; 2015 - $399,580, seven months ended December 31, 2014 – $233,938) for research and development services.
These transactions have been measured at
the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Beginning on February 22, 2013 and until
June 30, 2015, the amounts owing to GVI, GVI CDS and CanAm bore interest at a rate of 5.5% per annum. For the year ended December
31, 2017 and 2016, there was no interest charged on these amounts payable to related. For the year ended December 31, 2015, seven
months ended December 31, 2014 and the year ended May 31, 2014, $4,517, $10,127 and $14,918, respectively, was recorded within
finance expense in relation to these amounts payable to related parties.
Beginning with the acquisition of Apicore
(the “Acquisition”) on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017, as described
in note 5 of the consolidated financial statements, the Company incurred rental charges pertaining to leased manufacturing facilities
and office space from Dap Dhaduk II LLC (“Dap Dhaduk”), an entity controlled by a minority shareholder and member of
the board of directors of Apicore Inc. Included within discontinued operations on the consolidated statements of net income and
comprehensive income is payments to Dap Dhaduk totaling $263,493 and $29,869 for the years ended December 31, 2017 and 2016, respectively.
Beginning with the Acquisition on December
1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017, as described in note 5 of the consolidated financial
statements, the Company purchased inventory from Aktinos Pharmaceuticals Private Limited and Aktinos HealthCare Private Limited
(together, “Aktinos”), an entity significantly influenced by a close family member of the Chief Executive Officer of
Apicore Inc. For the year ended December 31, 2017, the Company paid Aktinos $1,599,056 (2016 – $217,382) for purchases of
inventory, which were included in assets of the Apicore business sold (note 5) in connection with the Apicore Sales Transaction.
Beginning with the Acquisition on December
1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017, as described in note 5 of the consolidated financial
statements, the Company incurred research and development charges from Omgene Life Sciences Pvt. Ltd. (“Omgene”), an
entity significantly influenced by a close family member of the Chief Executive Officer of Apicore Inc. Included within discontinued
operations on the consolidated statements of net income and comprehensive income is payments to Omgene totaling $26,465 and nil
for the years ended December 31, 2017 and 2016, respectively.
Beginning with the Acquisition on December
1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017, as described in note 5 of the consolidated financial
statements,, the Company incurred pharmacovigilance charges from 4C Pharma Solutions LLC (“4C Pharma”), an entity significantly
influenced by a close family member of the Chief Executive Officer of Apicore Inc. Included within discontinued operations on the
consolidated statements of net income and comprehensive income is payments to 4C Pharma totaling $5,690 and nil for the years ended
December 31, 2017 and 2016, respectively.
As at December 31, 2018, included in
accounts payable and accrued liabilities is $16,843 (2017 – $67,704) payable to GVI, $134,461 (2017 – $118,973)
payable to GVI CDS, and $40,452 (2017 – $36,606) payable to CanAm. These amounts are unsecured, payable on demand and
non-interest bearing. In addition, the other long-term liability totaling $1,200,608 (2017 - $1,135,007) is payable to the
former President and Chief Executive Officer of Apicore upon receipt of the holdback receivable.
As at December 31, 2018, the Company has
$4,683 (2017 – $1,000; 2016 – $13,279) recorded within accounts payable and accrued liabilities relating to amounts
payable to the members of the Company's Board of Directors for services provided.
Effective July 18, 2016, the Company renewed
its consulting agreement with its Chief Executive Officer, through A.D. Friesen Enterprises Ltd., a company owned by the Chief
Executive Officer, for a term of five years, at a rate of $300,000 annually, increasing to $315,000 annually, effective January
1, 2017. The Company may terminate this agreement at any time upon 120 days’ written notice. As at December 31, 2018, there
were no amounts included in accounts payable and accrued liabilities (2017 – $125,000) payable to A.D. Friesen Enterprises
Ltd. as a result of this consulting agreement. Any amounts payable to A.D. Friesen Enterprises Ltd. are unsecured, payable on demand
and non-interest bearing.
On July 11, 2014, the Company announced
that, subject to all necessary regulatory approvals, it had entered into a shares for debt agreement with its Chief Executive Officer,
pursuant to which the Company will issue common shares at a deemed price of $1.98 per common share to satisfy outstanding amounts
owing to the Chief Executive Officer. Of the amount payable to the Chief Executive Officer as at December 31, 2014, $297,808 was
included in this shares for debt agreement. The shares were issued on January 9, 2015.
Effective January 1, 2018, the Company
renewed its consulting agreement with its Chief Financial Officer, through JFK Enterprises Ltd., a company owned by the Chief Financial
Officer of the Company, for a one-year term, at a rate of $155,000 annually. The agreement could have been terminated by either
party, at any time, upon 30 days written notice. Any amounts payable to JFK Enterprises Ltd. were unsecured, payable on demand
and non-interest bearing. Effective June 1, 2018, this consulting agreement was converted into an employment agreement with the
Chief Financial Officer.
C. Interests of Experts and Counsel
Not applicable
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements or Other
Financial Information
f
inancial
Statements
The consolidated financial
statements of the Company for the years ended December 31, 2018, 2017 and 2016 have been prepared in accordance with IFRS, as
issued by the IASB, and are included under Item 18 of this Annual Report. The consolidated financial statements including
related notes are accompanied by the report of the Company’s independent registered public accounting firm,
PricewaterhouseCoopers LLP as at and for the year ended December 31, 2018 and Ernst & Young LLP as at December 31, 2017
and for the years ended December 31, 2017 and December 31, 2016.
Legal Proceedings
Subsequent to December 31, 2018, on
February 13, 2019, the Company received notice from the Buyer in the Apicore Sales Transaction of potential claims
against the holdback receivable in respect of representations and warranties under the Apicore Sales Transaction, with the
maximum exposure of the claims being the total holdback receivable. The notice did not contain sufficiently detailed
information to enable the Company to assess the merits of the claims. The Company will proceed diligently to investigate the
potential claims and attempt to satisfactorily resolve them with a view to having the holdback receivable released.
On November 16, 2018, the Company announced
that it had filed a patent infringement action against Gland Pharma Ltd. (“
Gland
”) in the U.S. District Court
for the District of New Jersey, alleging infringement of U.S. Patent No. 6,770,660 (“the
’660 patent
”).
The patent infringement action was in response
to Gland’s filing of an ANDA seeking approval from the FDA to market a generic version of AGGRASTAT
®
before
the expiration of the ’660 patent. The ’660 patent is listed in FDA’s Orange Book for AGGRASTAT
®
.
Medicure will vigorously defend the ’660 patent and will pursue the patent infringement action against Gland and all other
legal options available to protect its patent rights.
During 2018, the
Company
was named in a civil claim in Florida from the third-party manufacturer of PREXXARTAN
®
against Carmel.
The claim disputed the rights granted by Carmel to the Company with respect to PREXXARTAN
®
. The Company believed
the claim against it was without merit and intended to defend itself against the claim. The claim against the Company has been
subsequently withdrawn, however the dispute between the third-party manufacturer and Carmel continues.
Aside from the above, there are no additional
legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings and those involving
any third party, which may have, or have had in the recent past, significant effects on the Company’s financial position
or profitability. There are no additional significant legal proceedings to which the Company is a party, nor to the best of the
knowledge of the Company’s management are any legal proceedings contemplated.
Dividend Policy
The Company has not paid dividends in the
past and it has no present intention of paying dividends on its shares as it anticipates that all available funds will be invested
to finance the growth of its business. The directors of the Company will determine if and when dividends should be declared and
paid in the future based upon the Company’s financial position at the relevant time. All of the Company’s Shares are
entitled to an equal share of any dividends declared and paid.
B. Significant Changes
There have been no significant changes
to the accompanying financial statements since December 31, 2018, except as disclosed in this Annual Report on Form 20-F.
ITEM 9. THE OFFERING AND LISTING
A. Listing Details
On October 24, 2011, the Company’s
common shares commenced trading on the TSX-V under the symbol “MPH”.
By Articles of Amendment filed by the Company
under the
Canada Business Corporations Act
on November 1, 2012, the Company’s issued and outstanding common shares
were consolidated on the basis of one post-consolidation common share for every fifteen pre-consolidation common shares. The Company's
name and trading symbol did not change as a result of the consolidation. The Company’s common shares were reduced from 182,947,595
to 12,196,508 issued and outstanding as a result of the consolidation. The trading prices presented here have not been adjusted
to reflect the consolidation.
The following table sets forth for the
periods indicated the price history of the Company’s common shares on the TSX-V.
|
|
TSX-V
|
|
|
TSX-V
|
|
|
|
High ($)
|
|
|
Low ($)
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
7.15
|
|
|
|
5.71
|
|
September 30, 2018
|
|
|
7.38
|
|
|
|
6.60
|
|
June 30, 2018
|
|
|
7.55
|
|
|
|
5.90
|
|
March 31, 2018
|
|
|
7.40
|
|
|
|
6.70
|
|
December 31, 2017
|
|
|
8.71
|
|
|
|
6.90
|
|
September 30, 2017
|
|
|
8.45
|
|
|
|
7.50
|
|
June 30, 2017
|
|
|
9.82
|
|
|
|
6.50
|
|
March 31, 2017
|
|
|
10.55
|
|
|
|
8.52
|
|
December 31, 2016
|
|
|
10.67
|
|
|
|
5.48
|
|
September 30, 2016
|
|
|
7.20
|
|
|
|
5.49
|
|
June 30, 2016
|
|
|
6.98
|
|
|
|
4.73
|
|
March 31, 2016
|
|
|
7.29
|
|
|
|
4.18
|
|
December 31, 2015
|
|
|
4.35
|
|
|
|
3.00
|
|
September 30, 2015
|
|
|
3.94
|
|
|
|
2.35
|
|
June 30, 2015
|
|
|
2.74
|
|
|
|
1.91
|
|
March 31, 2015
|
|
|
2.39
|
|
|
|
1.20
|
|
B. Plan of Distribution
Not applicable.
C. Markets
The Company's common shares are listed
for trading on the TSX-V under the symbol “MPH”. Certain market makers also trade the Company’s common shares
on the OTC Pink Market, under the symbol “MCUJF”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable
B. Memorandum and Articles of Association
1. Objects and Purposes of the Company
The Articles of Continuance (as amended,
the “
Articles
”) and the By-Laws of the Company place no restrictions upon the Company’s objects and purposes.
2. Directors
Under applicable Canadian law, the directors
and officers of the Company, in exercising their powers and discharging their duties, must act honestly and in good faith with
a view to the best interests of the Company. The directors and officers must also exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances.
Section 4.18 of By-Law No.1A of the Company
(the “
By-Law
”) provides that a director shall not be disqualified by reason of his office from contracting with
the Company or a subsidiary thereof. Subject to the provisions of the
Canada Business Corporations Act
(the “
Act
”),
a director shall not by reason only of his office be accountable to the Company or its shareholders for any profit or gain realized
from a contract or transaction in which he has an interest. Such contract or transaction shall not be voidable by reason only of
such interest, or by reason only of the presence of a director so interested at a meeting, or by reason only of his presence being
counted in determining a quorum at a meeting of the directors at which such a contract or transaction is approved, provided that
a declaration and disclosure of such interest shall have been made at the time and in the manner prescribed by section 120 of the
Act, and the director so interested shall have refrained from voting as a director on the resolution approving the contract or
transaction (except as permitted by the Act) and such contract shall have been reasonable and fair to the Company and shall have
been approved by the directors or shareholders of the Company as required by section 120 of the Act.
The Company’s Articles provide that
the Company’s board shall consist of a minimum of one and a maximum of 15 directors. The exact number of directors to form
the board, between the minimum and maximum number of directors prescribed by the Articles, is determined from time to time by the
board. Section 4.01 of the By-Law states that the quorum of the board shall be a majority of the board, or such other number of
directors as the board may from time to time determine. No business shall be transacted at a meeting unless a quorum is present.
Section 3.01 of the By-Law states that
the board may, without the authorization of the shareholders:
|
i)
|
borrow money upon the credit of the Company;
|
|
ii)
|
issue, reissue, sell or pledge debt obligations of the
Company, including bonds, debentures, notes or other evidences of indebtedness or guarantees, whether secured or unsecured;
|
|
iii)
|
subject to section 44 of the Act, give a guarantee on behalf
of the Company to secure performance of any present or future indebtedness, liability or obligation of any person; and
|
|
iv)
|
mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Company, owned or subsequently acquired, to secure any obligation of the Company.
|
The borrowing powers of the directors can
be varied by amending the By-Law of the Company.
There is no provision in the By-Law imposing
a requirement for retirement or non-retirement of directors under an age limit requirement.
Section 4.02 of the By-law states that
a director need not be a shareholder to be qualified as a director. However, section 4.02 also provides that at least 25% of the
directors shall be resident Canadians unless the Company has less than four directors, in which case at least one director must
be a resident Canadian.
Under section 4.03 of the By-law, directors
are to be elected yearly by ordinary resolution to hold office until the close of the next annual meeting of shareholder. If directors
fail to be elected at any such meeting of shareholders, then the incumbent directors continue in office until their successors
are elected.
3. Shares
The Articles of the Company provide that
the Company is authorized to issue an unlimited number of shares designated as Common Shares, Class A Common Shares and Preferred
Shares. Except for meetings at which only holders of another specified class or series of shares of the Company are entitled to
vote separately as a class or series, each holder of the Common and Class A shares is entitled to receive notice of, to attend
and to vote at all meetings of the shareholders of the Company. Subject to the rights, privileges, restrictions and conditions
attached to any other class of shares of the Company, the holders of the Common and Class A shares are also entitled to receive
dividends if, as and when declared by the directors of the Company and are entitled to share equally in the remaining property
of the Company upon liquidation, dissolution or winding-up of the Company.
The Preferred Shares may from time to time
be issued in one or more series and, subject to the following provisions, and subject to the sending of articles of amendment in
respect thereof, the directors may fix from time to time and before issue a series of Preferred Shares, the number of shares which
are to comprise that series and the designation, rights, privileges, restrictions and conditions to be attached to that series
of Preferred Shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method
of calculating dividends, the dates of payment of dividends, the redemption, purchase and/or conversion, and any sinking fund or
other provisions.
The Preferred Shares of each series shall,
with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution
or winding-up of the Company, whether voluntary or involuntary, or any other return of capital or distribution of the assets of
the Company among its shareholders for the purpose of winding-up its affairs, rank on a parity with the Preferred Shares of every
other series and be entitled to preference over the Common and Class A Common Shares and over any other shares of the Company ranking
junior to the Preferred Shares. The Preferred Shares of any series may also be given other preferences, not inconsistent with these
articles, over the Common Shares and Class A Common Shares and any other shares of the Company ranking junior to the Preferred
Shares of a series as may be fixed in accordance with terms outlined above.
If any cumulative dividends or amounts
payable on the return of capital in respect of a series of Preferred Shares are not paid in full, all series of Preferred Shares
shall participate rateably in respect of accumulated dividends and return of capital.
Unless the directors otherwise determine
in the articles of amendment designating a series of Preferred Shares, the holder of each share or a series of Preferred Shares
shall not, as such, be entitled to receive notice of or vote at any meeting of shareholders, except as otherwise specifically provided
in the Act.
4. Rights of Shareholders
Under the Act, shareholders of the Company
are entitled to examine, during its usual business hours, the Company’s articles and by-laws, notices of directors and change
of directors, any unanimous shareholder agreements, the minutes of meetings and resolutions of shareholders and the list of shareholders.
Shareholders of the Company may obtain
a list of shareholders upon payment of a reasonable fee and sending an affidavit to the Company or its transfer agent stating,
among other things, that the list of shareholders will not be used by any person except in connection with an effort to influence
the voting of shareholders of the Company, an offer to acquire shares of the Company or any other matter relating to the affairs
of the Company.
Under the Act, shareholders of the Company
may apply to a court having jurisdiction directing an investigation to be made of the Company. If it appears to the court that
the formation, business or affairs of the Company were conducted for fraudulent or unlawful purposes, or that the powers of the
directors were exercised in a manner that is oppressive or unfairly disregards the interests of the shareholders, the court may
order an investigation to be made of the Company.
To change the rights of holders of stock,
where such rights are attached to an issued class or series of shares, requires the consent by a separate resolution of the holders
of the class or series of shares, as the case may be, requiring a majority of two-thirds of the votes cast.
The Company is organized under the laws
of Canada. The majority of the Company’s directors, officers, and affiliates of the Company, as well as the experts named
in this registration statement, are residents of Canada and, to the best of the Company’s knowledge, all or a substantial
portion of their assets and all of the Company’s assets are located outside of the United States. As a result, it may be
difficult for shareholders of the Company in the United States to effect service of process on the Company or these persons above
within the United States, or to realize in the United States upon judgments rendered against the Company or such persons. Additionally,
a shareholder of the Company should not assume that the courts of Canada (i) would enforce judgments of U.S. courts obtained in
actions against the Company or such persons predicated upon the civil liability provisions of the U.S. federal securities laws
or other laws of the United States, or (ii) would enforce, in original actions, liabilities against the Company or such persons
predicated upon the U.S. federal securities laws or other laws of the United States.
Laws in the United States and judgments
of U.S. courts would generally be enforced by a court of Canada unless such laws or judgments are contrary to public policy in
Canada, are or arise from foreign penal laws or laws that deal with taxation or the taking of property by a foreign government
and are not in compliance with applicable laws in Canada regarding the limitation of actions. Further, a judgment obtained in a
U.S. court would generally be recognized by a court of Canada, except under the following examples:
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i)
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the judgment was rendered in a U.S. court that had no jurisdiction
according to applicable laws in Canada;
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ii)
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the judgment was subject to ordinary remedy (appeal, judicial
review and any other judicial proceeding which renders the judgment not final, conclusive or enforceable under the laws of the
applicable state) or not final, conclusive or enforceable under the laws of the applicable state;
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iii)
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the judgment was obtained by fraud or in any manner contrary
to natural justice or rendered in contravention of fundamental principles of procedure; and
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iv)
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a dispute between the same parties, based on the same subject
matter has given rise to a judgment rendered in a court of Canada or has been decided in a third country and the judgment meets
the necessary conditions for recognition in a court of Canada.
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5. Meetings
Subject to the provisions of the Act, the
annual general meeting of the shareholders shall be on such date in each year as the board of directors may determine, and a special
meeting of the shareholders may be convened at any time by order of the President or by the board on their own motion or on the
requisition of shareholders as provided for in the Act. Notice of the time and place of each meeting of shareholders shall be given
not less than 21 days nor more than 60 days before the date of the meeting to each director and shareholder. A meeting of shareholders
may be held without notice at any time and at any place provided a waiver of notice is obtained in accordance with section 136
of the Act. The quorum for the transaction of business at meetings of the shareholders shall consist of not less than two shareholders
present or represented by proxy and holding in all not less than 10% percent of the outstanding shares entitled to vote at the
meeting. At any meeting of shareholders, every person shall be entitled to vote who, at the time of the taking of a vote (or, if
there is a record date for voting, at the close of business on such record date) is entered in the register of shareholders as
the holder of one or more shares carrying the right to vote at such meeting, subject to the provisions of the Act.
6. Ownership of Securities
There are no limitations imposed by the
Act, or by the Articles or By-Law or any other constituent document of the Company on the right of non-resident or foreign shareholders
to own or vote securities of the Company. However, the Investment Canada Act (Canada) will prohibit implementation, or if necessary,
require divestiture of an investment deemed “reviewable” under the
Investment Canada Act
(Canada) by an investor
that is not a “Canadian” as defined in the
Investment Canada Act
(Canada), unless after review the Minister
responsible for the
Investment Canada Act
(Canada) is satisfied that the “reviewable” investment is likely to
be of net benefit to Canada.
The following discussion summarizes the
principal features of the Investment Canada Act for a non-Canadian who proposes to acquire common shares of the Company. The discussion
is general only; it is not a substitute for independent legal advice from an investor's own adviser; and, except where expressly
noted, it does not anticipate statutory or regulatory amendments.
The Investment Canada Act is a
federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians,
including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures, Investments by
non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or
notifiable under the Investment Canada Act. If an investment by a non-Canadian to acquire control over an existing Canadian
business is reviewable under the Investment Canada Act, the Investment Canada Act generally prohibits implementation of the
investment unless, after review, the Minister of Industry is satisfied that the investment is likely to be of net benefit to
Canada.
An investment in the Company’s common
shares by a non-Canadian, who is not a resident of a World Trade Organization (“
WTO
”) member, would be reviewable
under the
Investment Canada Act
(Canada) if it was an investment to acquire control of the Company and the value of the
assets of the Company was CAN $5 million or more. An investment in common shares of the Company by a resident of a WTO member would
be reviewable only if it was an investment to acquire control of the Company and the enterprise value of the assets of the Company
was equal to or greater than a specified amount, which is published by the Minister after its determination for any particular
year. This amount is currently CAN $1 billion (unless the WTO member is party to one of a list of certain free trade agreements,
in which case the amount is currently CAN $1.5 billion); beginning January 1, 2019, both thresholds will be adjusted annually by
a GDP (Gross Domestic Product) based index.
A non-Canadian would be deemed to acquire
control of the Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of the outstanding
common shares (or less than a majority but controlled the Company in fact through the ownership of one-third or more of the outstanding
common shares) unless it could be established that, on the acquisition, the Company is not controlled in fact by the acquirer through
the ownership of such common shares. Certain transactions in relation to the Company’s common shares would be exempt from
review under the Investment Canada Act, including, among others, the following:
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a)
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the acquisition of voting shares or other voting interests
by any person in the ordinary course of that person’s business as a trader or dealer in securities;
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ii)
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the acquisition of control of the Company in connection
with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions
of the
Investment Canada Act
(Canada), if the acquisition is subject to approval under the
Bank Act
(Canada), the
Cooperative Credit Associations Act
(Canada), the
Insurance Companies Act
(Canada) or the
Trust and Loan Companies
Act
(Canada); and
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iii)
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the acquisition of control of the Company by reason
of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control
of the Company, through the ownership of voting interests, remains unchanged.
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7. Change in Control of Company
No provision of the Company’s Articles
or By-Law would have the effect of delaying, deferring, or preventing a change in control of the Company, and operate only with
respect to a merger, acquisition or corporate restructuring of the Company or any of its subsidiaries. The Company no longer has
a shareholder rights plan.
C. Material Contracts
The following are the material contracts
of the Company, other than those mentioned elsewhere in this Form, to which the Company or any member of the group is a party,
for the two years immediately preceding publication of this registration statement.
None
D. Exchange Controls
There is no law or governmental decree
or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other
payments to a non-resident holder of Common Shares, other than withholding tax requirements. Any such remittances to United States
residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. (See “Item
10E - Taxation”, below.)
Except as provided in the Investment Canada
Act (Canada), which has rules regarding certain acquisitions of shares by non-residents, there is no limitation imposed by Canadian
law, or by the Company’s Articles or By-Law, or by any other constituent documents of the Company, on the right of a non-resident
to hold or vote the Company’s common shares. Investment Canada Act is a Canadian federal statute of broad application regulating
the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof,
corporations, partnerships, trusts or joint ventures, . Investments by non-Canadians to acquire control over existing Canadian
businesses or to establish new ones are either reviewable or notifiable under the Investment Canada Act. If an investment by a
non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Canada Act, the Investment
Canada Act generally prohibits implementation of the investment unless, after review, the Minister of Industry is satisfied that
the investment is likely to be of net benefit to Canada.
E. Taxation
Material U.S. Federal Income Tax Considerations
The following is a summary of the anticipated
material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the
acquisition, ownership, and disposition of the Company’s common shares (“
Common Shares
”).
This summary is for general information
purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations
that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of Common Shares. In addition, this
summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S.
federal income tax consequences of the acquisition, ownership, and disposition of Common Shares for such U.S. Holder. Accordingly,
this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any
particular U.S. Holder. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements.
Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. state and local, and non-U.S. tax consequences
of the acquisition, ownership, and disposition of Common Shares.
No opinion from U.S. legal counsel or ruling
from the Internal Revenue Service (the “
IRS
”) has been requested, or will be obtained, regarding the U.S. federal
income tax consequences of the acquisition, ownership and disposition of Common Shares. This summary is not binding on the IRS,
and the IRS is not precluded from taking a position that is different from, or contrary to, any position taken in this summary.
In addition, because the authorities upon which this summary is based are subject to various interpretations, the IRS and the U.S.
courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue
Code of 1986, as amended (the “
Code
”), Treasury Regulations (whether final, temporary, or proposed), published
rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America
with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”),
and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this Annual Report.
Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such
change could be applied on a retroactive basis, which could affect the U.S. federal income tax consequences described in this summary.
This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted,
could be applied on a retroactive basis.
U.S. Holders
For purposes of this summary, a “
U.S.
Holder
” is a beneficial owner of Common Shares that, for U.S. federal income tax purposes, is (a) an individual
who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal
income tax purposes, that is created or organized in or under the laws of the U.S., any state in the U.S., or the District of Columbia,
(c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income,
or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes
or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons
have the authority to control all substantial decisions of such trust.
Non-U.S. Holders
For purposes of this summary, a “
non-U.S.
Holder
” is a beneficial owner of Common Shares other than a U.S. Holder. This summary does not address the U.S. federal
income tax consequences of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders. Accordingly, a non-U.S.
Holder should consult its own tax advisor regarding the U.S. federal, U.S. state and local, and non-U.S. tax consequences (including
the potential application of and operation of any tax treaties) of the acquisition, ownership, and disposition of Common Shares.
U.S. Holders Subject to Special U.S.
Federal Income Tax Rules Not Addressed
This summary does not address the U.S.
federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to U.S. Holders that are subject
to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations,
qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial
institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S.
Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities or currencies that elect to
apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S.
dollar; (e) U.S. Holders that are liable for the alternative minimum tax under the Code; (f) U.S. Holders that own Common
Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more
than one position; (g) U.S. Holders that are subject to Section 451(b) of the Code; (h) U.S. Holders that acquired Common
Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (i) U.S. Holders
that hold Common Shares other than as capital assets within the meaning of Section 1221 of the Code (generally, property held
for investment purposes); (j) U.S. Holders who are U.S. expatriates or former long-term residents of the United States; (k)
U.S. Holders that own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the
outstanding shares of the Company; or (l) corporations that accumulate earnings to avoid U.S. federal income tax. U.S. Holders
that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their
own tax advisors regarding the U.S. federal, U.S. state and local, and non-U.S. tax consequences of the acquisition, ownership,
and disposition of Common Shares.
If an entity that is classified as a partnership
(or other “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income
tax consequences to such partnership (or other “pass-through” entity) and the partners of such partnership (or owners
of such other “pass-through” entity) generally will depend on the activities of the partnership (or other “pass-through”
entity) and the status of such partners (or owners). This summary does not address the U.S. federal income tax consequences for
any such partner or partnership (or other “pass-through” entity or owner). Partners of entities that are classified
as partnerships (or owners of other “pass-through” entities) for U.S. federal income tax purposes should consult their
own tax advisors regarding the U.S. federal tax consequences of the acquisition, ownership, and disposition of Common Shares.
Tax Consequences Other than U.S. Federal
Income Tax Consequences Not Addressed
This summary does not address the U.S.
state and local, U.S. federal estate and gift, U.S. Medicare contribution, or non-U.S. tax consequences to U.S. Holders of the
acquisition, ownership, and disposition of Common Shares. Each U.S. Holder should consult its own tax advisor regarding the U.S.
state and local, U.S. federal estate and gift, U.S. Medicare contribution, and non-U.S. tax consequences of the acquisition, ownership,
and disposition of Common Shares. (See “Taxation—Canadian Federal Income Tax Considerations for U.S. Residents”
below).
U.S. Federal Income Tax Consequences
of the Acquisition, Ownership, and Disposition of Common Shares
Distributions on Common Shares
General Taxation of Distributions
Subject to the “passive foreign investment
company” rules discussed below, a U.S. Holder that receives a distribution, including a constructive distribution, with respect
to Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for
any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits”
of the Company, as computed for U.S. federal income tax purposes. To the extent that a distribution exceeds the current and accumulated
“earnings and profits” of the Company, such distribution will be treated (a) first, as a tax-free return of capital
to the extent of a U.S. Holder’s tax basis in the Common Shares, and (b) thereafter, as gain from the sale or exchange
of such Common Shares. (See more detailed discussion at “Disposition of Common Shares” below). The Company may not
maintain calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should
therefore assume that any distribution by the Company with respect to Common Shares will constitute a dividend.
Reduced Tax Rates for Certain Dividends
A dividend paid by the Company generally
will be taxed at the preferential tax rates applicable to long-term capital gains if (a) the Company is a “qualified
foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust,
and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder for at least 61 days during the 121-day
period beginning 60 days before the “ex-dividend date.” The Company generally will be a “qualified foreign corporation”
under Section 1(h)(11) of the Code (a “
QFC
”) if (a) the Company is eligible for the benefits of the Canada-U.S.
Tax Convention, or (b) Common Shares are readily tradable on an established securities market in the U.S.
However, even if the Company satisfies
one or more of such requirements, the Company will not be treated as a QFC if the Company is a “passive foreign investment
company,” or “PFIC” (as defined below) for the taxable year during which the Company pays a dividend or for the
preceding taxable year.
As discussed below, the Company does not
believe that it was a PFIC for the taxable year ended December 31, 2018, and does not expect that it will be a PFIC for the taxable
year ending December 31, 2019. (See more detailed discussion at “Additional Rules that May Apply to U.S. Holders” below).
However, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its PFIC status
or that the Company will not be a PFIC for the current taxable year or any subsequent taxable year.
Accordingly, although the Company expects
that it may be a QFC for the taxable year ending December 31, 2019, there can be no assurance that the IRS will not challenge the
determination made by the Company concerning its QFC status, or that the Company will be a QFC for the taxable year ending December
31, 2019, or any subsequent taxable year.
If the Company is not a QFC, subject to
the PFIC rules discussed below, a dividend paid by the Company to a U.S. Holder, including a U.S. Holder that is an individual,
estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term
capital gains). The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the dividend
rules.
Distributions Paid in Foreign Currency
The amount of a distribution paid to a
U.S. Holder in foreign currency generally will be equal to the U.S. dollar value of such distribution based on the exchange rate
applicable on the date of receipt. A U.S. Holder that does not convert foreign currency received as a distribution into U.S. dollars
on the date of receipt generally will have a tax basis in such foreign currency equal to the U.S. dollar value of such foreign
currency on the date of receipt. Such a U.S. Holder generally will recognize ordinary income or loss on the subsequent sale or
other taxable disposition of such foreign currency (including an exchange for U.S. dollars).
Dividends Received Deduction
Dividends paid on Common Shares generally
will not be eligible for the “dividends received deduction.” The availability of the dividends received deduction is
subject to complex limitations that are beyond the scope of this discussion, and a U.S. Holder that is a corporation should consult
its own tax advisor regarding the dividends received deduction.
Disposition of Common Shares
Subject to the PFIC rules discussed below,
a U.S. Holder will recognize capital gain or loss on the sale or other taxable disposition of Common Shares in an amount equal
to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such
U.S. Holder’s tax basis in the Common Shares sold or otherwise disposed of. A U.S. Holder’s tax basis in Common Shares
generally will be such U.S. Holder’s U.S. dollar cost for such Common Shares. Such gain or loss will be long-term capital
gain or loss if the Common Shares have been held for more than one year at the time of sale or other taxable disposition. Gain
or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Shares generally will be treated as “U.S.
source” for purposes of applying the U.S. foreign tax credit rules.
Preferential tax rates apply to long-term
capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term
capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under
the Code.
The amount
realized on a sale or other taxable disposition of Common Shares for an amount in foreign currency will generally be the U.S. dollar
value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder will recognize U.S. source foreign
currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the
amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date.
Foreign Tax Credit
A U.S. Holder that pays (whether directly
or through withholding) Canadian income tax with respect to dividends paid on Common Shares or gain from the sale or other taxable
disposition of Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or
a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability
on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax.
This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by
a U.S. Holder during a year.
Complex limitations apply to the foreign
tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S.
federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s
worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified,
under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated
separately with respect to specific categories of income. Dividends paid by the Company generally will constitute “foreign
source” income and generally will be categorized as “passive income.” The foreign tax credit rules are complex,
and each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.
Information Reporting; Backup Withholding
Tax
Payments made within the U.S., or by a
U.S. payor or U.S. middleman, of distributions with respect to, or proceeds arising from the sale or other taxable disposition
of, Common Shares generally will be subject to information reporting and backup withholding tax, at the rate of 24%, if a U.S.
Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on IRS Form W-9),
(b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has
previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury,
that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S.
Holder that it is subject to backup withholding tax. However, U.S. Holders that are corporations generally are excluded from these
information reporting and backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under
the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability,
if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder
should consult its own tax advisor regarding the information reporting and backup withholding tax rules.
Additional Rules that May Apply to U.S.
Holders
The Company believes it was a PFIC in one
or more previous taxable years. If the Company is or becomes a PFIC, or U.S. Holders held Common Shares while the Company was a
PFIC, the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the acquisition,
ownership, and disposition of Common Shares.
Passive Foreign Investment Company
The Company generally will be a PFIC if,
for a taxable year, (a) 75% or more of the gross income of the Company for such taxable year is passive income (“income
test”) or (b) on average for such taxable year, 50% or more of the assets held by the Company either produce passive
income or are held for the production of passive income (“asset test”), based on the fair market value of such assets.
Passive income includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and
securities, and certain gains from commodities transactions. Passive income does not include any interest, dividends, rents, or
royalties that are received or accrued by the Company from a “related person” (as defined in Section 954(d)(3)
of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or
raised in a public offering, marketable securities and other assets that may produce passive income.
For purposes of the income test and asset
test, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation,
the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received
directly a proportionate share of the income of such other corporation. , In addition, if the Company is a PFIC and owns shares
of another foreign corporation that also is a PFIC (“subsidiary PFIC”), a disposition of the shares of such other foreign
corporation or a distribution received from such other foreign corporation generally will be treated as an indirect disposition
by a U.S. Holder or an indirect distribution received by a U.S. Holder, subject to the rules of Section 1291 of the Code discussed
below. Accordingly, U.S. Holders should be aware that they could be subject to tax even if no distributions are received and no
redemptions or other dispositions of Common Shares are made. To the extent that gain recognized on the actual disposition by a
U.S. Holder of Common Shares or income recognized by a U.S. Holder on an actual distribution received on Common Shares was previously
subject to U.S. federal income tax under these indirect ownership rules, such amount generally should not be subject to U.S. federal
income tax.
If the Company is a PFIC, or a U.S. Holder
held Common Shares while the Company was a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition,
ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company and
any subsidiary PFIC as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “
QEF
Election
”) or a mark-to-market election for the Company under Section 1296 of the Code (a “
Mark-to-Market
Election
”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election is referred to in this
summary as a “Non-Electing U.S. Holder.”
Under Section 1291 of the Code, any
gain recognized on the sale or other taxable disposition of Common Shares, and any “excess distribution” (as defined
in Section 1291(b) of the Code) paid on the Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s
holding period for the Common Shares. The amount of any such gain or excess distribution allocated to the current year and any
year prior to the first year in which the Company was a PFIC generally will be subject to U.S. federal income tax as ordinary income
in the current year. The amount of any such gain or excess distribution allocated to other years generally will be subject to U.S.
federal income tax in the current year at the highest tax rate applicable to ordinary income in each such prior year, and a Non-Electing
U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax
liability had been due in each such prior year.
A U.S. Holder that makes a QEF Election
generally will not be subject to the rules of Section 1291 of the Code discussed above. Instead, a U.S. Holder that makes
a QEF Election generally will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the
“net capital gain” of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the
“ordinary earnings” of the Company, which will be taxed as ordinary income to such U.S. Holder. A U.S. Holder that
makes a QEF Election will be subject to U.S. federal income tax on such amounts for each taxable year in which the Company is a
PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. Taxable gains on the disposition
of Common Shares by a U.S. Holder that has made a timely and effective QEF Election are generally capital gains. Each U.S. Holder
should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective
QEF Election for the Company and any subsidiary PFIC.
A U.S. Holder
that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above.
A U.S. Holder may make a Mark-to-Market Election only if Common Shares are “marketable stock” (as defined in Section 1296(e)
of the Code). A U.S. Holder that makes a Mark-to-Market Election will include in gross income, as ordinary income, for each taxable
year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares
as of the close of such taxable year over (b) such U.S. Holder’s tax basis in such Common Shares. A U.S. Holder that
makes a Mark-to-Market Election will, subject to certain limitations, be allowed a deduction in an amount equal to the excess,
if any, of (a) such U.S. Holder’s adjusted tax basis in the Common Shares over (b) the fair market value of such
Common Shares as of the close of such taxable year. Any gain recognized upon a disposition of Common Shares by a U.S. Holder who
has made a Mark-to-Market Election generally will be treated as ordinary income, and any loss recognized upon a disposition generally
will be treated as an ordinary loss to the extent of net mark-to-market income recognized for all prior taxable years. Any loss
recognized in excess thereof will be taxed as a capital loss. Capital losses are subject to significant limitations under the Code.
A Mark-to-Market election may not be made with
respect to the stock of any subsidiary PFIC because such stock is not “marketable
stock.”
Hence, a Mark-to-Market Election will not be effective to eliminate the application
of the default rules of Section 1291 of the Code, described above, with respect to deemed dispositions of subsidiary PFIC stock
or excess distributions with respect to a subsidiary PFIC. Each U.S. Holder should consult its own tax advisor regarding the availability
and desirability of, and procedure for, making a timely and effective Mark-to-Market Election with respect to Common Shares.
The Company believes it was a PFIC in one
or more prior taxable years but does not believe that it was a PFIC for the taxable years ended December 31, 2018 and December
31, 2017, and, based on current operations and financial projections, does not expect that it will be a PFIC for the taxable year
ending December 31, 2019. The determination of whether the Company was, or will be, a PFIC for a taxable year depends, in part,
on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether
the Company will be a PFIC for the taxable year ending December 31, 2019, and each subsequent taxable year depends on the assets
and income of the Company over the course of each such taxable year and, as a result, cannot be predicted with certainty as of
the date of this Annual Report. Accordingly, there can be no assurance that the IRS will not challenge the determination made by
the Company concerning its PFIC status or that the Company was not, or will not be, a PFIC for any taxable year.
If the Company meets the income test or
asset test for any taxable year during which a U.S. Holder owns Common Shares, the Company will be treated as a PFIC with respect
to such U.S. Holder for that taxable year and for all subsequent taxable years, regardless of whether the Company meets the PFIC
income test or asset test for such subsequent taxable years, unless the U.S. Holder elects to recognize any unrealized gain in
the Common Shares or makes a timely and effective QEF Election or Mark-to-Market Election.
The PFIC rules are complex, and each U.S.
Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common Shares.
THE ABOVE SUMMARY IS NOT INTENDED TO
CONSTITUTE A COMPLETE ANALYSIS OF ALL U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION,
OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE
TO THEM IN THEIR PARTICULAR CIRCUMSTANCES.
Canadian Federal Income Tax Considerations for United States
Residents
The following, as of the date hereof, is
a summary of the principal Canadian federal income tax considerations generally applicable to the holding and disposition of common
shares by a holder (a) who, for the purposes of the Income Tax Act (Canada) (the “
Tax Act
”) and at all relevant
times, is not resident or deemed to be resident in Canada, deals at arm’s length and is not affiliated with the Company,
holds the common shares as capital property and does not use or hold, and is not deemed to use or hold, the common shares in the
course of carrying on, or otherwise in connection with, a business in Canada, and (b) who, for the purposes of the
Canada -
United States Income Tax Convention
(the “Convention”) and at all relevant times, is a resident solely of the United
States, has never been a resident of Canada, has not held or used (and does not hold or use) common shares in connection with a
permanent establishment or fixed base in Canada, and who otherwise qualifies for the full benefits of the Convention. The Canada
Revenue Agency has introduced special forms to be used in order to substantiate eligibility for benefits under the Convention,
and affected holders should consult with their own advisers with respect to these forms and all relevant compliance matters.
Holders who meet all such criteria in clauses
(a) and (b) above are referred to in this summary as a “U.S. Holder” or “U.S. Holders”, and this summary
only addresses such U.S. Holders. The summary does not deal with special situations, such as particular circumstances of traders
or dealers, limited liability companies, tax-exempt entities, insurers, financial institutions (including those to which the mark-to-market
provisions of the Tax Act apply), entities considered fiscally transparent under applicable law, or otherwise.
This summary is based on the current provisions
of the Tax Act, and the regulations thereunder, all proposed amendments to the Tax Act and regulations publicly announced by the
Minister of Finance (Canada) to the date hereof, the current provisions of the Convention and our understanding of the current
administrative practices of the Canada Revenue Agency. It has been assumed that all currently proposed amendments to the Tax Act
and regulations will be enacted as proposed and that there will be no other relevant change in any governing law, the Convention
or administrative policy, although no assurance can be given in these respects. This summary does not take into account provincial,
U.S. or other foreign income tax considerations, which may differ significantly from those discussed herein.
This summary is not exhaustive of all
possible Canadian income tax consequences. It is not intended as legal or tax advice to any particular U.S. Holder and should not
be so construed. The tax consequences to a U.S. Holder will depend on that U.S. Holder’s particular circumstances. All holders,
including U.S. Holders or prospective U.S. Holders as defined above, should consult their own tax advisors with respect to the
tax consequences applicable to them having regard to their own particular circumstances. The discussion below is qualified accordingly.
For the purposes of the Tax Act, all amounts
relating to the acquisition, holding or disposition of the common shares must be converted into Canadian dollars based on the relevant
exchange rate applicable thereto.
Dividends
Dividends paid or deemed to be paid or
credited by the Company to a U.S. Holder are subject to Canadian withholding tax. In general terms, the Tax Act provides for withholding
at the rate of 25% unless the holder is able to substantiate a reduced rate under an applicable tax treaty or convention.
The rate of withholding tax on dividends
paid to a U.S. Holder who can substantiate eligibility for benefits under the Convention is generally limited to 15% of the gross
amount of the dividends (or 5%, if the beneficial owner of the dividends is a company that owns at least 10% of the voting stock
of the Company).
Dispositions
A U.S. Holder is generally not subject
to tax under the Tax Act in respect of a capital gain realized on the disposition of a common share in the open market, unless
the share is “taxable Canadian property” to the holder thereof and the U.S. Holder is not entitled to relief under
the Convention.
Provided that the Company’s common
shares are listed on a “designated stock exchange” for purposes of the Tax Act (which currently includes the TSX Venture)
at the time of disposition, a common share will generally not constitute taxable Canadian property to a U.S. Holder unless, at
any time during the 60 month period ending at the time of disposition, (i) the U.S. Holder, persons with whom the U.S. Holder did
not deal at arm's length, partnerships in which the U.S. Holder or such non-arm’s length persons holds a membership interest
directly or indirectly, or the U.S. Holder together with any of the foregoing, owned 25% or more of the issued shares of any class
or series of the Company AND (ii) more than 50% of the fair market value of the share was derived directly or indirectly from certain
types of assets, including real or immoveable property situated in Canada, Canadian resource properties or timber resource properties,
and options, interests or rights in respect of any of the foregoing. Common shares may also be deemed to be taxable Canadian property
under the Tax Act in certain other circumstances. A U.S. Holder who may hold common shares as taxable Canadian property should
consult with the U.S. Holder’s own tax advisors in advance of any disposition or deemed disposition of common shares under
the Tax Act in order to determine whether any relief from tax under the Tax Act may be available by virtue of the Convention, and
any related compliance procedures.
While intended to address material Canadian
federal income tax considerations relevant to the holding or disposition of common shares by U.S. Holders, this summary is for
general information purposes only, and is not intended to be, nor should it be construed to be, legal or tax advice to any holder
or prospective holder of common shares. No opinion was requested by the Company, or is provided by its legal counsel and/or auditors.
Accordingly, holders and prospective holders of common shares (including U.S. Holders as defined above) should consult their own
tax advisors regarding the consequences of purchasing, owning, and disposing of common shares of the Company.
F. Dividends and Paying Agents
Not applicable
G. Statement by Experts
Not applicable
H. Documents on Display
Exhibits attached to this Annual Report
are available for viewing on EDGAR, or may be inspected at the head office of Company at 2 – 1250 Waverley Street, Winnipeg,
Manitoba, Canada R3T 6C6, during normal business hours. Copies of the Company’s financial statements and other continuous
disclosure documents required under Canadian securities legislation are available for viewing on the internet at
www.sedar.com
.
I. Subsidiary Information
Not applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of the Company’s
investment activities is to preserve principal by maximizing the income the Company receives from such activities without significantly
increasing risk. Securities that the Company invests in are generally highly liquid short-term investments such as term deposits
with terms to maturity of less than one year.
Interest rate risk is the risk that the
future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed
to any significant interest rate risk as it does not have any variable rate borrowings.
FOREIGN EXCHANGE RISK
The Company’s primary
currency of operations is the Canadian dollar. Its wholly-owned operating subsidiaries primary currency of operations is the
US dollar. The Company has expenditures and holds investments denominated in US dollars. During the year ended
December 31, 2018, it is estimated that approximately 70% of the Company’s consolidated expenditures were denominated
in a foreign currency, primarily being the US dollar and 100% of the Company’s consolidated product revenues were
denominated in the US dollar. To date the Company has not entered into any future or forward contracts, or other derivative
instruments, for either hedging or speculative purposes, to mitigate the impact of foreign exchange fluctuations on these
costs, revenues or on U.S. dollar denominated debt. A 10% change in foreign exchange rates for the year ended December 31,
2018 would have impacted loss for the year by 10%.
ITEM 12. DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES
Not applicable
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable. See “Item 18 –
Financial Statements
”.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements were
prepared in accordance with IFRS, as issued by the IASB, and are presented in Canadian dollars.
The consolidated financial statements are
in the following order:
|
1.
|
Reports of Independent Registered Public Accounting Firms;
|
|
2.
|
Consolidated Statements of Financial Position;
|
|
3.
|
Consolidated Statements of Net Income and Comprehensive Income;
|
|
4.
|
Consolidated Statements of Changes in Deficiency
|
|
5.
|
Consolidated Statements of Cash Flows; and
|
|
6.
|
Notes to Consolidated Financial Statements.
|
Consolidated Financial Statements
(Expressed in Canadian Dollars)
MEDICURE INC.
Year ended December 31, 2018
MANAGEMENT REPORT
The accompanying consolidated financial
statements have been prepared by management and approved by the Board of Directors of Medicure Inc. (the “Company”).
Management is responsible for the information and representations contained in these consolidated financial statements.
These consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board. The significant accounting policies, which management believes are appropriate for the Company, are described in note 3
to these consolidated financial statements. The Company maintains a system of internal control and processes intended to provide
reasonable assurance that assets are safeguarded and to ensure that relevant and reliable financial information is produced.
The Board of Directors is responsible for
reviewing and approving these consolidated financial statements and overseeing management’s performance of its financial
reporting responsibilities. An Audit Committee of non-management Directors is appointed by the Board. The Audit Committee reviews
the consolidated financial statements, audit process and financial reporting with management and with the external auditors and
reports to the Board of Directors prior to the approval of the audited consolidated financial statements for publication.
PricewaterhouseCoopers LLP, the Company’s
external auditors for the year ended December 31, 2018, who are appointed by the shareholders, audited the consolidated financial
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) to enable them
to express to the shareholders their opinion on these consolidated financial statements as at and for the year ended December
31, 2018. Ernst & Young LLP, the Company’s external auditors for the years ended December 31, 2017 and 2016, who were
appointed by the shareholders, audited the consolidated financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States) to enable them to express to the shareholders their opinion on these consolidated financial
statements as at December 31, 2017 and for the years ended December 31, 2017 and 2016. Their reports follow.
/s/ Albert Friesen
|
|
/s/ James Kinley
|
|
|
|
Dr. Albert D. Friesen
|
|
Mr. James F. Kinley CA
|
Chief Executive Officer
|
|
Chief Financial Officer
|
April 29, 2019
Report of Independent
Registered Public Accounting Firm
To the board of directors and shareholders of Medicure Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial
position of Medicure Inc. and its subsidiaries (the Company) as of December 31, 2018, and the related statements of net income
and comprehensive income, changes in equity and cash flows for the year then ended. In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results
of its operations and its cash flows for year then ended in conformity with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements
based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these consolidated financial statements
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audit included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audit provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Winnipeg, Canada
April 29, 2019
We have served as the Company’s auditor since 2018.
Report of independent registered public
accounting firm
To the Shareholders of
Medicure Inc.
Opinion on the consolidated financial statements
We have audited the accompanying consolidated
financial statements of
Medicure Inc.
[the “Company”], which comprise the consolidated statement of financial
position as at December 31, 2017, the consolidated statements of net income and comprehensive income, changes in equity and cash
flows for each of the years in the two-year period ended December 31, 2017, and the related notes, comprising a summary of significant
accounting policies and other explanatory information.
In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2017,
and its consolidated financial performance and its consolidated cash flows for each of the years in the two-year period ended December
31, 2017, in accordance with International Financial Reporting Standards [“IFRSs”] as issued by the International Accounting
Standards Board.
Restatement of consolidated financial statements
Without modifying our opinion, we draw
attention to note 21 to the consolidated financial statements for the year ended December 31, 2017 which explains that the consolidated
financial statements have been restated.
Basis for opinion
Management’s responsibility for the consolidated
financial statements
Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
[“IFRSs”] as issued by the International Accounting Standards Board, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due
to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States) [“PCAOB”]. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement, whether due to error or fraud. Those standards also require that we comply with ethical requirements,
including independence. We are required to be independent with respect to the Company in accordance with the ethical requirements
that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB. We are a public accounting firm registered with
the PCAOB.
An audit includes performing procedures
to assess the risks of material misstatements of the consolidated financial statements, whether due to error or fraud, and performing
procedures to respond to those risks. Such procedures included obtaining and examining, on a test basis, audit evidence regarding
the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of
the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Accordingly, we express no
such opinion.
An audit also includes evaluating the appropriateness
of accounting policies and principles used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a reasonable basis for our audit opinion.
We served as the Company's auditor from
2013 to 2017.
Winnipeg, Canada
May 1, 2018
|
|
Consolidated Statements of Financial Position
(expressed in Canadian dollars)
As at December 31
|
|
Note
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
24,139,281
|
|
|
$
|
5,260,480
|
|
Short-term investments
|
|
|
|
|
|
|
47,747,000
|
|
|
|
-
|
|
Accounts receivable
|
|
|
6
|
|
|
|
10,764,579
|
|
|
|
8,588,255
|
|
Consideration receivable
|
|
|
5
|
|
|
|
-
|
|
|
|
82,678,366
|
|
Inventories
|
|
|
7
|
|
|
|
4,239,267
|
|
|
|
3,075,006
|
|
Prepaid expenses
|
|
|
|
|
|
|
2,696,693
|
|
|
|
903,914
|
|
Assets held for sale
|
|
|
5
|
|
|
|
-
|
|
|
|
14,052,861
|
|
Total current assets
|
|
|
|
|
|
|
89,586,820
|
|
|
|
114,558,882
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
8
|
|
|
|
316,013
|
|
|
|
221,622
|
|
Intangible assets
|
|
|
9
|
|
|
|
1,705,250
|
|
|
|
1,756,300
|
|
Holdback receivable
|
|
|
5 & 10
|
|
|
|
11,909,368
|
|
|
|
12,068,773
|
|
Other assets
|
|
|
|
|
|
|
116,786
|
|
|
|
-
|
|
Deferred tax assets
|
|
|
13
|
|
|
|
127,176
|
|
|
|
326,108
|
|
Total non-current assets
|
|
|
|
|
|
|
14,174,593
|
|
|
|
14,372,803
|
|
Total assets
|
|
|
|
|
|
$
|
103,761,413
|
|
|
$
|
128,931,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
9, 15(a), 16(a) & 16(b)
|
|
|
$
|
14,378,215
|
|
|
$
|
10,371,103
|
|
Accrued transaction costs
|
|
|
5
|
|
|
|
-
|
|
|
|
22,360,730
|
|
Current income taxes payable
|
|
|
13
|
|
|
|
1,058,487
|
|
|
|
2,428,560
|
|
Current portion of royalty obligation
|
|
|
11
|
|
|
|
1,495,548
|
|
|
|
1,537,202
|
|
Liabilities held for sale
|
|
|
5
|
|
|
|
-
|
|
|
|
6,976,313
|
|
Total current liabilities
|
|
|
|
|
|
|
16,932,250
|
|
|
|
43,673,908
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty obligation
|
|
|
11
|
|
|
|
2,035,010
|
|
|
|
2,911,810
|
|
License fee payable
|
|
|
9
|
|
|
|
-
|
|
|
|
501,800
|
|
Other long-term liabilities
|
|
|
10
|
|
|
|
1,200,608
|
|
|
|
1,135,007
|
|
Total non-current liabilities
|
|
|
|
|
|
|
3,235,618
|
|
|
|
4,548,617
|
|
Total liabilities
|
|
|
|
|
|
|
20,167,868
|
|
|
|
48,222,525
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
12(b)
|
|
|
|
122,887,105
|
|
|
|
125,733,727
|
|
Warrants
|
|
|
12(d)
|
|
|
|
1,948,805
|
|
|
|
1,948,805
|
|
Contributed surplus
|
|
|
|
|
|
|
7,628,188
|
|
|
|
6,897,266
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
1,267,717
|
|
|
|
673,264
|
|
Deficit
|
|
|
|
|
|
|
(50,138,270
|
)
|
|
|
(54,543,902
|
)
|
Total Equity
|
|
|
|
|
|
|
83,593,545
|
|
|
|
80,709,160
|
|
Total liabilities and equity
|
|
|
|
|
|
$
|
103,761,413
|
|
|
$
|
128,931,685
|
|
Commitments and contingencies
|
|
|
15(a) & 15(d)
|
|
|
|
|
|
|
|
|
|
Subsequent events
|
|
|
10, 12(b), 15(a) & 21
|
|
|
|
|
|
|
|
|
|
On behalf of the board
"Dr. Albert D. Friesen"
|
|
"Mr. Brent Fawkes"
|
Director
|
|
Director
|
See accompanying notes to the consolidated
financial statements
Consolidated Statements of Net Income and Comprehensive Income
(expressed in Canadian dollars)
For
the year ended December 31
|
|
Note
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Revenue, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales, net
|
|
|
|
|
|
$
|
29,109,365
|
|
|
$
|
27,132,832
|
|
|
$
|
29,304,800
|
|
Cost of goods sold
|
|
|
7
& 9
|
|
|
|
4,152,238
|
|
|
|
3,464,686
|
|
|
|
3,721,191
|
|
Gross
profit
|
|
|
|
|
|
|
24,957,127
|
|
|
|
23,668,146
|
|
|
|
25,583,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general
and administrative
|
|
|
|
|
|
|
19,502,337
|
|
|
|
14,867,635
|
|
|
|
15,417,604
|
|
Research
and development
|
|
|
|
|
|
|
6,681,013
|
|
|
|
5,148,233
|
|
|
|
3,630,079
|
|
|
|
|
|
|
|
|
26,183,350
|
|
|
|
20,015,868
|
|
|
|
19,047,683
|
|
(Loss)
income before the undernoted
|
|
|
|
|
|
|
(1,226,223
|
)
|
|
|
3,652,278
|
|
|
|
6,535,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of holdback
receivable
|
|
|
10
|
|
|
|
1,472,999
|
|
|
|
(82,489
|
)
|
|
|
-
|
|
Impairment
loss
|
|
|
9
|
|
|
|
-
|
|
|
|
635,721
|
|
|
|
-
|
|
|
|
|
|
|
|
|
1,472,999
|
|
|
|
553,232
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance (income) costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance (income)
expense, net
|
|
|
14
|
|
|
|
(1,060,932
|
)
|
|
|
837,461
|
|
|
|
2,478,914
|
|
Foreign
exchange (gain) loss, net
|
|
|
|
|
|
|
(6,460,805
|
)
|
|
|
(175,459
|
)
|
|
|
262,469
|
|
|
|
|
|
|
|
|
(7,521,737
|
)
|
|
|
662
,002
|
|
|
|
2,741,383
|
|
Net income before income taxes
|
|
|
|
|
|
$
|
4,822,515
|
|
|
$
|
2,437,044
|
|
|
$
|
3,794,543
|
|
Income tax (expense)
recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
13
|
|
|
|
(677,900
|
)
|
|
|
9,392,836
|
|
|
|
(501,315
|
)
|
Deferred
|
|
|
13
|
|
|
|
(218,976
|
)
|
|
|
(333,187
|
)
|
|
|
331,095
|
|
|
|
|
|
|
|
|
(896,876
|
)
|
|
|
9,059,649
|
|
|
|
(170,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before discontinued
operations
|
|
|
|
|
|
$
|
3,925,639
|
|
|
$
|
11,496,693
|
|
|
$
|
3,624,323
|
|
Net income from discontinued
operations, net of tax
|
|
|
5
|
|
|
|
-
|
|
|
|
31,924,191
|
|
|
|
23,358,318
|
|
Net income
|
|
|
|
|
|
$
|
3,925,639
|
|
|
$
|
43,420,884
|
|
|
$
|
26,982,641
|
|
Translation adjustment, attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
594,453
|
|
|
|
(30,295
|
)
|
|
|
(400,829
|
)
|
Discontinued
operations
|
|
|
|
|
|
|
-
|
|
|
|
21,567
|
|
|
|
(21,567
|
)
|
Comprehensive income
|
|
|
|
|
|
$
|
4,520,092
|
|
|
$
|
43,412,156
|
|
|
$
|
26,560,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12(e)
|
|
|
$
|
0.25
|
|
|
$
|
0.74
|
|
|
$
|
0.24
|
|
Diluted
|
|
|
12(e)
|
|
|
$
|
0.24
|
|
|
$
|
0.63
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12(e)
|
|
|
$
|
-
|
|
|
$
|
2.04
|
|
|
$
|
1.56
|
|
Diluted
|
|
|
12(e)
|
|
|
$
|
-
|
|
|
$
|
1.76
|
|
|
$
|
1.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12(e)
|
|
|
$
|
0.25
|
|
|
$
|
2.78
|
|
|
$
|
1.80
|
|
Diluted
|
|
|
12(e)
|
|
|
$
|
0.24
|
|
|
$
|
2.39
|
|
|
$
|
1.56
|
|
See accompanying notes to the consolidated
financial statements.
Consolidated Statements of Changes in Equity
(expressed in Canadian dollars)
|
|
|
|
Attributable
to shareholders of the Company
|
|
|
|
|
|
|
|
|
|
Note
|
|
Share
Capital
|
|
|
Warrants
|
|
|
Contributed
Surplus
|
|
|
Accumulated
other
comprehensive
income
(loss)
|
|
|
Deficit
|
|
|
Total
|
|
|
Non-
Controlling
Interest
|
|
|
Total
Equity
|
|
Balance, December
31, 2017
|
|
|
|
$
|
125,733,727
|
|
|
$
|
1,948,805
|
|
|
$
|
6,897,266
|
|
|
$
|
673,264
|
|
|
$
|
(54,543,902
|
)
|
|
$
|
80,709,160
|
|
|
$
|
-
|
|
|
$
|
80,709,160
|
|
Net
income for the year ended December 31, 2018
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,925,639
|
|
|
|
3,925,639
|
|
|
|
-
|
|
|
|
3,925,639
|
|
Other
comprehensive income for the year ended December 31, 2018
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
594,453
|
|
|
|
-
|
|
|
|
594,453
|
|
|
|
-
|
|
|
|
594,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions with owners, recorded
directly in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy-back of common shares
1
|
|
12(b)
|
|
|
(3,501,333
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
479,993
|
|
|
|
(3,021,340
|
)
|
|
|
-
|
|
|
|
(3,021,340
|
)
|
Stock
options exercised
|
|
12(c)
|
|
|
654,711
|
|
|
|
-
|
|
|
|
(291,253
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
363,458
|
|
|
|
-
|
|
|
|
363,458
|
|
Share-based
compensation
|
|
12(c)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,022,175
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,022,175
|
|
|
|
-
|
|
|
|
1,022,175
|
|
Total
transactions with owners
|
|
|
|
|
(2,846,622
|
)
|
|
|
-
|
|
|
|
730,922
|
|
|
|
-
|
|
|
|
479,993
|
|
|
|
(1,635,707
|
)
|
|
|
-
|
|
|
|
(1,635,707
|
)
|
Balance, December 31, 2018
|
|
|
|
$
|
122,887,105
|
|
|
$
|
1,948,805
|
|
|
$
|
7,628,188
|
|
|
$
|
1,267,717
|
|
|
$
|
(50,138,270
|
)
|
|
$
|
83,593,545
|
|
|
$
|
-
|
|
|
$
|
83,593,545
|
|
(continued on next page)
See accompanying notes to the consolidated
financial statements.
Consolidated Statements of Changes in Equity (continued)
(expressed in Canadian dollars)
|
|
|
|
Attributable to shareholders of the Company
|
|
|
|
|
|
|
|
|
|
Note
|
|
Share
Capital
|
|
|
Warrants
|
|
|
Contributed
Surplus
|
|
|
Accumulated
other
comprehensive
income
(loss)
|
|
|
Deficit
|
|
|
Total
|
|
|
Non-
Controlling
Interest
|
|
|
Total
Equity
|
|
Balance, December 31, 2016
|
|
|
|
$
|
124,700,345
|
|
|
$
|
2,020,152
|
|
|
$
|
6,756,201
|
|
|
$
|
681,992
|
|
|
$
|
(97,964,786
|
)
|
|
$
|
36,193,904
|
|
|
$
|
2,090,000
|
|
|
$
|
38,283,904
|
|
Net income for the year ended December 31, 2017
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,420,884
|
|
|
|
43,420,884
|
|
|
|
-
|
|
|
|
43,420,884
|
|
Other comprehensive loss for the year ended December 31, 2017
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,728
|
)
|
|
|
-
|
|
|
|
(8,728
|
)
|
|
|
-
|
|
|
|
(8,728
|
)
|
Disposition of non-controlling interests
|
|
5
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,090,000
|
)
|
|
|
(2,090,000
|
)
|
Transactions with owners, recorded directly in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
12(c)
|
|
|
869,703
|
|
|
|
-
|
|
|
|
(349,704
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
519,999
|
|
|
|
-
|
|
|
|
519,999
|
|
Warrants exercised
|
|
12(d)
|
|
|
163,679
|
|
|
|
(71,347
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,332
|
|
|
|
-
|
|
|
|
92,332
|
|
Share-based compensation
|
|
12(c)
|
|
|
-
|
|
|
|
-
|
|
|
|
490,769
|
|
|
|
-
|
|
|
|
-
|
|
|
|
490,769
|
|
|
|
-
|
|
|
|
490,769
|
|
Total transactions with owners
|
|
|
|
|
1,033,382
|
|
|
|
(71,347
|
)
|
|
|
141,065
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,103,100
|
|
|
|
-
|
|
|
|
1,103,100
|
|
Balance, December 31, 2017
|
|
|
|
$
|
125,733,727
|
|
|
$
|
1,948,805
|
|
|
$
|
6,897,266
|
|
|
$
|
673,264
|
|
|
$
|
(54,543,902
|
)
|
|
$
|
80,709,160
|
|
|
$
|
-
|
|
|
$
|
80,709,160
|
|
|
|
|
|
Attributable to shareholders of the Company
|
|
|
|
|
|
|
|
|
|
Note
|
|
Share
Capital
|
|
|
Warrants
|
|
|
Contributed
Surplus
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Deficit
|
|
|
Total
|
|
|
Non-
Controlling
Interest
|
|
|
Total
Equity
|
|
Balance, December 31, 2015
|
|
|
|
|
121,413,777
|
|
|
$
|
101,618
|
|
|
$
|
6,789,195
|
|
|
$
|
1,104,388
|
|
|
$
|
(124,947,427
|
)
|
|
$
|
4,461,551
|
|
|
$
|
-
|
|
|
$
|
4,461,551
|
|
Net income for the year ended December 31, 2016
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,982,641
|
|
|
|
26,982,641
|
|
|
|
-
|
|
|
|
26,982,641
|
|
Other comprehensive loss for the year ended December 31, 2016
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(422,396
|
)
|
|
|
-
|
|
|
|
(422,396
|
)
|
|
|
-
|
|
|
|
(422,396
|
)
|
Acquisition of non-controlling interests
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,090,000
|
|
|
|
2,090,000
|
|
Transactions with owners, recorded directly in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
|
|
12(d)
|
|
|
-
|
|
|
|
1,948,805
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,948,805
|
|
|
|
-
|
|
|
|
1,948,805
|
|
Stock options exercised
|
|
12(c)
|
|
|
3,217,125
|
|
|
|
-
|
|
|
|
(1,372,995
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,844,130
|
|
|
|
-
|
|
|
|
1,844,130
|
|
Warrants exercised
|
|
12(d)
|
|
|
69,443
|
|
|
|
(30,271
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,172
|
|
|
|
-
|
|
|
|
39,172
|
|
Share-based compensation
|
|
12(c)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,340,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,340,001
|
|
|
|
-
|
|
|
|
1,340,001
|
|
Total transactions with owners
|
|
|
|
|
3,286,568
|
|
|
|
1,918,534
|
|
|
|
(32,994
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,172,108
|
|
|
|
-
|
|
|
|
5,172,108
|
|
Balance, December 31, 2016
|
|
|
|
|
124,700,345
|
|
|
$
|
2,020,152
|
|
|
$
|
6,756,201
|
|
|
$
|
681,992
|
|
|
$
|
(97,964,786
|
)
|
|
$
|
36,193,904
|
|
|
$
|
2,090,000
|
|
|
$
|
38,283,904
|
|
See accompanying notes to the consolidated
financial statements.
Consolidated Statements of Cash Flows
(expressed in Canadian dollars)
For the year ended December
31
|
|
Note
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
for the year
|
|
|
|
$
|
3,925,639
|
|
|
$
|
11,496,693
|
|
|
$
|
3,624,323
|
|
Net income from discontinued
operations for the year
|
|
5
|
|
|
-
|
|
|
|
31,924,191
|
|
|
|
23,358,318
|
|
|
|
|
|
|
3,925,639
|
|
|
|
43,420,884
|
|
|
|
26,982,641
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of Apicore
|
|
5
|
|
|
-
|
|
|
|
(55,254,236
|
)
|
|
|
-
|
|
Current income tax expense (recovery)
|
|
13
|
|
|
677,900
|
|
|
|
(9,392,836
|
)
|
|
|
504,586
|
|
Deferred income tax expense (recovery)
|
|
13
|
|
|
218,976
|
|
|
|
(1,513,868
|
)
|
|
|
301,512
|
|
Impairment loss
|
|
9
|
|
|
-
|
|
|
|
635,721
|
|
|
|
-
|
|
Revaluation of holdback receivable
|
|
10
|
|
|
1,472,999
|
|
|
|
(82,489
|
)
|
|
|
-
|
|
Revaluation of long-term derivative
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,560,440
|
)
|
Gain on step acquisition
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,895,573
|
)
|
Amortization of property, plant and equipment
|
|
8
|
|
|
103,207
|
|
|
|
1,173,019
|
|
|
|
189,008
|
|
Amortization of intangible assets
|
|
9
|
|
|
195,977
|
|
|
|
6,633,957
|
|
|
|
2,192,024
|
|
Share-based compensation
|
|
12(c)
|
|
|
1,022,175
|
|
|
|
623,115
|
|
|
|
1,400,241
|
|
Write-down (write-up) of inventories
|
|
7
|
|
|
94,517
|
|
|
|
385,289
|
|
|
|
(108,817
|
)
|
Finance (income) expense, net
|
|
|
|
|
(1,060,932
|
)
|
|
|
837,461
|
|
|
|
3,416,678
|
|
Unrealized foreign exchange (gain) lossa
|
|
|
|
|
(5,322,916
|
)
|
|
|
270,663
|
|
|
|
215,386
|
|
Change in the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
(1,340,746
|
)
|
|
|
(3,713,375
|
)
|
|
|
(4,174,691
|
)
|
Inventories
|
|
|
|
|
(1,258,778
|
)
|
|
|
145,339
|
|
|
|
2,520,499
|
|
Prepaid expenses
|
|
|
|
|
(1,792,779
|
)
|
|
|
76,724
|
|
|
|
1,706,109
|
|
Other assets
|
|
|
|
|
-
|
|
|
|
33,130
|
|
|
|
(1,229
|
)
|
Accounts payable and accrued liabilities
|
|
|
|
|
7,131,998
|
|
|
|
48,398,200
|
|
|
|
143,257
|
|
Deferred revenue
|
|
|
|
|
-
|
|
|
|
(621,455
|
)
|
|
|
(382,727
|
)
|
Other long-term liabilities
|
|
|
|
|
-
|
|
|
|
77,467
|
|
|
|
(102,828
|
)
|
Interest received (paid), net
|
|
14
|
|
|
255,119
|
|
|
|
(7,485,956
|
)
|
|
|
(1,223,664
|
)
|
Income taxes paid
|
|
|
|
|
(2,041,317
|
)
|
|
|
(894,327
|
)
|
|
|
-
|
|
Royalties paid
|
|
11
|
|
|
(1,538,766
|
)
|
|
|
(1,829,295
|
)
|
|
|
(1,712,390
|
)
|
Cash flows from operating
activities
|
|
|
|
|
742,273
|
|
|
|
21,923,132
|
|
|
|
6,409,582
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Apicore Sale Transaction
|
|
5
|
|
|
65,234,555
|
|
|
|
89,719,599
|
|
|
|
-
|
|
Purchase of short-term investments
|
|
|
|
|
(44,100,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Acquisition of Class C common shares of Apicore
|
|
|
|
|
-
|
|
|
|
(31,606,865
|
)
|
|
|
-
|
|
Acquisition of Class E common shares of Apicore
|
|
|
|
|
-
|
|
|
|
(2,640,725
|
)
|
|
|
-
|
|
Acquisition of Apicore, net of cash acquired
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,711,546
|
)
|
Acquisition of property, plant and equipment
|
|
8
|
|
|
(197,494
|
)
|
|
|
(1,194,703
|
)
|
|
|
(464,208
|
)
|
Acquisition of intangible
assets
|
|
9
|
|
|
(1,280,540
|
)
|
|
|
(127,144
|
)
|
|
|
-
|
|
Cash flows from (used in)
investing activities
|
|
|
|
|
19,656,521
|
|
|
|
54,150,162
|
|
|
|
(42,175,754
|
)
|
(continued on next page)
See accompanying notes to the consolidated
financial statements.
Consolidated Statements of Cash Flows (Continued)
(expressed in Canadian dollars)
For the year ended December 31
|
|
Note
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common shares under normal course issuer bid
|
|
|
|
|
(3,021,340
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from exercise of stock options
|
|
12(c)
|
|
|
363,458
|
|
|
|
519,999
|
|
|
|
1,844,130
|
|
Proceeds from exercise of Apicore stock options
|
|
12(c)
|
|
|
-
|
|
|
|
421,942
|
|
|
|
-
|
|
Proceeds from exercise of warrants
|
|
12(d)
|
|
|
-
|
|
|
|
92,332
|
|
|
|
39,172
|
|
Issuance of long-term debt
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56,781,184
|
|
Repayment of long-term debt
|
|
|
|
|
-
|
|
|
|
(75,180,908
|
)
|
|
|
(1,666,666
|
)
|
Repayment of note payable to Apicore
|
|
5
|
|
|
-
|
|
|
|
(18,507,400
|
)
|
|
|
-
|
|
Increase in short-term borrowings
|
|
|
|
|
-
|
|
|
|
161,923
|
|
|
|
332,555
|
|
Decrease (increase) in cash held in escrow
|
|
|
|
|
-
|
|
|
|
12,809,072
|
|
|
|
(12,809,072
|
)
|
Finance lease payments
|
|
|
|
|
-
|
|
|
|
(101,946
|
)
|
|
|
(10,463
|
)
|
Payment of due to vendor
|
|
4
|
|
|
-
|
|
|
|
(3,185,945
|
)
|
|
|
-
|
|
Cash flows (used in) from financing activities
|
|
|
|
|
(2,657,882
|
)
|
|
|
(82,970,931
|
)
|
|
|
44,510,840
|
|
Foreign exchange (loss) gain on cash held in foreign currency
|
|
|
|
|
1,137,889
|
|
|
|
(108,060
|
)
|
|
|
(47,083
|
)
|
Increase (decrease) in cash
|
|
|
|
|
18,878,801
|
|
|
|
(7,005,697
|
)
|
|
|
8,697,585
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
5,260,480
|
|
|
|
12,266,177
|
|
|
|
3,568,592
|
|
Cash and cash equivalents, end of period
|
|
|
|
$
|
24,139,281
|
|
|
$
|
5,260,480
|
|
|
$
|
12,266,177
|
|
See accompanying notes to the consolidated
financial statements.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
Medicure Inc. (the "Company")
is a company domiciled and incorporated in Canada and as of October 24, 2011, its Common Shares are listed on the TSX Venture Exchange
(“TSX-V”). Prior to October 24, 2011 and beginning on March 29, 2010, the Company's Common Shares were listed on the
NEX board of the TSX-V. Prior to March 29, 2010, the Company's Common Shares were listed on the Toronto Stock Exchange. Additionally,
the Company's shares were listed on the American Stock Exchange (later called NYSE Amex and now called NYSE MKT) on February 17,
2004 and the shares ceased trading on the NYSE Amex effective July 3, 2008. The Company remains a U.S. Securities and Exchange
Commission registrant. The address of the Company's registered office is 2-1250 Waverley Street, Winnipeg, Manitoba, Canada, R3T
6C6.
The Company is a biopharmaceutical
company engaged in the research, development and commercialization of human therapeutics. Through its subsidiary Medicure International,
Inc., the Company has rights to the commercial product AGGRASTAT
®
Injection (tirofiban hydrochloride) in the United
States and its territories (Puerto Rico, U.S. Virgin Islands, and Guam). AGGRASTAT
®
, a glycoprotein GP IIb/IIIa
receptor antagonist, is used for the treatment of acute coronary syndrome including unstable angina, which is characterized by
chest pain when one is at rest, and non-Q-wave myocardial infarction.
On December 14, 2017, the Company
announced, through its subsidiary Medicure International, Inc.,
it had acquired an exclusive license
to sell and market a branded cardiovascular drug,
ZYPITAMAG
TM
(pitavastatin magnesium),
in the United States and its territories for a term of seven years with extensions to the term available.
ZYPITAMAG
TM
is used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia and was approved in July 2017 by the U.S.
Food and Drug Administration (“FDA”) for sale and marketing
in the United
States. On May 1, 2018 the Company announced the commercial availability of ZYPITAMAG
TM
in retail pharmacies throughout
the United States.
The Company’s ongoing
research and development activities include the continued development and further implementation of a new regulatory, brand and
life cycle management strategy for AGGRASTAT
®
and the development of additional cardiovascular products. The Company
is actively seeking to acquire or license additional cardiovascular products.
During 2017, the Company, through
Apicore, was involved in the manufacturing, development, marketing, and selling of
Active Pharmaceutical Ingredients
(“API”)
to generic pharmaceutical customers and providing custom synthesis for early phase pharmaceutical research of branded products.
Through these subsidiaries, the Company also participated in collaborations with other parties in the research and development
stages of specific products. In October 2017 and January 2018, respectively, the Company sold its interests in Apicore’s
U.S. business and Apicore’s Indian business and the Company no longer participates in this line of business.
|
2.
|
Basis of preparation of financial statements
|
|
(a)
|
Statement of compliance
|
These consolidated financial
statements of the Company and its subsidiaries were prepared in accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board ("IASB").
The consolidated financial statements
were authorized for issue by the Board of Directors on April 29, 2019.
|
(b)
|
Basis of presentation
|
The consolidated financial statements
have been prepared on the historical cost basis except for the following items:
|
·
|
Derivative financial instruments are measured at fair value.
|
|
|
|
|
·
|
Financial instruments at fair value through profit or loss (“FVTPL”) are measured at fair value.
|
|
|
|
|
·
|
Assets and liabilities of Apicore’s Indian business which are held for sale at December 31, 2017 are recorded at fair value.
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
2.
|
Basis of preparation of financial statements (continued)
|
|
(c)
|
Functional and presentation currency
|
The consolidated financial statements
are presented in Canadian dollars, which is the Company's functional currency. All financial information presented has been rounded
to the nearest dollar except where indicated otherwise.
|
(d)
|
Use of estimates and judgments
|
The preparation of these consolidated
financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these
estimates.
Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected.
Areas where management has made
critical judgments in the process of applying accounting policies and that have the most significant effect on the amounts recognized
in the consolidated financial statements include the determination of the Company’s and its subsidiaries’ functional
currencies.
Information about key assumptions
and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amount of assets
and liabilities within the next financial year are included in the following notes to the consolidated financial statements for
the year ended December 31, 2018:
|
·
|
Note 3(c)(i): The valuation of the holdback receivable
|
|
|
|
|
·
|
Note 3(c)(ii): The valuation of the royalty obligation
|
|
|
|
|
·
|
Note 3(e): The provisions for returns, chargebacks, rebates and discounts
|
|
|
|
|
·
|
Note 3(k): The measurement of intangible assets
|
|
|
|
|
·
|
Note 3(q): The measurement of the amount and assessment of the recoverability of income tax
assets and income tax provisions
|
|
3.
|
Significant accounting policies
|
The accounting policies set
out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise
indicated.
|
(a)
|
Basis of consolidation
|
These
consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled
by the Company. Control exists when the Company has power over the investee and when the Company is exposed, or has the rights,
to variable returns from the investee. Subsidiaries are included in the consolidated financial results of the Company from the
effective date of acquisition up to the effective date of disposition or loss of control and include wholly owned subsidiaries,
Medicure International Inc., Medicure Pharma Inc., Medicure U.S.A. Inc., Medicure Mauritius Limited, Medicure Pharma Europe Limited
and Apigen Investments Limited. Additionally, the December 31, 2016 comparative figures include,
from the date of acquisition
(note 4), the accounts of subsidiaries that are controlled by the Company including, Apicore Inc., Apicore US LLC, Apicore LLC
and Apicore Pharmaceuticals Private Limited. These additional subsidiaries were classified as discontinued operations for 2017
and Apicore Inc. and Apicore US LLC were sold during 2017 as described in note 5. The financial statements of the subsidiaries
are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany transactions
and balances and unrealized gains and losses from intercompany transactions have been eliminated.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
3.
|
Significant accounting policies (continued)
|
Items included in the financial
statements of each of the Company's consolidated subsidiaries are measured using the currency of the primary economic environment
in which the subsidiary operates (the functional currency). The consolidated financial statements are presented in
Canadian
dollars, which is the Company's functional and presentation currency.
Foreign currency transactions
are translated into the respective functional currencies of the Company and its subsidiaries using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from
the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized
in profit or loss. Non-monetary items that are not carried at fair value are translated using the exchange rates as at the date
of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates
at the date when the fair value is determined.
The results and financial position
of the Company's foreign operations that have a functional currency different from the Company’s functional and presentation
currency are translated into Canadian dollars as follows:
(i)
assets and liabilities
of foreign operations are translated at the closing rate at the date of the consolidated statement of financial position;
(ii)
revenue and expenses
of foreign operations for each year are translated at average exchange rates (unless this is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction dates, in which case revenue and expenses are translated at the
dates of the transactions); and
(iii)
all resulting exchange
differences for foreign operations are recognized in other comprehensive income in the cumulative translation account.
When a foreign operation is disposed
of, the component of other comprehensive income relating to that particular foreign operation is recognized in the consolidated
statements of net income and comprehensive income, as part of the gain or loss on sale where applicable.
|
(c)
|
Financial instruments
|
The Company initially
recognizes a financial asset on the trade date at which the Company becomes a party to the contractual provisions of the
instrument.
Upon recognition of a financial
asset, classification is made based on the business model for managing the asset and the asset’s contractual cash flow characteristics.
The financial asset is initially recognized at its fair value and subsequently measured as (i) amortized cost; (ii) fair value
through other comprehensive income (“
FVOCI
”); or (iii) fair value through profit or loss (“
FVTPL
”).
Financial assets are classified as FVTPL if they have not been classified and measured at amortized cost or FVOCI. Upon initial
recognition of an equity instrument that is not held-for-trading, the Company may irrevocably designate the presentation of subsequent
changes in the fair value of such equity instrument as FVTPL.
The Company derecognizes a
financial asset when the contractual cash flows from the asset expire, or it transfers the rights to receive the contractual cash
flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset
are transferred.
Financial assets and liabilities
are offset and the net amount presented in the consolidated statements of financial position when, and only when, the Company has
a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously.
The Company has
classified all of its non-derivative financial assets as financial assets measured at amortized cost, except for the
consideration receivable and the holdback receivable, which are classified as FVTPL. The Company has not classified any financial
assets as FVOCI.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
3.
|
Significant accounting policies (continued)
|
|
(c)
|
Financial instruments (continued)
|
|
(i)
|
Financial assets (continued)
|
Financial assets measured
at amortized cost
A
non-derivative financial asset is measured at amortized cost when both of the following conditions are met: (i) the asset
is held within a business model whose objective is to hold assets in order to collect the contractual cash flows; and (ii)
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding. Such assets are recognized initially at fair value plus any
directly attributable transaction costs and measured at amortized cost using the effective interest method subsequent to
initial recognition. Financial assets measured at amortized cost are cash and cash equivalents, short-term investments
and accounts receivable
.
|
(ii)
|
Financial liabilities
|
All financial liabilities are
recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Such
financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. All financial liabilities
are measured at amortized cost, except for any financial liabilities measured at FVTPL. A financial liability may no longer be
reclassified subsequent to initial recognition. Subsequent to initial recognition, financial liabilities are measured at amortized
cost using the effective interest method. The Company decognizes a financial liability when its contractual obligations are discharged,
cancelled or when they expire.
The royalty obligation was
recorded at its fair value at the date at which the liability was incurred and subsequently measured at amortized cost using the
effective interest rate method at each reporting date. Estimating fair value for this liability required determining the most appropriate
valuation model which was dependent on its underlying terms and conditions. This estimate also required determining expected revenue
from AGGRASTAT
®
sales and an appropriate discount rate and making assumptions about them.
|
(d)
|
Impairment of financial assets
|
Impairment of financial assets
is recognized in accordance with a stage-based approach. The first stage begins upon recognition of a financial asset upon which
time a loss allowance is recorded and 12-month expected credit losses are recognized in profit or loss. A financial asset is in
the second stage of impairment when the credit risk increases significantly and is not considered low upon which time full lifetime
expected credit losses are recorded in profit or loss. A financial asset is in the third stage of impairment when the credit risk
increases to the point that it is credit impaired. Applicable interest revenue is calculated on the gross carrying amount of financial
assets that are in the first or second stage of impairment and on the amortized carrying amount of a financial asset of a financial
asset in the third stage of impairment.
Impairment losses on financial
assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized.
|
(e)
|
Revenue from contracts with customers
|
The Company has
two commercially available products, AGGRASTAT® and ZYPITAMAG™ (the “
Products
”) which it
provides to United States customers. The Products are sold to wholesalers for resale; with AGGRASTAT® sold by the
wholesalers to hospitals, while ZYPITAMAG™ is sold by wholesalers to pharmacies. Revenue from the sale of Products is recognized upon the receipt of goods by a wholesaler, the point in time in which
title and control of the transferred goods pass from the Company to the wholesale customer. At this point in time, the
wholesaler has gained the sole ability to route the goods, and there are no unfulfilled obligations that could affect
the wholesaler’s acceptance of the goods. Delivery of the product occurs when the goods have been shipped to the
wholesaler and the wholesaler has accepted the products in accordance with the terms of the sale.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
3.
|
Significant accounting policies (continued)
|
|
(e)
|
Revenue from contracts with customers (continued)
|
Sales are made subject to
certain discounts available for prompt payment, volume discounts, rebates or chargebacks. Revenue from these sales is
recognized based on the price specified per the pricing terms of the sales invoices, net of the estimated discounts. Variable
consideration is based on historical information, using the expected value method. Revenue is only recognized to the
extent that it is highly probable that a significant reversal will not occur. A liability is included within accounts payable
and accrued liabilities and is measured for expected payments that will be made to the customers for the discounts in which
they are entitled. Sales do not contain an element of financing as sales are made with credit terms within the normal
operating cycle of the date of the invoice, which is consistent with market practice.
|
(f)
|
Cash and cash equivalents
|
The Company considers all liquid investments purchased
with a maturity of three months or less at acquisition to be cash and cash equivalents, which are carried at amortized cost and
are classified at amortized cost.
|
(g)
|
Short-term investments
|
The Company considers all liquid
investments purchased with a maturity greater than three months and less than one year at acquisition to be short-term investments,
which are carried and classified at amortized cost.
Inventories consist of unfinished
product (raw material in the form
of API and packaging materials) and finished
commercial
product, which are available for sale and are measured at the lower of cost and net realizable value.
The cost of inventories is based
on the first-in first-out principle, and includes expenditures incurred in acquiring the inventories, production or conversion
costs and other costs incurred in bringing them to their existing location and condition.
Inventories are written down
to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage, or declining
selling prices. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated
costs of completion and selling expenses. When the circumstances that previously caused inventories to be written down below cost
no longer exist, or when there is clear evidence of an increase in selling prices, the amount of the write-down previously recorded
is reversed.
|
(i)
|
Property plant and equipment
|
|
(i)
|
Recognition and measurement
|
Items of property, plant and
equipment are measured at cost less accumulated amortization and accumulated impairment losses and reversals. When parts of an
item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components)
of property, plant and equipment. The costs of the day-to-day servicing of property, plant and equipment are recognized in the
consolidated statements of net income and comprehensive income in the period in which they are incurred.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
3.
|
Significant accounting policies (continued)
|
|
(i)
|
Property plant and equipment (continued)
|
Amortization is recognized
in profit or loss over the estimated useful lives of each part of an item of property, plant and equipment in a manner that most
closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful
lives for the current and comparative periods are as follows:
Asset
|
|
|
Basis
|
|
|
Rate
|
Computers, office equipment, furniture and fixtures
|
|
|
Straight-line/Diminishing balance
|
|
|
20% to 25%
|
Leasehold improvements
|
|
|
Straight-line
|
|
|
Term of lease
|
Amortization methods, useful
lives and residual values are reviewed at each period end and adjusted if appropriate.
The determination of whether
an arrangement is a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains,
a lease if fulfillment of the arrangement is dependent on the use of specific assets and the arrangement conveys a right to use
the assets, even if those assets are not explicitly specified in an arrangement.
A lease is classified at inception
date as a finance or operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to
the Company is classified as a finance lease.
Finance leases are capitalized
at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of
the minimum lease payments. Lease payments are apportioned between finance expense and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs
in the consolidated statements of net income and comprehensive income.
Leased assets are depreciated
over the useful life of each asset. However, if there is no reasonable certainty that the Company will obtain ownership by the
end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
An operating lease is a lease
other than a finance lease. Operating lease payments are recognized as an operating expense in the consolidated statements of net
income and comprehensive income on a straight-line basis over the lease term.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
3.
|
Significant accounting policies (continued)
|
Intangible assets that are
acquired
separately are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures are capitalized
only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures
are recognized in profit or loss as incurred.
Licenses are amortized on a straight-line
basis over the contractual term of the acquired license.
Patents are amortized on a straight-line
basis over the legal life of the respective patent, ranging from five to twenty years, or its economic life, if shorter. Trademarks
are amortized on a straight-line basis over the legal life of the respective trademark, being ten years, or its economic life,
if shorter. Customer lists are amortized on a straight-line basis over approximately twelve years, or its economic
life,
if shorter.
Amortization on licenses commences
when the intangible asset is available for use, which would typically be in connection with the commercial launch of the associated
product under the license.
Following initial recognition,
intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. The cost of servicing the
Company's patents and trademarks are expensed as incurred.
The amortization method and amortization
period of an intangible asset with a finite useful life are reviewed at least annually. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization
period or method, as appropriate, and are treated as changes in accounting estimates in the consolidated statements of net income
and comprehensive income.
|
(l)
|
Research and development
|
Expenditure on research activities,
undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss
as incurred.
Development activities involve
a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized
only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic
benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset.
No development costs have been capitalized to date.
Research and development expenses
include all direct and indirect operating expenses supporting the products in development.
Clinical trial expenses are a
component of the Company’s research and development costs. These expenses include fees paid to contract research organizations,
clinical sites, and other organizations who conduct research and development activities on the Company’s behalf. The amount
of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using
an accrual basis of accounting. These estimates incorporate factors such as patient enrolment, services provided, contractual terms,
and prior experience with similar contracts.
|
(m)
|
Government assistance
|
Government assistance, in the
form of grants, is recognized at fair value where there is reasonable assurance that the grant will be received and all attaching
conditions will be complied with. Government assistance toward current expenses is recorded as a reduction of the related expenses
in the period the expenses are incurred. Government assistance towards property, plant and equipment is deducted from the cost
of the related property, plant and equipment. The benefits of investment tax credits for scientific research and experimental development
expenditures ("SR&ED") incurred directly by the Company are recognized in the period the qualifying expenditure is
made, provided there is reasonable assurance of recoverability. SR&ED investment tax credits receivable are recorded at their
net realizable value.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
3.
|
Significant accounting policies (continued)
|
|
(n)
|
Impairment of non-financial assets
|
The Company assesses at each
reporting period whether there is an indication that a non-financial asset may be impaired. An impairment loss is recognized when
the carrying amount of an asset, or its CGU, exceeds its recoverable amount. Impairment losses are recognized in net income and
comprehensive income. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent
of the cash inflows from other assets or groups of assets. The recoverable amount is the greater of the asset's or CGU's fair value
less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset or CGU. In determining fair value less costs to sell, an appropriate valuation model is used. For an asset that does
not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs.
For assets other than goodwill,
impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased
or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount
that would have been determined, net of amortization, if no impairment loss had been recognized.
Goodwill is tested for impairment
annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing
the recoverable amount of each CGU to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying
amount, an impairment loss is recognized. Impairment losses relating to goodwill are not reversed in future periods.
|
(i)
|
Short-term employee benefits
|
Short-term employee benefit
obligations are measured on an undiscounted basis and are expensed as the related service is provided.
|
(ii)
|
Share-based payment transactions
|
The grant date fair value of
share-based payment awards granted to employees is recognized as a personnel expense, with a corresponding increase in equity,
over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted
to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that
the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market
performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value
of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and
actual outcomes.
Share-based payment arrangements
in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled
share-based payment transactions. In situations where equity instruments are issued and some or all of the goods or services received
by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment.
For share-based payment arrangements
with non-employees, the expense is recorded over the service period until the options vest. Once the options vest, services are
deemed to have been received.
Where the terms of an equity-settled
transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original
terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the
share-based payment transaction or is otherwise beneficial to the employee as measured at the date of modification.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
3.
|
Significant accounting policies (continued)
|
|
(o)
|
Employee benefits (continued)
|
|
(ii)
|
Share-based payment transactions (continued)
|
Where an equity-settled award
is cancelled, it is treated as if it vested on the date of the cancellation and any expense not yet recognized for the award [being
the total expense as calculated at the grant date] is recognized immediately. This includes any awards where vesting conditions
within the control of either the Company or the employee are not met. However, if a new award is substituted for the cancelled
award, and designated as a replacement award on the date that it is granted, the cancelled award and new awards are treated as
if they were a modification of the original awards.
|
(p)
|
Finance income and finance costs
|
Finance costs comprise interest
expense on borrowings which are recognized in net income and comprehensive income using the effective interest rate method, accretion
on the royalty obligation, prepayment fees on the early repayment of long-term debt and amortization of deferred debt issue costs
using the effective interest rate method, offset by any finance income which is comprised of interest income on funds invested
and is recognized as it accrues in net income and comprehensive income, using the effective interest rate method.
Foreign currency gains and losses
are reported on a net basis.
The Company and its subsidiaries
are generally taxable under the statutes of their country of incorporation.
Income tax expense comprises
current and deferred taxes. Current taxes and deferred taxes are recognized in profit or loss except to the extent that they relate
to a business combination, or items recognized directly in equity or in other comprehensive income.
Current taxes are the expected
tax receivable or payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting
date, and any adjustment to tax receivable or payable in respect of previous years.
The Company follows the liability
method of accounting for deferred taxes. Under this method, deferred taxes are recognized in respect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred
taxes are not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to
investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the
foreseeable future. In addition, deferred taxes are not recognized for taxable temporary differences arising on the initial recognition
of goodwill. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse,
based on the tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities
are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax
assets and liabilities on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized
for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable
profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced
to the extent that it is no longer probable that the related tax benefit will be realized.
The Company has provided for income
taxes, including the impacts of tax legislation in various jurisdictions, in accordance with guidance issued by accounting regulatory
bodies, the Canada Revenue Agency, the U.S. Internal Revenue Service, the Barbados Revenue Authority, the Mauritius Revenue Authority,
as well as other state and local governments through the date of the issuance of these consolidated financial statements. Additional
guidance and interpretations can be expected and such guidance, if any, could impact future results. While management continues
to monitor these matters, the ultimate impact, if any, as a result of the application of any guidance issued in the future cannot
be determined at this time.
The Company and its subsidiaries file federal income tax returns in Canada, the United States, Barbados and
other foreign jurisdictions, as well as various provinces and states in Canada and the United States. The Company and its subsidiaries
have open tax years, primarily from 2009 to 2018, with significant taxing jurisdictions, including Canada, the United States and
Barbados. These open years contain certain matters that could be subject to differing interpretations of applicable tax laws and
regulations and tax treaties, as they relate to the amount, timing or inclusion of revenues and expenses, or the sustainability
of income tax positions of the Company and its subsidiaries. Certain of these tax years may remain open indefinitely.
Tax benefits acquired as part
of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently
if information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill if it occurred
during the measurement period or in profit or loss, when it occurs subsequent to the measurement period.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
3.
|
Significant accounting policies (continued)
|
The Company presents basic earnings
per share ("EPS") data for its common voting shares. Basic EPS is calculated by dividing the profit or loss attributable
to common voting shareholders of the Company by the weighted average number of common voting shares outstanding during the period,
adjusted for the Company's own shares held. Diluted EPS is computed similar to basic EPS except that the weighted average shares
outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The
number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds
from such exercise were used to acquire common shares at the average market price during the reporting periods.
|
(s)
|
Business combinations and goodwill
|
Business combinations are accounted
for using the acquisition method. The consideration for an acquisition is measured at the fair values of the assets transferred,
the liabilities assumed and the equity interests issued at the acquisition date. Transaction costs that are incurred in connection
with a business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred.
Identified assets acquired and liabilities and contingent liabilities assumed are measured initially at fair values at the date
of acquisition. On an acquisition-by-acquisition basis, any non-controlling interest is measured either at fair value of the non-controlling
interest or at the fair value of the proportionate share of the net assets acquired.
Contingent consideration is measured
at fair value on acquisition date and is included as part of the consideration transferred. The fair value of the contingent consideration
liability is remeasured at each reporting date with the corresponding gain or loss being recognized in profit or loss.
Goodwill is initially measured
at cost, being the excess of fair value of the cost of the business combinations over the Company’s share in the net fair
value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Any negative difference is recognized
directly in the consolidated statements of net income and comprehensive income. If the fair values of the assets, liabilities and
contingent liabilities can only be calculated on a provisional basis, the business combination is recognized using provisional
values. Any adjustments resulting from the completion of the measurement process are recognized within twelve months of the date
of the acquisition.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
4.
|
New standards and interpretations
|
The Company has not early adopted
any other standard, interpretation or amendment that has been issued but is not yet effective.
Set out below is the impact
of the mandatory adoption of new standards:
IFRS 9,
Financial Instruments:
Classification and Measurement
("IFRS 9")
Effective January 1, 2018,
the Company has adopted IFRS 9 retrospectively. Prior periods were not restated and no material changes resulted from adoption
of this new standard. IFRS 9 introduced a revised model for classification and measurement, which has resulted in several financial
instrument reclassification changes by the Company. There were no quantitative impacts from adoption of IFRS 9.
Upon recognition of a financial
asset, classification is made based on the business model for managing the asset and the asset’s contractual cash flow characteristics.
The financial asset is initially recognized at its fair value and subsequently classified and measured as (i) amortized cost; (ii)
fair value through other comprehensive income (“FVOCI”); or (iii) fair value through profit or loss (“FVTPL”).
Financial assets are classified as FVTPL if they have not been classified as measured at amortized cost or FVOCI. Upon initial
recognition of an equity instrument that is not held-for-trading, the Company may irrevocable designate the presentation of subsequent
changes in the fair value of such equity instrument as FVTPL.
The Company recognizes a financial
liability on the trade date in which it becomes a party to the contractual provisions of the instrument at fair value plus any
directly attributable costs. Financial liabilities are subsequently measured at amortized cost or FVTPL, and are not subsequently
reclassified.
An “expected credit loss”
impairment model applies which requires a loss allowance to be recorded on financial assets measured at amortized cost based on
their expected credit losses. An estimate is made to determine the present value of future cash flows associated with the asset,
and if required, an impairment loss is recorded. The impairment loss reduces the carrying value of the impaired financial asset
to the value of the estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s
original effective interest rate is recorded either directly or through the use of an allowance account and the resulting impairment
loss is recorded in profit or loss.
Below is a summary showing
the classification and measurement basis for the Company’s financial instruments as a result of the adoption of IFRS on January
1, 2018 with a comparison to the previous classification under IAS 39:
Financial instrument
|
|
Classification under IAS 39
|
|
Classification under IFRS 9
|
Financial assets
|
|
|
|
|
Cash and equivalents
|
|
Loans and receivables
|
|
Amortized cost
|
Short-term investments
|
|
Loans and receivables
|
|
Amortized cost
|
Accounts receivable
|
|
Loans and receivables
|
|
Amortized cost
|
Consideration receivable
|
|
Loans and receivables
|
|
FVTPL
|
Holdback receivable
|
|
Loans and receivables
|
|
FVTPL
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
Other financial liabilities
|
|
Amortized cost
|
Accrued transaction costs
|
|
Other financial liabilities
|
|
Amortized cost
|
Current portion of royalty obligation
|
|
Other financial liabilities
|
|
Amortized cost
|
Royalty obligation
|
|
Other financial liabilities
|
|
Amortized cost
|
License fee payable
|
|
Other financial liabilities
|
|
Amortized cost
|
Other long-term liability
|
|
Other financial liabilities
|
|
Amortized cost
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
4.
|
New standards and interpretations (continued)
|
IFRS 15,
Revenue from
Contracts with Customers
(“IFRS 15”)
Effective January 1, 2018,
the Company has adopted IFRS 15 retrospectively. Prior periods were not restated and no material changes resulted from adoption
of this new standard. IFRS 15 and provides a model for the recognition and measurement of gains or losses from sales of some non-financial
assets. The core principle is that revenue is recognized to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
adoption of the standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not
previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element
arrangements. There were no quantitative impacts from adoption of IFRS 15.
IFRS 2,
Share-based Payments
(“IFRS 2”)
Effective January 1, 2018,
the Company has adopted the required amendments to IFRS 2, which provides requirements on the accounting for the effects of vesting
and non-vesting conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net
settlement feature for withholding tax obligations, and a modification to the terms and conditions of a share-based payment that
changes the classification of the transaction from cash-settled to equity settled. There were no quantitative impacts from adoption
of the amendments to IFRS 2.
New standard not yet adopted
As
at
December 31, 2018
, the following standard has been issued but is not yet effective:
IFRS 16,
Leases
("IFRS
16")
In January 2016, the
IASB issued IFRS 16 which requires lessees to recognize assets and liabilities for most leases. Lessees will have a
single accounting model for all leases, with certain exemptions. The new standard is effective January 1, 2019, with limited
early application permitted. The new standard permits lessees to use either a full retrospective or a modified
retrospective approach on transition for leases existing at the date of transition, with options to use certain transition
reliefs. The Company has evaluated the standard and does not expect a material impact on its consolidated financial
statements as a result of its adoption.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
5.
|
Discontinued operations
|
On October 2, 2017, the Company
sold its interests in Apicore (the “Apicore Sale Transaction”) to an arm’s-length, pharmaceutical company (the
“Buyer”). The Company acquired Apicore in a series of transactions occurring between July 3, 2014 and July 12, 2017
Under the Apicore Sale Transaction,
the Company received a payment of U.S. $57,623,125 (Cdn - $72,057,718) upon the closing of the transaction. Additional
working capital and deferred payments of U.S. $52,886,588 (Cdn - $65,234,555) were received subsequent to December 31, 2017
as part of the Apicore Sales Transaction and were recorded as consideration receivable as at December 31, 2017. Additionally, a
contingent payment in the form of an earn-out based on the achievement of certain financial results by Apicore for the year ended
December 31, 2017 could have been received, however the financial results specified under the Apicore Sales Transaction were not
achieved. As a result, no amount has been recorded in the consolidated financial statements pertaining to this potential earn-out
payment. Additionally, under the Apicore Sale Transaction, the Buyer held an option to acquire Apicore’s Indian operations
for a fixed price until December 31, 2017. This option lapsed without exercise and the Company sold Apicore’s Indian operations,
to a company owned by the former President and Chief Executive Officer of Apicore Inc. in January of 2018 with the net assets held
for sale being released from accounts payable and accrued liabilities at that time.
Set out below is the financial
performance for years ended December 31, 2018, 2017 and 2016 relating to the Apicore business:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
22,759,385
|
|
|
$
|
7,798,838
|
|
Expenses
|
|
|
-
|
|
|
|
(47,936,485
|
)
|
|
|
(9,263,926
|
)
|
Revaluation of long-term derivative
|
|
|
-
|
|
|
|
-
|
|
|
|
20,560,440
|
|
Gain on step acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
4,895,573
|
|
(Loss) income from discontinued operations
|
|
$
|
-
|
|
|
$
|
(25,177,100
|
)
|
|
$
|
23,990,925
|
|
Income tax recovery (expense)
|
|
|
-
|
|
|
|
1,847,055
|
|
|
|
(632,607
|
)
|
Loss (income) after income tax recovery (expense)
|
|
$
|
-
|
|
|
|
(23,330,045
|
)
|
|
|
23,358,318
|
|
Gain on disposition of the Apicore business
|
|
|
-
|
|
|
|
55,254,236
|
|
|
|
-
|
|
Income from discontinued operations
|
|
$
|
-
|
|
|
$
|
31,924,191
|
|
|
$
|
23,358,318
|
|
Set out below is the cash flow
information for the years ended December 31, 2018, 2017 and 2016 relating to the Apicore business:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net cash flows used in operating activities
|
|
$
|
-
|
|
|
$
|
5,210,341
|
|
|
$
|
(1,295,487
|
)
|
Net cash flows from (used in) investing activities
|
|
|
-
|
|
|
|
54,326,360
|
|
|
|
(421,077
|
)
|
Net cash flows from (used in) financing activities
|
|
|
-
|
|
|
|
(80,944,373
|
)
|
|
|
44,294,204
|
|
Net cash flows used in discontinued operations
|
|
$
|
-
|
|
|
$
|
(21,407,672
|
)
|
|
$
|
42,577,640
|
|
As previously described, the
Company retained ownership in Apicore’s Indian operations until the lapse of the Buyer Option and during January of 2018,
Apicore’s Indian operations were sold to a company owned by the former President and Chief Executive Officer of Apicore Inc.
Immediately before the classification
as discontinued operations, the recoverable amount was estimated for certain items and no impairment loss was identified. As at
December 31, 2017, a write-down of $1,791,484 was recognized to reduce the carrying amount of the assets in the disposal group
to their fair value less costs to sell, which totaled $7,076,548. This impairment was recognized in discontinued operations in
the statements net income and comprehensive income for the year ended December 31, 2017.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
As at December 31
|
|
2018
|
|
|
2017
|
|
Trade accounts receivable
|
|
$
|
9,677,847
|
|
|
$
|
8,496,281
|
|
Other accounts receivable
|
|
|
1,086,732
|
|
|
|
91,974
|
|
|
|
$
|
10,764,579
|
|
|
$
|
8,588,255
|
|
As at December 31, 2018, there
were three customers with amounts owing greater than 10% of the Company’s accounts receivable which totaled 91% in aggregate
(Customer A – 47%, Customer B – 22%, Customer C – 22%).
As at December 31, 2017, there
were three customers with amounts owing greater than 10% of the Company’s accounts receivable which totaled 96% in aggregate
(Customer A – 41%, Customer B – 32%, Customer C – 23%).
As at December 31
|
|
2018
|
|
|
2017
|
|
Finished product available-for-sale
|
|
$
|
2,936,883
|
|
|
$
|
2,058,776
|
|
Unfinished product and packaging materials
|
|
|
1,302,384
|
|
|
|
1,016,230
|
|
|
|
$
|
4,239,267
|
|
|
$
|
3,075,006
|
|
Inventories expensed as part
of cost of goods sold during the year ended December 31, 2018 amounted to $3,861,745 (2017 – $3,079,397; 2016 – $2,482,986).
During the year ended December 31, 2018, the Company wrote-off inventory of $94,517 (2017 – $385,289; 2016 – recovery
of $108,817) that had expired or was otherwise unusable.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
8.
|
Property, plant and equipment
|
Cost
|
|
Land
|
|
|
Building
|
|
|
Computer
and office
equipment
|
|
|
Machinery
and
equipment
|
|
|
Leasehold
improvements
|
|
|
Total
|
|
At December 31, 2016
|
|
$
|
2,316,979
|
|
|
$
|
2,122,687
|
|
|
$
|
2,439,071
|
|
|
$
|
2,798,482
|
|
|
$
|
1,003,490
|
|
|
$
|
10,680,709
|
|
Additions
|
|
|
-
|
|
|
|
82,163
|
|
|
|
675,788
|
|
|
|
298,754
|
|
|
|
-
|
|
|
|
1,056,705
|
|
Transfers to assets held for resale
|
|
|
(2,317,273
|
)
|
|
|
(2,900,284
|
)
|
|
|
(3,319,298
|
)
|
|
|
(4,572,065
|
)
|
|
|
(790,814
|
)
|
|
|
(13,899,734
|
)
|
Effect of movements in exchange rates
|
|
|
294
|
|
|
|
695,434
|
|
|
|
632,604
|
|
|
|
1,474,829
|
|
|
|
(56,333
|
)
|
|
|
2,746,828
|
|
At December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
428,165
|
|
|
$
|
-
|
|
|
$
|
156,343
|
|
|
$
|
584,508
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
185,682
|
|
|
|
-
|
|
|
|
11,812
|
|
|
|
197,494
|
|
Effect of movements in exchange rates
|
|
|
-
|
|
|
|
-
|
|
|
|
12,078
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,078
|
|
Dispositions
|
|
|
-
|
|
|
|
-
|
|
|
|
(156,280
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(156,280
|
)
|
At December 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
469,645
|
|
|
$
|
-
|
|
|
$
|
168,155
|
|
|
$
|
637,800
|
|
Accumulated amortization and impairment losses
|
|
Land
|
|
|
Building
|
|
|
Computer
and office
equipment
|
|
|
Machinery
and
equipment
|
|
|
Leasehold
improvements
|
|
|
Total
|
|
At December 31, 2016
|
|
$
|
-
|
|
|
$
|
21,408
|
|
|
$
|
250,261
|
|
|
$
|
67,541
|
|
|
$
|
40,860
|
|
|
$
|
380,070
|
|
Amortization
|
|
|
-
|
|
|
|
291,638
|
|
|
|
339,358
|
|
|
|
384,486
|
|
|
|
157,537
|
|
|
|
1,173,019
|
|
Transfers to assets held for resale
|
|
|
-
|
|
|
|
(306,761
|
)
|
|
|
(286,632
|
)
|
|
|
(443,746
|
)
|
|
|
(112,213
|
)
|
|
|
(1,149,352
|
)
|
Effect of movements in exchange rates
|
|
|
-
|
|
|
|
(6,285
|
)
|
|
|
(21,720
|
)
|
|
|
(8,281
|
)
|
|
|
(4,565
|
)
|
|
|
(40,851
|
)
|
At December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
281,267
|
|
|
$
|
-
|
|
|
$
|
81,619
|
|
|
$
|
362,886
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
75,471
|
|
|
|
-
|
|
|
|
27,736
|
|
|
|
103,207
|
|
Effect of movements in exchange rates
|
|
|
-
|
|
|
|
-
|
|
|
|
11,974
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,974
|
|
Dispositions
|
|
|
-
|
|
|
|
-
|
|
|
|
(156,280
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(156,280
|
)
|
At December 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
212,432
|
|
|
$
|
-
|
|
|
$
|
109,355
|
|
|
$
|
321,787
|
|
Carrying amounts
|
|
Land
|
|
|
Building
|
|
|
Computer
and office
equipment
|
|
|
Machinery
and
equipment
|
|
|
Leasehold
improvements
|
|
|
Total
|
|
At December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
146,898
|
|
|
$
|
-
|
|
|
$
|
74,724
|
|
|
$
|
221,622
|
|
At December 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
257,213
|
|
|
$
|
-
|
|
|
$
|
58,800
|
|
|
$
|
316,013
|
|
During the year ended December
31, 2018, amortization of property, plant and equipment totaling $103,207 (2017 – $97,794; 2016 – $83,284) is included
within selling, general and administrative expenses on the consolidated statements of net income and comprehensive income. For
the years ended December 31, 2017 and 2016, amortization of property, plant and equipment totaling $1,075,225 and $105,724, respectively
is recorded within discontinued operations.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
Cost
|
|
Licenses
|
|
|
Patents
|
|
|
Trademarks
|
|
|
Customer
list
|
|
|
Approved
ANDAs
|
|
|
Acquired in
process
research and
development
|
|
|
Total
|
|
At December 31, 2016
|
|
$
|
-
|
|
|
$
|
25,012,530
|
|
|
$
|
4,296,192
|
|
|
$
|
7,472,143
|
|
|
$
|
1,505,664
|
|
|
$
|
83,720,025
|
|
|
$
|
122,006,554
|
|
Additions
|
|
|
2,383,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,383,550
|
|
Impairment
|
|
|
(635,721
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(635,721
|
)
|
Transfers to assets held for resale
|
|
|
-
|
|
|
|
(9,122,874
|
)
|
|
|
-
|
|
|
|
(6,267,525
|
)
|
|
|
(1,405,541
|
)
|
|
|
(78,152,819
|
)
|
|
|
(94,948,759
|
)
|
Effect of movements in exchange rates
|
|
|
8,471
|
|
|
|
(1,650,944
|
)
|
|
|
(282,211
|
)
|
|
|
(496,269
|
)
|
|
|
(100,123
|
)
|
|
|
(5,567,206
|
)
|
|
|
(8,088,282
|
)
|
At December 31, 2017
|
|
$
|
1,756,300
|
|
|
$
|
14,238,712
|
|
|
$
|
4,013,981
|
|
|
$
|
708,349
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,717,342
|
|
Effect of movements in exchange rates
|
|
|
153,580
|
|
|
|
1,245,105
|
|
|
|
351,004
|
|
|
|
61,943
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,811,632
|
|
At December 31, 2018
|
|
$
|
1,909,880
|
|
|
$
|
15,483,817
|
|
|
$
|
4,364,985
|
|
|
$
|
770,292
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,528,974
|
|
Accumulated
amortization and
impairment losses
|
|
Licenses
|
|
|
Patents
|
|
|
Trademarks
|
|
|
Customer
list
|
|
|
Approved
ANDAs
|
|
|
Acquired in
process
research and
development
|
|
|
Total
|
|
At December 31, 2016
|
|
$
|
-
|
|
|
$
|
15,321,230
|
|
|
$
|
4,296,192
|
|
|
$
|
814,101
|
|
|
$
|
12,548
|
|
|
$
|
697,666
|
|
|
$
|
21,141,737
|
|
Amortization
|
|
|
-
|
|
|
|
637,406
|
|
|
|
-
|
|
|
|
437,904
|
|
|
|
98,203
|
|
|
|
5,460,444
|
|
|
|
6,633,957
|
|
Transfers to assets held for resale
|
|
|
-
|
|
|
|
(684,216
|
)
|
|
|
-
|
|
|
|
(470,064
|
)
|
|
|
(105,416
|
)
|
|
|
(5,861,461
|
)
|
|
|
(7,121,157
|
)
|
Effect of movements in exchange rates
|
|
|
-
|
|
|
|
(1,035,708
|
)
|
|
|
(282,211
|
)
|
|
|
(73,592
|
)
|
|
|
(5,335
|
)
|
|
|
(296,649
|
)
|
|
|
(1,693,495
|
)
|
At December 31, 2017
|
|
$
|
-
|
|
|
$
|
14,238,712
|
|
|
$
|
4,013,981
|
|
|
$
|
708,349
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,961,042
|
|
Amortization
|
|
|
195,977
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
195,977
|
|
Effect of movements in exchange rates
|
|
|
8,653
|
|
|
|
1,245,105
|
|
|
|
351,004
|
|
|
|
61,943
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,666,705
|
|
At December 31, 2018
|
|
$
|
204,630
|
|
|
$
|
15,483,817
|
|
|
$
|
4,364,985
|
|
|
$
|
770,292
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,823,724
|
|
Carrying amounts
|
|
Licenses
|
|
|
Patents
|
|
|
Trademarks
|
|
|
Customer
list
|
|
|
Approved
ANDAs
|
|
|
Acquired in
process
research and
development
|
|
|
Total
|
|
At December 31, 2017
|
|
$
|
1,756,300
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,756,300
|
|
At December 31, 2018
|
|
$
|
1,705,250
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,705,250
|
|
As at December 31,
2018, the Company has recorded $545,680 (2017 - $501,800) within accounts payable and accrued liabilities relating to the current
portion of license fees payable relating to the Zypitamag license acquired during the year ended December 31, 2017.
The Company has considered
indicators of impairment as at December 31, 2018 and 2017. The Company did not record any write-down of intangible assets during
the year ended December 31, 2018. During the year ended December 31, 2017 the Company recorded a write-down of intangible assets
totaling $635,721 pertaining to a license acquired during the year ended December 31, 2017. As at December 31, 2018, intangible
assets pertaining to AGGRASTAT
®
intangible were fully amortized.
For the year ended December
31, 2018, amortization on the license totaling $195,977 is recorded within cost of goods sold. For the years ended December 31
2017, there was no amortization of intangible recorded within net income from continuing operations. For the year ended December
31, 2016, amortization of intangible assets relating to AGGRASTAT
®
totaling $1,347,022 is recognized in cost of
goods sold and $3,268 is recognized in research and development expenses.
For the years ended December
31, 2017 and 2016, amortization of the acquired intangible assets totaling $6,633,957 and $841,754, respectively, was recognized
within loss from discontinued operations.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
The holdback receivable
of US$10 million originated on October 2, 2017 as a part of the Apicore Sale Transaction described in note 5. The
holdback receivable was initially recorded at its fair value of $11,940,736 and subsequently is measured at FVTPL. The other
long-term liability, totalling $1,200,608 (2017 - $1,135,007) is payable to the former President and Chief Executive Officer
of Apicore upon receipt of the holdback receivable.
On
February 13, 2019, the Company received notice from the Buyer in the Apicore Sales Transaction of potential claims against the
holdback receivable in respect of representations and warranties under the Apicore Sales Transaction with the maximum exposure
of the claims being the total holdback receivable. The notice did not contain sufficiently detailed information to enable
the Company to assess the merits of the claims. The Company will proceed diligently to investigate the potential claims and attempt
to satisfactorily resolve them with a view to having the holdback receivable released.
In
consideration of the
uncertainty associated with the potential claims asserted by the Buyer, the Company reduced the
carrying value of the holdback receivable by $1,472,999 on the statement of financial position as at December 31, 2018.
The Buyer did not make the required payments on the holdback receivable in February and April 2019.
On July 18, 2011, the Company
settled its then existing long-term debt with Birmingham Associates Ltd. ("Birmingham"), an affiliate of Elliott Associates
L.P., in exchange for i) $4,750,000 in cash; ii) 2,176,003 common shares of the Company; and iii) a royalty on future AGGRASTAT
®
sales until May 1, 2023. The royalty is based on 4% of the first $2,000,000 of quarterly AGGRASTAT
®
sales, 6% on
the portion of quarterly sales between $2,000,000 and $4,000,000 and 8% on the portion of quarterly sales exceeding $4,000,000
payable within 60 days of the end of the preceding three-month periods ended February 28, May 31, August 31 and November 30. Birmingham
has a one-time option to switch the royalty payment from AGGRASTAT
®
to a royalty on the sale of MC-1. Management
determined there is no value to the option to switch the royalty to MC-1 as the product is not commercially available for sale
and the extended long-term development timelines associated with commercialization of the product.
In accordance with the terms
of the agreement, if the Company were to dispose of its AGGRASTAT
®
rights, the acquirer would be required to assume
the obligations under the royalty agreement.
The
royalty obligation was recorded at its fair value at the date at which the liability was incurred, estimated to be $901,915,
and subsequently measured at amortized cost using the effective interest rate method at each reporting date. This resulted in
a carrying value as at December 31, 2018 of $3,530,558 (2017
–
$4,449,012) of
which $1,495,548 (2017
–
$1,537,202) represents the current portion of the
royalty obligation. The net change in the royalty obligation for the year ended December 31, 2018 of $355,287 (2017
–
$747,540;
2016
–
$2,271,436) is recorded within finance (income) expense on the
consolidated statements of net income and comprehensive income. Royalties for the year ended December 31, 2018 totaled
$1,654,380 (2017
–
$1,242,587; 2016
–
$1,795,089)
with payments made during the year ended December 31, 2018 of $1,538,766 (2017
–
$1,829,295;
2016
–
$1,712,390).
The Company has authorized share
capital of an unlimited number of common voting shares, an unlimited number of Class A common shares and an unlimited number of
preferred shares. The preferred shares may be issued in one or more series, and the directors may fix prior to each series issued,
the designation, rights, privileges, restrictions and conditions attached to each series of preferred shares.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
12.
|
Capital Stock (continued)
|
|
(b)
|
Shares issued and outstanding
|
Shares issued and outstanding are as follows:
|
|
Number of Common Shares
|
|
|
Amount
|
|
Balance, December 31, 2016
|
|
|
15,532,408
|
|
|
$
|
124,700,345
|
|
Shares issued upon exercise of stock options (12(c))
|
|
|
207,950
|
|
|
|
869,703
|
|
Shares issued upon exercise of warrants (12(d))
|
|
|
41,969
|
|
|
|
163,679
|
|
Balance, December 31, 2017
|
|
|
15,782,327
|
|
|
$
|
125,733,727
|
|
Shares issued upon exercise of stock options (12(c))
|
|
|
206,885
|
|
|
|
654,711
|
|
Shares repurchased and cancelled under a normal course issuer bid
(*)
|
|
|
(441,400
|
)
|
|
|
(3,501,333
|
)
|
Balance, December 31, 2018
|
|
|
15,547,812
|
|
|
$
|
122,887,105
|
|
(*)
On May 16, 2018,
the Company announced that the TSX-V accepted the Company's notice of intention to make a normal course issuer bid ("NCIB").
Under the terms of the NCIB, the Company may acquire up to an aggregate of 794,088 common shares representing five percent of the
common shares outstanding, over the twelve-month period that the NCIB is in place. The NCIB commenced on May 28, 2018 and will
end on May 27, 2019, or on such earlier date as the Company may complete its maximum purchases under the NCIB. The prices that
the Company will pay for common shares purchased will be the market price of the shares at the time of purchase.
During the year ended December
31, 2018 the Company repurchased and cancelled 441,400 common shares. The aggregate price paid for these common shares totaled
$3,021,340. As a result of the NCIB, during the year ended December 31, 2018 the Company recorded $479,993 directly in its retained
deficit representing the difference between the aggregate price paid for these common shares and a reduction of the Company’s
share capital totaling $3,501,333.
Subsequent to December 31, 2018,
the Company repurchased an additional 159,900 common shares to be cancelled for an aggregate cost of $999,826.
The Company has a stock option
plan which is administered by the Board of Directors of the Company with stock options granted to directors, management, employees
and consultants as a form of compensation. The number of common shares reserved for issuance of stock options is limited to a maximum
of 2,934,403 common shares of the Company at any time. The stock options generally have a maximum term of between five and ten
years and vest within a five-year period from the date of grant.
Changes in the number of options
outstanding during the year ended December 31, 2018 is as follows:
Year ended December 31, 2018
|
|
Options
|
|
|
Weighted
average
exercise
price
|
|
Balance, beginning of period
|
|
|
1,602,127
|
|
|
$
|
3.58
|
|
Granted
|
|
|
200,000
|
|
|
|
7.25
|
|
Exercised
|
|
|
(206,885
|
)
|
|
|
(1.76
|
)
|
Forfeited, cancelled or expired
|
|
|
(200,600
|
)
|
|
|
(6.85
|
)
|
Balance, end of period
|
|
|
1,394,642
|
|
|
$
|
3.91
|
|
Options exercisable, end of period
|
|
|
1,044,892
|
|
|
$
|
2.80
|
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
12.
|
Capital Stock (continued)
|
|
(c)
|
Stock option plan (continued)
|
Changes
in the number of options outstanding during the years ended December 31, 2017 and 2016 are as follows:
Year ended December 31
|
|
2017
|
|
|
2016
|
|
|
|
Options
|
|
|
Weighted
average
exercise
price
|
|
|
Options
|
|
|
Weighted
average
exercise
price
|
|
Balance, beginning of period
|
|
|
1,387,000
|
|
|
$
|
2.37
|
|
|
|
2,277,126
|
|
|
$
|
1.90
|
|
Granted
|
|
|
476,000
|
|
|
|
7.20
|
|
|
|
265,025
|
|
|
|
6.16
|
|
Exercised
|
|
|
(207,950
|
)
|
|
|
(2.50
|
)
|
|
|
(1,069,434
|
)
|
|
|
(1.72
|
)
|
Forfeited, cancelled or expired
|
|
|
(52,923
|
)
|
|
|
(8.58
|
)
|
|
|
(85,717
|
)
|
|
|
(9.59
|
)
|
Balance, end of period
|
|
|
1,602,127
|
|
|
$
|
3.58
|
|
|
|
1,387,000
|
|
|
$
|
2.37
|
|
Options exercisable, end of period
|
|
|
1,231,127
|
|
|
$
|
2.50
|
|
|
|
1,387,000
|
|
|
$
|
2.37
|
|
Options outstanding at December
31, 2018 consist of the following:
Range of
exercise prices
|
|
Number
outstanding
|
|
|
Weighted
average
remaining
contractual life
|
|
|
Options outstanding
weighted average
exercise price
|
|
|
Number
exercisable
|
|
$0.30
|
|
|
185,000
|
|
|
|
4.35 years
|
|
|
$
|
0.30
|
|
|
|
185,000
|
|
$0.31 - $1.00
|
|
|
5,334
|
|
|
|
0.29 years
|
|
|
$
|
0.60
|
|
|
|
5,334
|
|
$1.01 - $3.00
|
|
|
549,433
|
|
|
|
3.35 years
|
|
|
$
|
1.59
|
|
|
|
549,433
|
|
$3.01 - $5.00
|
|
|
32,500
|
|
|
|
1.90 years
|
|
|
$
|
3.90
|
|
|
|
32,500
|
|
$5.01 - $7.30
|
|
|
622,375
|
|
|
|
3.89 years
|
|
|
$
|
7.06
|
|
|
|
272,625
|
|
$0.30 - $7.30
|
|
|
1,394,642
|
|
|
|
3.68 years
|
|
|
$
|
3.91
|
|
|
|
1,044,892
|
|
Compensation expense related
to stock options granted during the period or from previous periods under the stock option plan for the year ended December 31,
2018 is $1,022,175 (2017 – $490,769; 2016 – $1,340,001). The compensation expense was determined based on the fair
value of the options at the date of measurement using the Black-Scholes option pricing model. The expected life of stock options
is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The
expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is
indicative of future trends, which may not necessarily be the actual outcome.
The compensation expense for the
years ended December 31, 2018, 2017 and 2016 was determined based on the fair value of the options at the date of measurement using
the Black-Scholes option pricing model:
Years ended December 31:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Expected option life
|
|
|
4.4 years
|
|
|
|
4.5 years
|
|
|
|
4.8–5.0 years
|
|
Risk free interest rate
|
|
|
1.92%-2.04%
|
|
|
|
1.71
|
%
|
|
|
0.52%-0.67%
|
|
Dividend yield
|
|
|
Nil
|
|
|
|
nil
|
|
|
|
nil
|
|
Expected volatility
|
|
|
85.14%-93.72%
|
|
|
|
80.44
|
%
|
|
|
115.59%-117.56%
|
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
12.
|
Capital Stock (continued)
|
|
(c)
|
Stock option plan (continued)
|
Additionally, prior to its disposal
Apicore had a stock option plan and at the December 1, 2016 acquisition date, there were 897,500 options to purchase Class E common
stock of Apicore Inc. outstanding.
497,500 options became fully vested on the change in control
with the right to put the outstanding Apicore Class E shares and options to the Company upon the change in control. The remaining
Apicore stock options outstanding of 400,000 were unaffected by the change of control and fully vested during 2017. The value of
the put option was initially recorded as a liability to repurchase Apicore Class E shares on the consolidated statements of financial
position and the value of the remaining options was recorded as non-controlling interest within equity.
During the year
ended December 31, 2017, employees and former directors of Apicore exercised 292,500 stock options to acquire 292,500 Class
E common shares of Apicore for gross proceeds to the Company of U.S.$280,125. These shares, as well as 112,500 Class E
common shares previously issued for gross proceeds of U.S.$48,375 were then purchased by the Company upon the employees and
former directors exercising their put right to the Company. This resulted in the Company acquiring 405,000 Class E common
shares of Apicore for a total cost of U.S.$1,974,772 (Cdn - $2,690,383) during 2017. As a result of the employees and former
directors exercising their put right to the Company, the liability to repurchase Apicore Class E common shares on the
consolidated statements of financial position was reduced.
On July 3, 2017, the remaining
employee put options over 117,500 Class E shares, to be issued upon the exercise of stock options, of Apicore expired without being
exercised by the employees and the value of these options, totaling $615,381, was reclassified as a non-controlling interest. As
a result, there remained 517,500 stock options in Apicore Inc. outstanding prior to the sale transaction which occurred on October
2, 2017.
During the year ended
December 31, 2017, the Company recorded $132,346 (2016 – $60,240), respectively of stock-based compensation expense
within the loss from discontinued operations on the consolidated statements of net income and comprehensive income relating
to stock options in Apicore.
On November 17, 2016 in connection
with a term loan entered into to fund an acquisition, the Company issued 900,000 warrants to the lenders, exercisable for a 48-month
period following the issuance of the loan at a price of $6.50 per share. The fair value of the warrants issued in connection with
the loan was $2,065,500 net of its pro-rata share of financing costs of $116,695 and were recorded in equity with a corresponding
balance recorded as deferred financing costs which is netted against the associated long-term debt on the consolidated statements
of financial position as at December 31, 2017.
Changes in the number of Canadian
dollar denominated warrants outstanding during the years ended December 31, 2018, 2017 and 2016 are as follows:
Years ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
Warrants
|
|
|
Weighted
average
exercise
price
|
|
|
Warrants
|
|
|
Weighted
average
exercise
price
|
|
|
Warrants
|
|
|
Weighted
average
exercise
price
|
|
Balance, beginning of period
|
|
|
900,000
|
|
|
$
|
6.50
|
|
|
|
941,969
|
|
|
$
|
6.31
|
|
|
|
59,775
|
|
|
$
|
2.20
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
900,000
|
|
|
|
6.50
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,969
|
)
|
|
|
(2.20
|
)
|
|
|
(17,806
|
)
|
|
|
(2.20
|
)
|
Balance, end of period
|
|
|
900,000
|
|
|
$
|
6.50
|
|
|
|
900,000
|
|
|
$
|
6.50
|
|
|
|
941,969
|
|
|
$
|
6.31
|
|
Warrants exercisable, end of period
|
|
|
900,000
|
|
|
$
|
6.50
|
|
|
|
900,000
|
|
|
$
|
6.50
|
|
|
|
941,969
|
|
|
$
|
6.31
|
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
12.
|
Capital Stock (continued)
|
The fair value of the warrants
issued during the year ended December 31, 2016 was determined at the date of measurement using a Black-Scholes pricing model with
the following assumptions:
Years ended December 31
|
|
2016
|
|
Expected option life
|
|
|
4.0 years
|
|
Risk-free interest rate
|
|
|
0.85
|
%
|
Dividend yield
|
|
|
nil
|
|
Expected volatility
|
|
|
120.40
|
%
|
The following table reflects
the calculation of basic earnings per share for the years ended December 31, 2018, 2017 and 2016:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net earnings before discontinued operations
|
|
$
|
0.25
|
|
|
$
|
0.74
|
|
|
$
|
0.24
|
|
Earnings from discontinued operations, net of tax
|
|
|
-
|
|
|
|
2.04
|
|
|
|
1.56
|
|
|
|
$
|
0.25
|
|
|
$
|
2.78
|
|
|
$
|
1.80
|
|
The following table reflects the calculation of diluted
earnings per share for the years ended December 31, 2018, 2017 and 2016:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net earnings before discontinued operations
|
|
$
|
0.24
|
|
|
$
|
0.63
|
|
|
$
|
0.21
|
|
Earnings from discontinued operations, net of tax
|
|
|
-
|
|
|
|
1.76
|
|
|
|
1.35
|
|
|
|
$
|
0.24
|
|
|
$
|
2.39
|
|
|
$
|
1.56
|
|
The following table reflects
the income used in the basic earnings per share computations for the years ended December 31, 2018, 2017 and 2016:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net earnings before discontinued operations
|
|
$
|
3,925,639
|
|
|
$
|
11,496,693
|
|
|
$
|
3,624,323
|
|
Earnings from discontinued operations, net of tax
|
|
|
-
|
|
|
|
31,924,191
|
|
|
|
23,358,318
|
|
|
|
$
|
3,925,639
|
|
|
$
|
43,420,884
|
|
|
$
|
26,982,641
|
|
The following table reflects
the income (and share data used in the denominator of the basic and diluted earnings per share computations for the years ended
December 31, 2018, 2017 and 2016:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Weighted average shares outstanding for basic earnings per share
|
|
|
15,791,396
|
|
|
|
15,636,853
|
|
|
|
15,002,005
|
|
Effects of dilution from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
772,267
|
|
|
|
1,601,227
|
|
|
|
1,372,427
|
|
Warrants
|
|
|
-
|
|
|
|
900,000
|
|
|
|
941,969
|
|
Weighted average shares outstanding for diluted earnings per share
|
|
|
16,563,663
|
|
|
|
18,138,080
|
|
|
|
17,316,401
|
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
12.
|
Capital Stock (continued)
|
|
(e)
|
Per share amounts (continued)
|
Effects of dilution from
622,375 stock options (2017 – 900, 2016 – 14,573) and 900,000 warrants (2017 – nil and 2016 –
nil) were excluded in the calculation of weighted average shares outstanding for diluted earnings per share before
discontinued operations for the year ended December 31, 2018 as their exercise prices exceed the Company’s share price
on the TSX-V at December 31, 2018.
The Company recognized
current income tax expense of $677,900 for the year ended December 31, 2018 (2017 – recovery of $9,392,836; 2016
– expense of $501,315).and a deferred income tax expense of $218,976 for the year ended December 31, 2018 (2017 –
expense of $333,187; 2016 – recovery of $331,095).
As at December 31, 2018 and
2017, deferred tax assets and liabilities have been recognized with respect to the following items:
As at December 31
|
|
2018
|
|
|
2017
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Non-capital loss carryforwards
|
|
$
|
127,176
|
|
|
$
|
326,108
|
|
Total deferred tax assets
|
|
$
|
127,176
|
|
|
$
|
326,108
|
|
As at December 31,
2018 and 2017, Canadian deferred tax assets have not been recognized with respect to the following table. The scientific
research and experimental development deferred tax assets expire between 2025 and 2028.
As at December 31
|
|
2018
|
|
|
2017
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Scientific research and experimental development
|
|
$
|
3,237,000
|
|
|
$
|
3,574,000
|
|
Holdback receivable
|
|
|
199,000
|
|
|
|
-
|
|
Other
|
|
|
159,000
|
|
|
|
315,000
|
|
Total deferred tax assets
|
|
$
|
3,595,000
|
|
|
$
|
3,889,000
|
|
The reconciliation of the Canadian
statutory rate to the income tax rate applied to the net income before discontinued operations for the years ended December 31,
2018, 2017 and 2016 to the income tax expense is as follows:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Income (loss) for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
|
|
$
|
3,439,883
|
|
|
$
|
(2,178,334
|
)
|
|
$
|
(4,012,706
|
)
|
Foreign
|
|
|
1,382,632
|
|
|
|
4,615,378
|
|
|
|
7,807,249
|
|
|
|
$
|
4,822,515
|
|
|
$
|
2,437,044
|
|
|
$
|
3,794,543
|
|
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Canadian federal and provincial income taxes at 27% (2017 – 27%; 2016 – 27%)
|
|
$
|
(1,302,000
|
)
|
|
$
|
(658,000
|
)
|
|
$
|
(1,025,000
|
)
|
Permanent differences and other items
|
|
|
26,000
|
|
|
|
(335,000
|
)
|
|
|
(758,000
|
)
|
Foreign tax rate in foreign jurisdictions
|
|
|
85,000
|
|
|
|
656,000
|
|
|
|
2,159,000
|
|
Change in unrecognized deferred tax assets
|
|
|
294,000
|
|
|
|
9,397,000
|
|
|
|
(546,000
|
)
|
|
|
$
|
(897,000
|
)
|
|
$
|
9,060,000
|
|
|
$
|
(170,000
|
)
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
13.
|
Income taxes (continued)
|
The foreign tax rate differential
is the difference between the Canadian federal and provincial statutory income tax rate and the tax rates in Barbados (2.50
%),
Mauritius (15.00%), Ireland (12.50%)
and the United States (21.00%) that is applicable to income or losses incurred by the
Company's subsidiaries.
At December 31, 2018, the Company
has the following Barbados losses available for application in future years:
2019
|
|
$
|
2,478,000
|
|
2020
|
|
|
1,271,000
|
|
2022
|
|
|
1,339,000
|
|
|
|
$
|
5,088,000
|
|
|
14.
|
Finance income (expense)
|
During the years ended December
31, 2018, 2017 and 2016 the Company earned finance income (incurred finance expense) as follows:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Interest income
|
|
$
|
1,114,676
|
|
|
$
|
47,447
|
|
|
$
|
30,452
|
|
Accretion of royalty obligation
|
|
|
(355,287
|
)
|
|
|
(747,540
|
)
|
|
|
(2,271,436
|
)
|
Accretion on holdback receivable
|
|
|
325,522
|
|
|
|
-
|
|
|
|
-
|
|
Interest on MIOP loan
|
|
|
-
|
|
|
|
(105,670
|
)
|
|
|
(218,867
|
)
|
Bank charges and other interest
|
|
|
(23,979
|
)
|
|
|
(31,698
|
)
|
|
|
(20,224
|
)
|
Change in fair value of warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
1,161
|
|
|
|
$
|
1,060,932
|
|
|
$
|
(837,461
|
)
|
|
$
|
(2,478,914
|
)
|
During the years ended December
31, 2018, 2017 and 2016, the Company received (paid) finance income (expense) as follows:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Interest received
|
|
$
|
279,098
|
|
|
$
|
47,447
|
|
|
$
|
30,452
|
|
Interest paid on MIOP loan
|
|
|
-
|
|
|
|
(88,828
|
)
|
|
|
(186,467
|
)
|
Other interest, net and banking fees
|
|
|
(23,979
|
)
|
|
|
(31,698
|
)
|
|
|
(20,224
|
)
|
|
|
$
|
255,119
|
|
|
$
|
73,079
|
|
|
$
|
176,239
|
|
|
15.
|
Commitments and contingencies
|
As at December 31, 2018, and
in the normal course of business, the Company has obligations to make future payments representing contracts and other commitments
that are known and committed as follows:
2019
|
|
$
|
4,005,841
|
|
2020
|
|
|
2,240,096
|
|
2021
|
|
|
1,274,935
|
|
2022
|
|
|
1,294,288
|
|
2023
|
|
|
204,630
|
|
Thereafter
|
|
|
204,630
|
|
|
|
$
|
9,224,420
|
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
15.
|
Commitments and contingencies (continued)
|
|
(a)
|
Commitments (continued)
|
The Company has entered into
a manufacturing and supply agreement to purchase a minimum quantity of AGGRASTAT
®
unfinished product inventory totaling
U.S.$150,000 annually (based on current pricing) until 2024 and a minimum quantity of AGGRASTAT
®
finished product
inventory totaling U.S.$197,900 annually (based on current pricing) until 2022 and between 400,000 and 525,000 euros annually (based
on current pricing) until 2022.
Effective November 1, 2014, the
Company entered into a sub-lease with Genesys Venture Inc. (“GVI”) to lease office space at a rate of $170,000 per
annum for three years ending October 31, 2017. The lease was amended on May 1, 2016 and increased the leased area covered under
the lease agreement at a rate of $212,000 per annum until October 31, 2019. The leased area covered under the lease was again increased,
effective November 1, 2018 at a rate of $306,400 per annum until the end of the term of the lease.
Subsequent to December 31,
2018, effective January 1, 2019, the Company renewed its business and administration services agreement with GVI,
as described in note 16(b), under which the Company is committed to pay $7,083 per month or $85,000 per year for a one-year
term.
Contracts with contract research
organizations are payable over the terms of the associated agreements and clinical trials and timing of payments is largely dependent
on various milestones being met, such as the number of patients recruited, number of monitoring visits conducted, the completion
of certain data management activities, trial completion, and other trial related activities.
On October 31, 2017, the
Company acquired an exclusive license to sell and market PREXXARTAN
®
(valsartan) oral solution in the United
States and its territories with a seven-year term, with extensions to the term available, which has been granted tentative
approval by the U.S. Food and Drug Administration (“FDA”), and which was converted to final approval during 2017.
The Company acquired the exclusive license rights for an upfront payment of U.S.$100,000, with an additional U.S.$400,000
payable on final FDA approval and will be obligated to pay royalties and milestone payments from the net revenues of
PREXXARTAN
®
. The U.S.$400,000 payment is on hold pending resolution of the dispute between the licensor and
the third-party manufacturer of PREXXARTAN
®
described in note 15(d) and
is recorded within accounts payable and accrued liabilities on the consolidated statements of financial position.
On December 14, 2017 and subsequently
updated on March 7, 2018, the Company announced
it had acquired an exclusive license to sell and
market a branded cardiovascular drug,
ZYPITAMAG
TM
(pitavastatin magnesium) in
the United States and its territories for a term of seven years with extensions to the term available.
The Company has entered
into a profit-sharing arrangement resulting in a portion of the net profits from ZYPITAMAG
TM
being paid to the licensor.
To date, no amounts are due and/or payable pertaining to profit sharing on this product.
The
Company periodically enters into research agreements with third parties that include indemnification provisions customary
in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred
as a result of claims arising from research and development activities undertaken on behalf of the Company. In some cases, the
maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These
indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations
prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically,
the Company has not made any indemnification payments under such agreements and no amount has been accrued in the consolidated
financial statements with respect to these indemnification obligations.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
15.
|
Commitments and contingencies (continued)
|
As
a part of the Birmingham debt settlement described in note 11, beginning on July 18, 2011, the Company is obligated to pay a royalty
to Birmingham based on future commercial AGGRASTAT
®
sales until 2023. The royalty is based on 4% of the first $2,000,000
of quarterly AGGRASTAT
®
sales, 6% on the portion of quarterly sales between $2,000,000 and $4,000,000 and 8% on
the portion of quarterly sales exceeding $4,000,000 payable within 60 days of the end of the preceding
three-month periods
ended February 28, May 31, August 31 and November 30
. Birmingham has a one-time option to switch
the royalty payment from AGGRASTAT
®
to a royalty on the sale of MC-1. Management has determined there is no value
to the option to switch the royalty to MC-1 as the product is not commercially available for sale and the extended long-term development
timeline associated with commercialization of the product. Royalties for the year ended December 31, 2018 totaled $1,654,380 (2017
–
$1,242,587; 2016
–
$1,795,089) with
payments made during the year ended December 31, 2018 of $1,538,766 (2017
–
$1,829,295;
2016
–
$1,712,390).
The
Company is obligated to pay royalties on any future commercial net sales of
PREXXARTAN
®
to
the licensor of
PREXXARTAN
®
. To date, no royalties are due and/or payable.
In the normal course of business,
the Company may from time to time be subject to various claims or possible claims. Although management currently believes there
are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact
on the Company’s financial position, results of operations, or cash flows, these matters are inherently uncertain and management’s
view of these matters may change in the future.
During 2018, the
Company
was named in a civil claim in Florida from the third-party manufacturer of
PREXXARTAN
®
against the licensor. The claim disputed the rights granted by the licensor to the Company
with respect to PREXXARTAN
®
. The claim against the Company has since been withdrawn, however the dispute
between the licensor and the third-party manufacturer continues.
On September 10, 2015, the Company
submitted a supplemental New Drug Application (“sNDA”) to the FDA to expand the label for AGGRASTAT
®
.
The label change is being reviewed and evaluated based substantially on data from published studies. If the label change submission
were to be successful, the Company will be obligated to pay 300,000 Euros over the course of a three-year period in equal quarterly
instalments following approval. On July 7, 2016, the Company announced it received a Complete Response Letter stating the sNDA
cannot be approved in its present form and requested additional information. The payments are contingent upon the success of the
filing and as such the Company has not recorded any amount in the consolidated statements of net income (loss)
and comprehensive income (loss) pertaining to this contingent liability.
During 2015, the Company began
a development project of a cardiovascular generic drug in collaboration with Apicore.
The Company
has entered into a supply and development agreement under which the Company holds all commercial rights to the drug. In connection
with this project, the Company is obligated to pay Apicore 50% of net profit from the sale of this drug.
On August 13, 2018,
the Company announced that the FDA has approved its aNDA for SNP, a generic intravenous cardiovascular product and the Company
intends to launch the product commercially in 2019. To date, no amounts are due and/or payable pertaining to profit sharing on
this product.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
16.
|
Related party transactions
|
|
(a)
|
Key management personnel compensation
|
Key management personnel are
those persons having authority and responsibility for planning, directing and controlling the activities of the Company. The Board
of Directors, President and Chief Executive Officer and Chief Financial Officer are key management personnel for all periods. The
Vice-President, Commercial Operations was considered key management personnel until the conclusion of his employment in September
2017 and for the 2018 periods, a new Vice-President, Commercial Operations was hired effective January 8, 2018 and is included
in key management personnel from the effective date of his hire. Beginning in December 2016 and ending of October 2, 2017, the
President and Chief Executive Officer of Apicore, was considered key management personnel. On May 9, 2016, the Company announced
that the employment agreement with the Company’s then President and Chief Operating Officer had been terminated, effective
immediately. For the year ended December 31, 2016, the now former President and Chief Operating Officer was included in key management
personnel. The compensation pertaining to the President and Chief Executive Officer of Apicore has been included in the income
from discontinued operations in the consolidated statements of net income and comprehensive income for the years ended December
31, 2017 and 2016 and his compensation has been excluded from the table below. Included in the table below is $750,000 relating
to transaction bonuses which is included within the income from discontinued operations for the year ended December 31, 2017 on
the consolidated statement net income and comprehensive income.
In addition to their salaries,
the Company also provides non-cash benefits and participation in the Stock Option Plan. The following table details the compensation
paid to key management personnel:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Salaries, fees and short-term benefits
|
|
$
|
769,636
|
|
|
$
|
1,463,106
|
|
|
$
|
839,735
|
|
Termination benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
221,624
|
|
Share-based payments
|
|
|
669,371
|
|
|
|
139,189
|
|
|
|
145,398
|
|
|
|
$
|
1,439,007
|
|
|
$
|
1,602,295
|
|
|
$
|
1,206,757
|
|
As
at December 31, 2018, the Company has $4,683 (2017
–
$1,000; 2016
–
$13,279)
recorded within accounts payable and accrued liabilities relating to amounts payable to the members of the Company's Board of Directors
for services provided.
On May 9, 2016, the Company announced
that the employment agreement with the Company’s President and Chief Operating Officer had been terminated, effective immediately.
Included within selling, general and administrative expenses for the year ended December 31, 2016 is $221,624 pertaining to severance
for the former President and Chief Operating Officer. All amounts pertaining to this severance were paid during 2016 and there
is no additional liability in this regard.
|
(b)
|
Transactions with related parties
|
Directors and key management
personnel control 17% of the voting shares of the Company as at December 31, 2018 (2017 – 16%).
During the year ended December
31, 2018 the Company paid GVI, a company controlled by the Chief Executive Officer, a total of $85,000 (2017 – $85,000; 2016
– $85,000) for business administration services, $227,733 (2017 – $212,000; 2016 – $222,500) in rental costs
and $46,950 (2017 – $43,800; 2016 – $41,975) for commercial and information technology support services. As described
in note 15(a), the business administration services summarized above are provided to the Company through a consulting agreement
with GVI.
Clinical research services are
provided through a consulting agreement with GVI Clinical Development Solutions Inc. ("GVI CDS"), a company controlled
by the Chief Executive Officer. Pharmacovigilance and safety, regulatory support, quality control and clinical support are provided
to the Company through the GVI CDS agreement. During the year ended December 31, 2018, the Company paid GVI CDS $857,917 (2017
– $715,623; 2016 – $592,464) for clinical research services.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
16.
|
Related party transactions (continued)
|
|
(b)
|
Transactions with related parties (continued)
|
Research and development services
are provided through a consulting agreement with CanAm Bioresearch Inc. ("CanAm"), a company controlled by a close family
member of the President and Chief Executive Officer. During the year ended December 31, 2018, the Company paid CanAm $393,021 (2017
– $458,424; 2016 – $560,205) for research and development services.
Beginning with the acquisition
of Apicore (the “Acquisition”) on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017
(note 5), the Company incurred rental charges pertaining to leased manufacturing facilities and office space from Dap Dhaduk II
LLC (“Dap Dhaduk”), an entity controlled by a minority shareholder and member of the board of directors of Apicore
Inc. Included within discontinued operations on the consolidated statements of net income and comprehensive income is payments
to Dap Dhaduk totaling $263,493 and $29,869 for the years ended December 31, 2017 and 2016, respectively.
Beginning with the Acquisition
on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017 (note 5), the Company purchased inventory
from Aktinos Pharmaceuticals Private Limited and Aktinos HealthCare Private Limited (together, “Aktinos”), an entity
significantly influenced by a close family member of the Chief Executive Officer of Apicore Inc. For the year ended December 31,
2017, the Company paid Aktinos $1,599,056 (2016 – $217,382) for purchases of inventory, which were included in assets of
the Apicore business sold (note 5) in connection with the Apicore Sales Transaction.
Beginning with the Acquisition
on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017 (note 5), the Company incurred research and
development charges from Omgene Life Sciences Pvt. Ltd. (“Omgene”), an entity significantly influenced by a close family
member of the Chief Executive Officer of Apicore Inc. Included within discontinued operations on the consolidated statements of
net income and comprehensive income is payments to Omgene totaling $26,465 and nil for the years ended December 31, 2017 and 2016,
respectively.
Beginning with the Acquisition
on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017 (note 5), the Company incurred pharmacovigilance
charges from 4C Pharma Solutions LLC (“4C Pharma”), an entity significantly influenced by a close family member of
the Chief Executive Officer of Apicore Inc. Included within discontinued operations on the consolidated statements of net income
and comprehensive income is payments to 4C Pharma totaling $5,690 and nil for the years ended December 31, 2017 and 2016, respectively.
These transactions have been
measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
As
at December 31, 2018, included in accounts payable and accrued liabilities is $16,843 (2017
–
$67,704)
payable to GVI, $134,461 (2017
–
$118,973) payable to GVI CDS, and $40,452 (2017
–
$36,606) payable to CanAm. These amounts are unsecured, payable
on demand and non-interest
bearing.
Effective July 18, 2016, the
Company renewed its consulting agreement with its Chief Executive Officer, through A.D. Friesen Enterprises Ltd., a company owned
by the Chief Executive Officer, for a term of five years, at a rate of $300,000 annually, increasing to $315,000 annually, effective
January 1, 2017. The Company may terminate this agreement at any time upon 120 days’ written notice. As at December 31, 2018,
there were no amounts included in accounts payable and accrued liabilities (2017 – $125,000) payable to A.D. Friesen Enterprises
Ltd. as a result of this consulting agreement. Any amounts payable to A.D. Friesen Enterprises Ltd. are unsecured, payable on demand
and non-interest bearing.
Effective January 1, 2018, the
Company renewed its consulting agreement with its Chief Financial Officer, through JFK Enterprises Ltd., a company owned by the
Chief Financial Officer of the Company, for a one-year term, at a rate of $155,000 annually. The agreement could have been terminated
by either party, at any time, upon 30 days written notice. Any amounts payable to JFK Enterprises Ltd. were unsecured, payable
on demand and non-interest bearing. Effective June 1, 2018, this consulting agreement was converted into an employment agreement
with the Chief Financial Officer.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
Expenses incurred for the years
ended December 31, 2018, 2017 and 2016 from continuing operations are as follows:
Year ended December 31
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Personnel expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, fees and short-term benefits
|
|
$
|
7,696,387
|
|
|
$
|
5,903,669
|
|
|
$
|
5,804,883
|
|
Share-based payments
|
|
|
1,022,176
|
|
|
|
490,769
|
|
|
|
1,340,001
|
|
|
|
|
8,718,563
|
|
|
|
6,394,438
|
|
|
|
7,144,884
|
|
Amortization and derecognition
|
|
|
299,184
|
|
|
|
97,794
|
|
|
|
1,433,573
|
|
Research and development
|
|
|
5,306,468
|
|
|
|
3,538,547
|
|
|
|
2,270,964
|
|
Manufacturing
|
|
|
764,712
|
|
|
|
955,160
|
|
|
|
1,062,684
|
|
Inventory material costs
|
|
|
3,861,740
|
|
|
|
3,079,397
|
|
|
|
2,482,986
|
|
Write-down (write-up) of inventory
|
|
|
94,517
|
|
|
|
385,289
|
|
|
|
(108,817
|
)
|
Medical affairs
|
|
|
1,026,465
|
|
|
|
1,108,090
|
|
|
|
1,040,755
|
|
Administration
|
|
|
1,504,799
|
|
|
|
1,724,584
|
|
|
|
1,526,682
|
|
Selling and logistics
|
|
|
8,018,787
|
|
|
|
5,395,373
|
|
|
|
5,355,876
|
|
Professional fees
|
|
|
740,353
|
|
|
|
801,882
|
|
|
|
559,287
|
|
|
|
$
|
30,335,588
|
|
|
$
|
23,480,554
|
|
|
$
|
22,768,874
|
|
|
18.
|
Financial instruments
|
|
(a)
|
Financial assets and liabilities
|
Set out below is a comparison
by class of the carrying amounts and fair value of the Company's financial instruments as at December 31, 2018 and 2017:
As at December 31
|
|
2018
|
|
|
2017
|
|
|
|
Carrying
amount
|
|
|
Fair
value
|
|
|
Carrying
amount
|
|
|
Fair
value
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets measured at amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,139,281
|
|
|
$
|
24,139,281
|
|
|
$
|
5,260,480
|
|
|
$
|
5,260,480
|
|
Short-term investments
|
|
|
47,747,000
|
|
|
|
47,747,000
|
|
|
|
-
|
|
|
|
-
|
|
Accounts receivable
|
|
|
10,764,579
|
|
|
|
10,764,579
|
|
|
|
8,588,255
|
|
|
|
8,588,255
|
|
Consideration receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
82,678,366
|
|
|
|
82,678,366
|
|
Holdback receivable
|
|
|
11,909,368
|
|
|
|
11,909,368
|
|
|
|
12,068,773
|
|
|
|
12,068,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities measured at amortized cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
14,378,215
|
|
|
$
|
14,378,215
|
|
|
$
|
10,371,103
|
|
|
$
|
10,371,103
|
|
Accrued transaction costs
|
|
|
-
|
|
|
|
-
|
|
|
|
22,360,730
|
|
|
|
22,360,730
|
|
Current portion of royalty obligation
|
|
|
1,495,548
|
|
|
|
1,495,548
|
|
|
|
1,537,202
|
|
|
|
1,537,202
|
|
Royalty obligation
|
|
|
2,035,010
|
|
|
|
2,035,010
|
|
|
|
2,911,810
|
|
|
|
2,911,810
|
|
License fee payable
|
|
|
-
|
|
|
|
-
|
|
|
|
501,800
|
|
|
|
501,800
|
|
Other long-term liability
|
|
|
1,200,608
|
|
|
|
1,200,608
|
|
|
|
1,135,007
|
|
|
|
1,135,007
|
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
18.
|
Financial instruments (continued)
|
|
(a)
|
Financial assets and liabilities (continued)
|
The Company has
determined the estimated fair values of its financial instruments based on appropriate valuation methodologies. The carrying
values of current monetary assets and liabilities approximate their fair values due to their relatively short periods to
maturity. The royalty obligation, license fee payable and other long-term liability are carried at amortized cost. The
holdback receivable is carried at FVTPL.
IFRS 13,
Fair Value Measurement
,
establishes a fair value hierarchy that reflects the significance of the inputs used in measuring fair value. The fair value hierarchy
has the following levels:
|
•
|
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
•
|
Level 2 – Inputs other than quoted prices included within Level 1 that are either directly
or indirectly observable;
|
|
•
|
Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring
an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
|
The fair value hierarchy of the
following financial assets and liabilities on the consolidated statements of financial position as at December 31, 2018 is as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdback receivable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,909,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
545,680
|
|
Current portion of royalty obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,495,548
|
|
Royalty obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,035,010
|
|
Other long-term liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,200,608
|
|
Included in accounts payable
and accrued liabilities as at December 31, 2018 is the current portion of the license fee payable of $545,680.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
18.
|
Financial instruments (continued)
|
|
(a)
|
Financial assets and liabilities (continued)
|
The fair value hierarchy of the
following financial assets and liabilities on the consolidated statements of financial position as at December 31, 2017 is as follows:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
-
|
|
|
$
|
14,052,861
|
|
|
$
|
-
|
|
Holdback receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
12,068,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
877,150
|
|
Current portion of royalty obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,537,202
|
|
Liabilities held for sale
|
|
|
-
|
|
|
|
6,976,313
|
|
|
|
-
|
|
Royalty obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,911,810
|
|
License fee payable
|
|
|
-
|
|
|
|
-
|
|
|
|
501,800
|
|
Other long-term liability
|
|
|
-
|
|
|
|
-
|
|
|
|
1,135,007
|
|
Included in accounts payable
and accrued liabilities as at December 31, 2017 is the current portion of the license fee payable of $877,150.
Royalty obligation:
The
royalty obligation requires determining expected revenue from AGGRASTAT
®
sales and an appropriate discount
rate and making assumptions about them. If the expected revenue from AGGRASTAT
®
sales were to change by 10%,
then the royalty obligation liability recorded as at December 31, 2018 would change by approximately $211,000. If the
discount rate used in calculating the fair value of the royalty obligation of 20% were to change by 1%, the royalty
obligation liability recorded as at December 31, 2018 would change by approximately $22,000.
For assets and liabilities that
are recognized in the consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred
between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair
value measurement as a whole) at the end of each reporting period. During the years ended December 31, 2018, 2017 and 2016 there
were no transfers between Level 1 and Level 2 fair value measurements.
|
(b)
|
Risks arising from financial instruments and risk management
|
The Company's activities expose
it to a variety of financial risks; market risk (including foreign exchange and interest rate risks), credit risk and liquidity
risk. Risk management is the responsibility of the Company, which identifies, evaluates and, where appropriate, mitigates financial
risks.
(a)
Foreign exchange
risk is the risk that the fair value of future cash flows for financial instruments will fluctuate because of changes in foreign
exchange rates. The Company is exposed to currency risks primarily due to its U.S dollar denominated cash, accounts receivable,
accounts payable and accrued liabilities, long-term debt and royalty obligation. The Company has not entered into any foreign exchange
hedging contracts.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
18.
|
Financial instruments (continued)
|
|
(b)
|
Risks arising from financial instruments and risk management (continued)
|
|
(i)
|
Market risk (continued)
|
The Company is exposed to U.S.
dollar currency risk through the following U.S. denominated financial assets and liabilities:
As at December 31
(Expressed in U.S. Dollars)
|
|
2018
|
|
|
2017
|
|
Cash
|
|
$
|
17,427,653
|
|
|
$
|
4,086,080
|
|
Short-term investments
|
|
|
35,000,000
|
|
|
|
-
|
|
Accounts receivable
|
|
|
7,725,228
|
|
|
|
6,792,664
|
|
Consideration receivable
|
|
|
-
|
|
|
|
65,905,433
|
|
Holdback receivable
|
|
|
8,729,928
|
|
|
|
9,620,385
|
|
Accounts payable and accrued liabilities
|
|
|
(9,902,571
|
)
|
|
|
(7,174,456
|
)
|
Accrued transaction costs
|
|
|
-
|
|
|
|
(17,824,416
|
)
|
Income taxes payable
|
|
|
(775,903
|
)
|
|
|
(1,935,879
|
)
|
Current portion of royalty obligation
|
|
|
(1,096,282
|
)
|
|
|
(1,225,350
|
)
|
Royalty obligation
|
|
|
(1,491,724
|
)
|
|
|
(2,321,092
|
)
|
License fee payable
|
|
|
-
|
|
|
|
(400,000
|
)
|
Other long-term liability
|
|
|
(880,082
|
)
|
|
|
(904,749
|
)
|
|
|
$
|
54,736,247
|
|
|
$
|
54,618,620
|
|
Based on the above net exposures
as at December 31, 2018, assuming that all other variables remain constant, a 5% appreciation or deterioration of the Canadian
dollar against the U.S. dollar would result in a corresponding increase or decrease, respectively on the Company's net income of
approximately $3.7 million (2017 – $3.8 million).
The Company is also exposed
to currency risk on the Euro, however management estimates such risk relating to an appreciation or deterioration of the Canadian
dollar against the Euro would have limited impact on the operations of the Company.
(b)
Interest rate risk
is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Based
on the Company’s exposures as at December 31, 2018, as a result of the significant cash and cash equivalents and short-term
investments held by the Company, assuming that all other variables remain constant, a 1% appreciation or deterioration in interest
rates would result in a corresponding increase or decrease, respectively on the Company's net income of approximately $720,000
(2017 - $53,000).
Credit risk is the risk of
financial loss to the Company if a partner or counterparty to a financial instrument fails to meet its contractual obligation and
arises principally from the Company’s cash, accounts receivable, consideration receivable and holdback receivable. The carrying
amounts of the financial assets represents the maximum credit exposure.
The Company limits its exposure
to credit risk on cash by placing these financial instruments with high-credit quality financial institutions.
The Company is subject to a
concentration of credit risk related to its accounts receivable as 96% of the balance of amounts owing are from three customers.
The Company has historically had low impairment in regards to its accounts receivable. As at December 31, 2018, none of the outstanding
accounts receivable were outside of the normal payment terms and the Company did not record any bad debt expenses (2017 –
nil; 2016 – nil).
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
18.
|
Financial instruments (continued)
|
|
(b)
|
Risks arising from financial instruments and risk management (continued)
|
Liquidity risk is the risk
that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by
continuously monitoring forecasted and actual cash flows, as well as anticipated investing and financing activities and to ensure,
as far as possible, that it will have sufficient liquidity to meet its liabilities when due and to fund future operations.
The majority of the Company’s
accounts payable and accrued liabilities are due within the current operating period.
The Company manages its capital
structure and makes adjustments to it, based on the funds available to the Company, in order to continue the business of the Company.
The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share and warrant
issuances, granting of stock options, the issuance of debt or by undertaking other activities as deemed appropriate under the specific
circumstance. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies
on the expertise of the Company's management to sustain future development of the business.
The Company’s objectives
when managing capital are to safeguard the Company’s ability to continue as a going concern and to provide capital to pursue
the development and commercialization of its products. In the management of capital, the Company includes cash, long-term debt,
capital stock, stock options, warrants and contributed surplus. The Company manages the capital structure and makes adjustments
to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the
capital structure, the Company may attempt to issue new shares or new debt.
At the current stage of the Company's
development, in order to maximize its current business activities, the Company does not pay out dividends. Management reviews its
capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.
The Company’s overall strategy
with respect to capital risk management remains unchanged for the year ended December 31, 2018.
|
19.
|
Determination of fair values
|
A number of the Company's accounting
policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities.
Fair values have been determined for measurement and/or disclosure purposes based on the following models. When applicable, further
information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
The fair value of intangible
assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
|
(b)
|
Share-based payment transactions
|
The fair value of the employee
share options is measured using the Black-Scholes option pricing model. Measurement inputs include share price on measurement date,
exercise price of the instrument, expected volatility (based on weighted average historical volatility adjusted for changes expected
due to publicly available information), weighted average expected life of the instruments (based on historical experience and general
option holder behavior), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market
performance conditions attached to the transactions are not taken into account in determining fair value.
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
|
19.
|
Determination of fair values (continued)
|
The royalty obligation is recorded
at its fair value at the date at which the liability was incurred and subsequently measured at amortized cost using the effective
interest rate method at each reporting date. Estimating fair value for this liability requires determining the most appropriate
valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining expected revenue
from AGGRASTAT
®
sales and an appropriate discount rate and making assumptions about them.
The holdback receivable is
recorded at its fair value at the date at the date of acquisition and subsequently measured at fair value at each
reporting date. Estimating fair value for this asset requires determining the most appropriate valuation model which is
dependent on its underlying terms and conditions. This estimate also requires determining expected cash flows from this
receivable including potential claims from the Buyer in the Apicore Sales Transaction (Note 10) and an appropriate discount
rate and making assumptions about them.
|
20.
|
Segmented information
|
Prior to October 2, 2017,
the operations of the Company were classified into two industry segments: the marking and distribution of commercial
products (AGGRASTAT®) and the manufacturing and distribution of API, which was classified as held for sale and
discontinued operations in 2017 (note 5). No operating segments were aggregated to form these reportable operating segments.
Since the sale of API on October 2, 2017, the Company operates under one segment.
Revenue generated from external
customers from the marketing and distribution of commercial products (AGGRASTAT
®
)
for the years ended December 31, 2018, 2017 and 2016 was 100% from sales to customers in the United States.
During the year ended December
31, 2018, 100% of total revenue was generated from eight customers. Customer A accounted for 33%, Customer B accounted for 28%,
Customer C accounted for 33% and Customer D accounted for 6% and the remaining five customers accounted for less than 1% of revenue.
During the year ended December
31, 2017, 99% of total revenue was generated from nine customers. Customer A accounted for 33%, Customer B accounted for 30%, Customer
C accounted for 30% and Customer D accounted for 6% and the remaining five customers accounted for less than 1% of revenue.
During the year ended December
31, 2016, 100% of total revenue was generated from nine customers. Customer A accounted for 36%, Customer B accounted for 32%,
Customer C accounted for 20% and Customer D accounted for 11% and the remaining five customers accounted for less than 1% of revenue.
Property, plant and equipment
and intangible assets are located in the following countries:
As at December 31
|
|
2018
|
|
|
2017
|
|
Canada
|
|
$
|
316,013
|
|
|
$
|
218,488
|
|
Barbados
|
|
|
1,705,250
|
|
|
|
1,756,300
|
|
United States
|
|
|
-
|
|
|
|
3,134
|
|
|
|
$
|
2,021,263
|
|
|
$
|
1,977,922
|
|
|
|
Notes to the Consolidated Financial Statements
|
(expressed in Canadian dollars)
|
Subsequent to December 31,
2018, on January 28, 2019, the Company entered into an agreement with Sensible Medical Innovations Inc. (“Sensible”)
to become the exclusive marketing partner for the ReDS™ point of care system (“ReDS”) in the United States. ReDS
is a non-invasive, FDA-cleared medical device that provides an accurate, actionable and absolute measurement of lung fluid which
is important in the management of congestive heart failure. Under the terms of the agreement, Medicure will receive a percentage
of total U.S. sales revenue of the device and must meet minimum annual sales quotas.
In addition, Medicure has invested
US$10.0 million in Sensible for a 7.71% equity stake on a fully diluted basis.
ITEM 19. EXHIBITS
Number
|
|
Exhibit
|
|
|
|
1.
|
|
Articles of Incorporation and Bylaws:
|
|
|
|
1.1
|
|
Medicure’s Articles of Incorporation dated September 15, 1997 [1]
|
|
|
|
1.2
|
|
Lariat’s Articles of Incorporation dated June 3, 1997 [1]
|
|
|
|
1.3
|
|
Medicure’s Certificate of Continuance from Manitoba to Alberta dated December 3, 1999 [1]
|
|
|
|
1.4
|
|
Certificate of Amalgamation for Medicure and Lariat dated December 22, 1999 [1]
|
|
|
|
1.5
|
|
Medicure’s Certificate of Continuance from Alberta to Canada dated February 23, 2000 [1]
|
|
|
|
1.6
|
|
Amended Certificate of Continuance and Articles of Continuance dated February 20, 2003 [3]
|
|
|
|
1.7
|
|
Certificate of Amendment dated November 1, 2012 [10]
|
|
|
|
1.8
|
|
Bylaw No. 1A [10]
|
|
|
|
1.9
|
|
Bylaw No. 2 [8]
|
|
|
|
4.
|
|
Material Contracts and Agreements
:
|
|
|
|
4.1
|
|
Transfer Agency Agreement between Montreal Trust Company of Canada and the Company dated as of January 26, 2000, whereby Montreal Trust Company of Canada agreed to act as transfer agent and registrar with respect to the Shares [1]
|
|
|
|
4.2
|
|
Medicure International Licensing Agreement between the Company and Medicure International Inc. dated June 1, 2000, wherein the Company granted Medicure International, Inc. a license with regard to certain intellectual property [1]
|
|
|
|
4.3
|
|
Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. dated June 1, 2000, wherein CanAm Bioresearch Inc. agreed to conduct research and development activities for Medicure International, Inc. [1]
|
|
|
|
4.4
|
|
Amendment to the Consulting Services Agreement dated February 1, 2002 between A.D. Friesen Enterprises Ltd. and the Company whereby consulting services will be provided to the Company by Dr. Albert D. Friesen [2]
|
|
|
|
4.5
|
|
Stock Option Plan approved February 4, 2002 [3]
|
|
|
|
4.5
|
|
Amendment dated March 1, 2002 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [5]
|
|
|
|
4.7
|
|
Amendment dated August 7, 2003 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [3]
|
|
|
|
4.8
|
|
Amendment to the Consulting Services Agreement dated October 1, 2003 between A.D. Friesen Enterprises Ltd. and the Company whereby consulting services will be provided to the Company by Dr. Albert D. Friesen [4]
|
|
|
|
4.9
|
|
Employment Agreement with Dawson Reimer dated October 1, 2001 [4]
|
4.10
|
|
Amendment to Employment Agreement dated April 5, 2005 between A.D. Friesen Enterprises Ltd. and the Company [5]
|
|
|
|
4.11
|
|
Amendment to Employment Agreement dated April 5, 2005 between Dawson Reimer and the Company [5]
|
|
|
|
4.12
|
|
Amendment to Employment Agreement dated April 5, 2005 between Derek Reimer and the Company [5]
|
|
|
|
4.13
|
|
Amendment dated July 8, 2005 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [5]
|
|
|
|
4.14
|
|
Amendment to Employment Agreement dated October 1, 2005 between A.D. Friesen Enterprises Ltd. and the Company [6]
|
|
|
|
4.15
|
|
Amendment to Development Agreement dated June 1, 2000 between CanAm Bioresearch Inc. and Medicure International, Inc. dated July 4, 2006 [6]
|
|
|
|
4.16
|
|
Amended Stock Option Plan approved October 25, 2005 [6]
|
|
|
|
4.17
|
|
Amendment to Employment Agreement dated October 1, 2006 between A.D. Friesen Enterprises Ltd. and the Company [7]
|
|
|
|
4.18
|
|
Amended License Agreement between Medicure and the University of Manitoba dated November 24, 2006, originally dated August 30, 1999, wherein the University of Manitoba granted to Medicure an exclusive license with regard to certain intellectual property (the “U of M Licensing Agreement”) [7]
|
|
|
|
4.19
|
|
Amendment to Employment Agreement dated October 1, 2007 between A.D. Friesen Enterprises Ltd. and the Company [8]
|
|
|
|
4.20
|
|
Amended Stock Option Plan approved October 2, 2007 [9]
|
|
|
|
4.21
|
|
Employment Agreement with Dwayne Henley June 10, 2008 [8]
|
|
|
|
4.22
|
|
Debt financing agreement between Birmingham Associates Ltd. and the Company dated September 17, 2007 [8]
|
|
|
|
4.23
|
|
Stock Option Plan amended and restated as of November 30, 2012 [14]
|
|
|
|
4.24
|
|
Stock Option Plan amended and restated as of November 4, 2014 [11]
|
|
|
|
4.25
|
|
Stock Option Plan amended and restated as of June 22, 2016 [12]
|
|
|
|
8.1
|
|
List of Significant Subsidiaries and Consolidated Affiliated Entity *
|
|
|
|
11.1
|
|
Code of Ethics [4]
|
|
|
|
12.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
|
[1] Herein incorporated by reference as previously included
in the Company’s Form 20-F registration statement filed on January 30, 2001.
[2] Herein incorporated by reference as previously included
in the Company’s Form 20-F annual report filed on December 31, 2002.
[3] Herein incorporated by reference as previously included
in the Company’s Form 20-F annual report filed on October 20, 2003.
[4] Herein incorporated by reference as previously included
in the Company’s Form 20-F annual report filed on September 15, 2004.
[5] Herein incorporated by reference as previously included
in the Company’s Form 20-F annual report filed on August 24, 2005.
[6] Herein incorporated by reference as previously included
in the Company’s Form 20-F annual report filed on August 16, 2006.
[7] Herein incorporated by reference as previously included
in the Company’s Form 20-F annual report filed on August 27, 2007.
[8] Herein incorporated by reference as previously included
in the Company’s Form 20-F annual report filed on August 29, 2008.
[9] Herein incorporated by reference as previously included
in the Company’s Registration Statement on Form S-8, filed on October 9, 2007 (SEC File No. 333-146574).
[10] Herein incorporated by reference as previously
included in the Company’s Form 20-F annual report filed on September 11, 2014.
[11] Herein incorporated by reference as previously
included in the Company’s Form 20-F annual report filed on April 14, 2015.
[12] Herein incorporated by reference as
previously included in the Company’s Form 20-F annual report filed on March 31, 2016.
[13] Herein incorporated by reference as previously
included in the Company’s Form 20-F annual report filed on April 27, 2017.
[14] Herein incorporated by reference as
previously included in the Company’s Form 20-F annual report filed on May 1, 2018.