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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable
ITEM 3. KEY INFORMATION
A.[RESERVED]
B.Capitalization and Indebtedness
Not Applicable
C.Reasons for the Offer and Use of Proceeds
Not Applicable
D.Risk Factors
Investment in our common shares ("Common Shares") involves a high degree of risk. You should carefully consider, among other matters, the following risk factors in addition to the other information in this Annual Report on Form 20-F when evaluating our business because these risk factors may have a significant impact on our business, financial condition, operating results or cash flow. If any of the material risks described below or in subsequent reports we file with the SEC actually occur, they may materially harm our business, financial condition, operating results or cash flow. Additional risks and uncertainties that we have not yet identified or that we presently consider to be immaterial may also materially harm our business, financial condition, operating results or cash flow.
Research and Development Risks
All of our potential products, including pelareorep, are in the research and development stage and will require further development and testing before they can be marketed commercially.
Prospects for companies in the biotechnology industry generally may be regarded as uncertain given the nature of the industry and, accordingly, investments in biotechnology companies should be regarded as speculative. We are currently in the research and development stage on one product, pelareorep, for human application, the riskiest stage for a company in the biotechnology industry. It is not possible to predict, based upon studies in animals and early-stage human clinical trials, whether pelareorep will prove to be safe and effective in humans. pelareorep will require additional research and development, including extensive additional clinical testing, before we will be able to obtain the approvals of the relevant regulatory authorities in applicable countries to market pelareorep commercially. There can be no assurance that the research and development programs we conduct will result in pelareorep or any other products becoming commercially viable products, and in the event that any product or products result from the research and development program, it is unlikely they will be commercially available for a number of years.
To achieve profitable operations we, alone or with others, must successfully develop, introduce and market our products. To obtain regulatory approvals for products being developed for human use, and to achieve commercial success, human clinical trials must demonstrate that the product is safe for human use and that the product shows efficacy. Unsatisfactory results obtained from a particular study relating to a program may cause us to abandon our commitment to that program or the product being tested. No assurances can be provided that any current or future animal or human test, if undertaken, will yield favorable results. If we are unable to establish that pelareorep is a safe, effective treatment for cancer, we may be required to abandon further development of the product and develop a new business strategy.
There are inherent risks in pharmaceutical research and development.
Pharmaceutical research and development is highly speculative and involves a high and significant degree of risk. The marketability of any product we develop will be affected by numerous factors beyond our control, including but not limited to:
•the discovery of unexpected toxicities or lack of sufficient efficacy of products which make them unattractive or unsuitable for human use;
•preliminary results as seen in animal and/or limited human testing may not be substantiated in larger, controlled clinical trials;
•manufacturing costs or other production factors may make manufacturing of products ineffective, impractical and non-competitive;
•proprietary rights of third parties or competing products or technologies may preclude commercialization;
•requisite regulatory approvals for the commercial distribution of products may not be obtained; and
•other factors may become apparent during the course of research, up-scaling or manufacturing which may result in the discontinuation of research and other critical projects.
Our products under development have never been manufactured on a commercial scale, and there can be no assurance that such products can be manufactured at a cost or in a quantity to render such products commercially viable. Production and utilization of our products may require the development of new manufacturing technologies and expertise. The impact on our business in the event that new manufacturing technologies and expertise are required to be developed is uncertain. There can be no assurance that we will successfully meet any of these technological challenges or others that may arise in the course of development.
Any failure or delay in clinical trials for our products, including pelareorep, may cause us to incur additional costs or delay or prevent the commercialization of our products and could severely harm our business.
We must conduct extensive clinical trials to demonstrate the safety and efficacy of our products in humans. Clinical testing, in particular, is expensive, difficult to design and implement, can take many years to complete and is uncertain as to the outcome. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, the clinical trial process, which could delay or prevent us from receiving marketing approval or commercializing our product candidates, including the following:
•Our clinical trials may produce negative or inconclusive results, and we may decide, or regulatory authorities may require us, to conduct additional clinical trials or we may abandon projects that we expect to be promising;
•The number of subjects required for our clinical trials may be larger than we anticipate, enrollment in our clinical trials may be slower than we anticipate, or participants may drop out of our clinical trials at a higher rate than we anticipate;
•We might have to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks;
•Regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or our clinical protocols;
•Regulators may refuse to accept or consider data from clinical trials for various reasons, including noncompliance with regulatory requirements or our clinical protocols;
•We may be subject to governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, including guidelines specifically addressing requirements for the development of treatments for our product candidates;
•We might have difficulty adding new clinical trial sites on a timely basis, or at all;
•The cost of our clinical trials may be greater than we anticipate;
•The supply, storage, distribution or quality of our products or other materials necessary to conduct our clinical trials may be insufficient or inadequate
Additionally, subject enrollment, which is a significant factor in the timing of clinical trials, is affected by a variety of factors, including the following:
•The size and nature of the subject population;
•The proximity of subjects to clinical sites;
•The eligibility criteria for the trial;
•The design of the clinical trial;
•Competing clinical trials; and
•Clinicians’ and subjects’ perceptions as to the potential advantages of the medication being studied in relation to other available therapies, including any new medications that may be approved for the indications we are investigating.
Furthermore, we plan to rely on clinical trial sites to ensure the proper and timely conduct of our clinical trials, and while we have agreements governing their committed activities, we have limited influence over their actual performance. Any delays or unanticipated problems during clinical testing, such as enrollment in our clinical trials being slower than we anticipate or participants dropping out of our clinical trials at a higher rate than we anticipate, could increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenues.
In addition, on May 30, 2018, the federal Right to Try Act was signed into law. The law, among other things, provides a federal framework for patients to access certain investigational new drug products that have completed a Phase 1 clinical trial. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA approval under the FDA expanded access program. While there is no obligation to make product candidates available to eligible patients as a result of the Right to Try Act, new and emerging legislation regarding expanded access to unapproved drugs could negatively impact enrollment in our clinical trials and our business in the future.
Our candidate product, pelareorep, is being and will continue to be used in combination with third-party drugs. Those currently being partnered with pelareorep are approved; however, we have limited or no control over the supply of these drugs. If our relationships with current or future collaborators or suppliers are not successful, we may be delayed in completing the development of our product candidates.
In several of our current and planned studies, pelareorep is being or will be administered in combination with immune checkpoint inhibitors (ICIs), a class of drugs intended to stop tumor cells from interfering with the ability of the patient’s immune system to attack their tumor. We have entered into agreements with Pfizer and Roche to supply their ICIs, avelumab and atezolizumab, respectively, for use in our ongoing and upcoming Oncolytics-sponsored studies. Specifically, avelumab is being used in our currently enrolling Phase 2 study in breast cancer (BRACELET study), and atezolizumab is being used in our ongoing window-of-opportunity study in breast cancer (AWARE study) and will be used in our ongoing upcoming Phase 1/2 study in gastrointestinal cancer (GOBLET study). In addition, other ICIs are being used in combination with pelareorep in ongoing investigator-sponsored studies including retifanlimab (Incyte) in a Phase 2 study in breast cancer (IRENE study) and nivolumab (BMS) in a Phase 1 study in myeloma. Additionally, we may enter into future agreements for the supply ICIs for use in connection with the development of pelareorep.
Our ability to develop pelareorep for use in combination with ICIs depends on our ability to access ICIs for use in our clinical trials on commercially reasonable terms. We cannot be certain that current or potential future commercial relationships will provide us with a steady supply of such drugs on commercially reasonable terms or at all. Any failure to maintain or enter into new successful commercial relationships or the expense of purchasing checkpoint blockade therapies in the market may delay our development timelines, increase our costs, and jeopardize our ability to develop pelareorep as a commercially viable therapy. If any of these occur, our business, financial condition, results of operations, stock price and prospects may be materially harmed.
If any current or any future collaborator or supplier cannot continue to supply their products on commercially reasonable terms, we would need to identify alternatives for accessing appropriate ICIs. Additionally, should the supply of products from any current or future collaborator or supplier be interrupted, delayed or otherwise be unavailable to us, our clinical trials may be delayed. In the event we are unable to source a supply of an alternative appropriate ICI or are unable to do so on commercially reasonable terms, our business, financial condition, results of operations, stock price and prospects may be materially harmed.
Moreover, the development of pelareorep for use in combination with ICIs may present challenges that are not faced for single agent product candidates. Developments related to the other product may impact our clinical trials as well as our commercial prospects should we receive marketing approval. Such developments may include changes to the other product's safety or efficacy profile, changes to the availability of the approved product, and changes to the standard of care.
The incidence and prevalence for target patient populations of our product candidates are based on estimates and third-party sources. If the market opportunities for our product candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our business, financial condition, results of operations and prospects may be materially adversely affected.
Periodically, we make estimates regarding the incidence and prevalence of target patient populations for particular diseases based on various third-party sources and internally generated analysis and use such estimates in making decisions regarding our product development strategy, including determining indications on which to focus in preclinical or clinical trials.
These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity will depend on, among other things, the acceptance of such data by the medical community and patient access, product pricing and reimbursement, any limitations on populations and indications in approved product labeling, as well as the approval of new or competing medicines. The number of patients in the addressable markets may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which could materially adversely affect our business, financial condition, results of operations and prospects.
Our business, including our research and development operations, has been and may continue to be adversely affected by the COVID-19 pandemic.
During 2020, the global outbreak of a novel coronavirus identified as the SARS-coronavirus-2 (SARS-CoV-2) led to the associated coronavirus infectious disease 2019 (COVID-19). COVID-19 has had a broad adverse impact on the global economy across many industries and has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions and business shutdowns, as well as significant volatility in global financial markets. In March 2020, we transitioned our workforce to a remote working arrangement to protect the health and safety of our employees and in accordance with enhanced health and safety protocols consistent with guidelines issued by local health authorities. Clinical trial activities, including patient enrollment and site activation, were not materially delayed due to COVID-19. To date, COVID-19 has not had a material impact on our financial condition, liquidity or longer-term strategic development.
The extent to which COVID-19 may cause more significant disruptions to our business and greater impacts to our results of operations will depend on future developments, which are highly uncertain and cannot be predicted, such as the duration of the outbreak (including future potential waves or cycles), travel restrictions and social distancing, business closures or business disruptions and the effectiveness of actions taken to contain and treat the disease and to address its impact, including on financial markets.
If the COVID-19 pandemic worsens or continues for a prolonged period of time, particularly in regions where we or our collaborators and suppliers do business, we could experience disruptions that could significantly impact our current and planned clinical trials, preclinical research and other business activities, including:
•disruption to and delays in preclinical research activities due to an extended closure or reduced capacity of lab facilities;
•further delays or difficulties in enrolling patients in our ongoing and planned clinical trials;
•patients discontinuing their treatment or follow-up visits;
•further delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
•disruptions in supply, logistics or other activities related to the procurement of materials, which could have a negative impact on our ability to conduct preclinical research, initiate or complete our clinical trials;
•diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of clinical trials;
•interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;
•interruption of key business activities due to illness and/or quarantine of key individuals and delays associated with recruiting, hiring and training new temporary or permanent replacements for such key individuals, both internally and at our third-party service providers and strategic partners;
•limitations in resources that would otherwise be focused on the conduct of our business or our current or planned clinical trials or preclinical research, including because of sickness, the desire to avoid contact with large groups of people, restrictions on travel, or prolonged stay-at-home or similar working arrangements;
•delays in receiving approvals from regulatory authorities to initiate our planned clinical trials;
•changes in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted and incur unexpected costs, or require us to discontinue clinical trials altogether;
•delays in necessary interactions with regulators (including the FDA), ethics committees and other important agencies and contractors due to limitations in employee resources or furlough of government or contractor personnel;
•disruptions to our strategic partners’ operations, which could delay the development of our product candidates in certain geographical regions and thereby affect the timing of development and commercial milestone payments and royalties on potential future product sales we may receive; and
•limitations on our ability to recruit preclinical research, clinical, regulatory and other professional staff on the timeframe required to support our research and development programs.
In addition, COVID-19 could result in the continued significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. Such financial market volatility may continue and the value of our common shares may be adversely impacted.
The COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the effects of COVID-19 on our business. While the extent of the impact of the COVID-19 pandemic on our business and financial results is uncertain, a continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on our business, financial condition and operating results.
Our product candidate may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any potential marketing approval.
To date, pelareorep is generally well-tolerated and has a manageable side effect profile for most patients. However, there can be no assurance that additional undesirable side effects or serious adverse events will not be caused by or associated with pelareorep as it continues through its clinical development, including when co-administered with approved products. As with many pharmaceutical and biological products, treatment with our product candidate may produce undesirable side effects or adverse reactions or events, including potential adverse side effects related to cytokine release, and may exacerbate known adverse events associated with co-administered approved products. If our product candidates or similar products or product candidate under development by third parties demonstrate unacceptable adverse events, or unacceptably exacerbate adverse events associated with co-administered approved products, we may be required to halt or delay further clinical development of our product candidate. The FDA, the EMA or other foreign regulatory authorities could order us to cease further development of or deny approval of our product candidate for any or all targeted indications.
The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately or timely recognized or managed by the treating medical staff, particularly outside of the institutions that collaborate with us, as toxicities resulting from our novel technologies may not be normally encountered in the general patient population and by medical personnel. We expect to have to train medical personnel using our product candidate to understand its side effect profiles, both for our planned clinical trials and upon any commercialization. Inadequate training in recognizing or managing the potential side effects of our product candidate could result in adverse effects to patients, including death.
Additionally, if our product candidate receives marketing approval, and we or others later identify undesirable side effects caused or exacerbated by such product, including during any long-term follow-up observation period recommended or required for patients who receive treatment using our product, a number of potentially significant negative consequences could result, including:
•regulatory authorities may withdraw approvals of such product;
•regulatory authorities may require additional warnings on the label;
•we may be required to create a risk evaluation and mitigation strategy plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;
•we could be sued and held liable for harm caused to patients; and
•our reputations may suffer.
Any of the foregoing could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved. Furthermore, any of these occurrences may harm our business, financial condition and prospects significantly.
Financial Condition Risks
We have no operating revenues and a history of losses. We have no products approved for commercial sale, and we may never achieve or sustain profitability.
We are a clinical-stage biopharmaceutical company. We have incurred significant losses since our inception. To date, we have not generated sufficient revenues to offset our research and development costs and accordingly have not generated positive cash flow or made an operating profit. As of December 31, 2020, we had an accumulated deficit of $367.1 million and we incurred net losses of $22.5 million, $33.1 million and $17.0 million for the years ended December 31, 2020, 2019, and 2018,
respectively. We anticipate that we will continue to incur significant losses during 2021 and in the foreseeable future. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. We do not expect to reach profitability at least until after the successful and profitable commercialization of one or more of our products. Even if one or more of our products are profitably commercialized, the initial losses incurred by us may never be recovered.
We may need additional financing in the future to fund the research and development of our products and to meet our ongoing capital requirements.
As of December 31, 2020, we had cash and cash equivalents of $31.2 million. Working capital was approximately $31.6 million. We anticipate that we will need additional financing in the future to fund research and development and to meet our ongoing capital requirements. The amount of future capital requirements will depend on many factors, including continued scientific progress in our drug discovery and development programs, progress in our pre-clinical and clinical evaluation of drug candidates, time and expense associated with filing, prosecuting and enforcing our patent claims and costs associated with obtaining regulatory approvals. In order to meet such capital requirements, we will consider contract fees, collaborative research and development arrangements, and additional public or private financings (including the incurrence of debt and the issuance of additional equity securities) to fund all or a part of particular programs as well as potential partnering or licensing opportunities.
Oncolytics, from time to time, along with all other pharmaceutical research and development entities, may have restricted access to capital, bank debt and equity, and, from time to time, may face increased borrowing costs. Although our business and asset base have not changed, the lending capacity of all financial institutions fluctuates causing a corresponding change in risk premiums. As future operations will be financed out of funds generated from financing activities, our ability to do so is dependent on, among other factors, the overall state of capital markets and investor appetite for investments in the pharmaceutical industry and our securities in particular.
Should we elect to satisfy our cash commitments through the issuance of securities, by way of either private placement or public offering or otherwise, there can be no assurance that our efforts to raise such funding will be successful, or achieved on terms favorable to us or our existing shareholders. If adequate funds are not available on terms favorable to us, we may have to reduce substantially or eliminate expenditures for research and development, testing, production and marketing of our proposed product, or obtain funds through arrangements with corporate partners that require us to relinquish rights to certain of our technologies or product. There can be no assurance that we will be able to raise additional capital if our current capital resources are exhausted.
We incur some of our expenses in foreign currencies and therefore we are exposed to foreign currency exchange rate fluctuations.
We incur some of our manufacturing, clinical, collaborative and consulting expenses in foreign currencies, primarily the U.S. dollar, the Euro and the British pound (“GBP”). We are therefore exposed to foreign currency rate fluctuations. Also, as we expand to other foreign jurisdictions there may be an increase in our foreign exchange exposure.
Third-party credit risk
In the normal course of our business, we have entered into contractual arrangements with third parties which subject us to the risk that such parties may default on their obligations. Oncolytics may be exposed to third-party credit risk through our contractual arrangements with our current contract manufacturer, the institutions which operate our clinical trials, or our contract research organizations and other parties. In the event such entities fail to meet their contractual obligations to Oncolytics, such failures could have a material adverse effect on Oncolytics and our operations.
We may not be able to obtain third-party reimbursement for the cost of our product.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Uncertainty exists regarding the reimbursement status of newly-approved pharmaceutical products and reimbursement may not be available for pelareorep. Any reimbursements granted may not be maintained or limits on reimbursements available from third-party payors may reduce the demand for, or negatively
affect the price of, these products. If pelareorep does not qualify for reimbursement, if reimbursement levels diminish, or if reimbursement is denied, our sales and profitability would be adversely affected.
Regulatory Risks
Pharmaceutical products are subject to intense regulatory approval processes.
The regulatory process for pharmaceuticals, which includes preclinical studies and multiple phases of clinical trials of each compound to establish its safety and efficacy, takes many years and requires the expenditure of substantial resources. Moreover, if regulatory approval of a drug is granted, such approval may entail limitations on the indicated uses for which it may be marketed. Failure to comply with applicable regulatory requirements can, among other things, result in suspension of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. Further, government policy may change, and additional government regulations may be established that could prevent or delay regulatory approvals for our products. In addition, a marketed drug and its manufacturer are subject to continual review. Later discovery of previously unknown problems with the product or manufacturer may result in restrictions on such product or manufacturer, including withdrawal of the product from the market.
The United States Food and Drug Administration (“FDA”) and similar regulatory authorities in other countries may deny approval of a new drug application if required regulatory criteria are not satisfied, or may require additional testing. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. The FDA and similar regulatory authorities in other countries may require further testing and surveillance programs to monitor the pharmaceutical product that has been commercialized. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions, including product withdrawals, product seizures, injunction actions and criminal prosecutions.
In addition to our own pharmaceuticals, we may supply active pharmaceutical ingredients and advanced pharmaceutical intermediates for use in our customers’ drug products. The final drug products in which the pharmaceutical ingredients and advanced pharmaceutical intermediates are used, however, are subject to regulation for safety and efficacy by the FDA and possibly other regulatory authorities in other jurisdictions. Such products must be approved by such agencies before they can be commercially marketed. The process of obtaining regulatory clearance for marketing is uncertain, costly and time consuming. We cannot predict how long the necessary regulatory approvals will take or whether our customers will ever obtain such approval for their products. To the extent that our customers do not obtain the necessary regulatory approvals for marketing new products, our product sales could be adversely affected.
The FDA and other governmental regulators have increased requirements for drug purity and have increased environmental burdens upon the pharmaceutical industry. Because pharmaceutical drug manufacturing is a highly regulated industry, requiring significant documentation and validation of manufacturing processes and quality control assurance prior to the approval of the facility to manufacture a specific drug, our manufacturing facilities may never become approved of, or there can be considerable transition time between the initiation of a contract to manufacture a product and the actual initiation of manufacture of that product. Any lag time in the initiation of a contract to manufacture product and the actual initiation of manufacture could cause us to lose profits or incur liabilities.
The pharmaceutical regulatory regime in Europe and other countries is generally similar to that of the United States. We could face similar risks in these other jurisdictions as the risks described above.
Our operations and products may be subject to other government manufacturing and testing regulations.
Securing regulatory approval for the marketing of therapeutics by the FDA in the United States and similar regulatory agencies in other countries is a long and expensive process, which can delay or prevent product development and marketing. Approval to market products may be for limited applications or may not be received at all.
The products we anticipate manufacturing will have to comply with the FDA’s current Good Manufacturing Practices (“cGMP”) and other FDA and local government guidelines and regulations, including other international regulatory requirements and guidelines. Additionally, certain of our customers may require the manufacturing facilities contracted by us to adhere to additional manufacturing standards, even if not required by the FDA. Compliance with cGMP regulations requires manufacturers to expend time, money and effort in production and to maintain precise records and quality control to ensure that the product meets applicable specifications and other requirements. The FDA and other regulatory bodies periodically inspect drug-manufacturing facilities to ensure compliance with applicable cGMP requirements. If the manufacturing facilities contracted by us fail to comply with the cGMP requirements, the facilities may become subject to possible FDA or other
regulatory action and manufacturing at the facility could consequently be suspended. We may not be able to contract suitable alternative or back-up manufacturing facilities on terms acceptable to us or at all.
The FDA or other regulatory agencies may also require the submission of any lot of a particular product for inspection. If the lot product fails to meet the FDA requirements, then the FDA could take any of the following actions: (i) restrict the release of the product; (ii) suspend manufacturing of the specific lot of the product; (iii) order a recall of the lot of the product; or (iv) order a seizure of the lot of the product.
We are subject to regulation by governments in many jurisdictions. If we do not comply with healthcare, drug, manufacturing and environmental regulations, among others, in such jurisdiction, our existing and future operations may be curtailed, and we could be subject to liability.
In addition to the regulatory approval process, we may be subject to regulations under local, provincial, state, federal and foreign law, including, but not limited to, requirements regarding occupational health, safety, laboratory practices, healthcare fraud and abuse, environmental protection and hazardous substance control, and may be subject to other present and future local, provincial, state, federal and foreign regulations.
We have conducted, and may in the future conduct, clinical trials for pelareorep in sites outside the United States and the FDA may not accept data from trials conducted in such locations.
We have conducted, and may in the future choose to conduct, clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with ethical principles. The trial population must adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deem clinically meaningful. Generally, the patient population for any clinical trials conducted outside of the United States must be representative of the population for whom we intend to label the product in the United States. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will depend on its determination that the trials also complied with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside the United States. If the FDA does not accept the data from any clinical trials we may conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and would delay or permanently halt our development of pelareorep.
Intellectual Property Risks
We rely on patents and proprietary rights to protect our technology.
Our success will depend, in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing the rights of third parties. We have received Granted Patents in countries throughout the world, including the United States, Canada, Europe, and Japan. We file our Applications for Patent in the United States and under the PCT, allowing us to subsequently file in other jurisdictions. Our success will depend, in part, on our ability to obtain, enforce and maintain patent protection for our technology in Canada, the United States and other countries. We cannot be assured that patents will issue from any pending applications or that claims now or in the future, if any, allowed under issued patents will be sufficiently broad to protect our technology. In addition, no assurance can be given that any patents issued to, or licensed by us, will not be challenged, invalidated, infringed or circumvented, or that the rights granted thereunder will provide continuing competitive advantages to us.
The patent positions of pharmaceutical and biotechnology firms, including us, are generally uncertain and involve complex legal and factual questions. In addition, it is not known whether any of our current research endeavors will result in the issuance of patents in Canada, the United States, or elsewhere, or if any patents already issued will provide significant proprietary protection or will be circumvented or invalidated. Since patent applications in the United States and Canada may be maintained in secrecy until at least 18 months after filing of the original priority application, and since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we or any licensor were the first to create inventions claimed by pending patent applications or that we or the licensor were the first to file patent applications for such inventions. Loss of patent protection could lead to generic competition for these products, and others in the future, which would materially and adversely affect our financial prospects for these products.
Similarly, since patent applications filed before November 29, 2000 in the United States may be maintained in secrecy until the patents issue or foreign counterparts, if any, publish, we cannot be certain that we or any licensor were the first creator of
inventions covered by pending patent applications or that we or such licensor were the first to file patent applications for such inventions. There is no assurance that our patents, if issued, would be held valid or enforceable by a court or that a competitor’s technology or product would be found to infringe such patents.
Accordingly, we may not be able to obtain and enforce effective patents to protect our proprietary rights from use by competitors. If other such parties obtain patents for certain information relied on by us in conducting our business, then we may be required to stop using, or pay to use, certain intellectual property, and as such, our competitive position and profitability could suffer as a result.
Third parties may choose to file patent infringement claims against us; defending ourselves from such allegations would be costly, time-consuming, distracting to management and could materially affect our business.
Our development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be claimed to infringe patents and other intellectual property rights of third parties under which we do not hold sufficient licenses or other rights. Additionally, third parties may be successful in obtaining patent protection for technologies that cover development activities in which we are already engaged. Third parties may own or control these patents and intellectual property rights in the United States and abroad. These third parties may have substantially greater financial resources than us and could bring claims against us that could cause us to incur substantial expenses to defend against these claims and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement or other similar suit were brought against us, we could be forced to stop or delay development, manufacturing or sales of the product or product candidate that is the subject of the suit. Intellectual property litigation in the biopharmaceutical industry is common, and we expect this trend to continue.
As a result of patent infringement or other similar claims, or to avoid potential claims, we may choose or be required to seek a license from the third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms, if at all, or if an injunction is granted against us, which could harm our business significantly.
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.
In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how. However, these types of trade secrets can be difficult to protect. We seek to protect this confidential information, in part, through agreements with our employees, consultants and third parties as well as confidentiality policies and audits, although these may not be successful in protecting our trade secrets and confidential information.
These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known, including through a potential cybersecurity breach, or may be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business.
Developments in patent law could have a negative impact on our business.
From time to time, authorities in the United States, the European Union and other government authorities may change the standards of patentability, and any such changes could have a negative impact on our business.
For example, in the United States, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a "first-to-invent" system to a "first-to-file" system, changes to the way issued patents are challenged, and changes to the way patent applications are disputed during the examination process. As a result of these changes, patent law in the United States may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The USPTO has developed new and untested regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions became effective on March 16, 2013. Substantive changes to patent law associated with the America Invents Act may affect our ability to obtain patents, and if obtained, to enforce or defend them. Also, case law may have a
substantial impact on the way patents are prosecuted, examined and litigated. This also affects the scope of protection that is available in a specific jurisdiction.
Developments of patent law in other jurisdictions may impact our business. For example, it is currently not clear what impact the planned introduction of the Unified Patent Court in the European Union will have. Patents that are valid and enforceable under the current system may be considered invalid and/or unenforceable under the new system. Also patents may be invalidated not just in one single jurisdiction, but across all countries of the European Union in one single trial. Also the effect the impending withdrawal of the United Kingdom from the European Union ("Brexit") has on the patent system, in particular in connection with aforementioned Unified Patent Court, bears certain risks and uncertainties.
Other Business Risks
The biotechnology industry is extremely competitive and if our competitors develop and market products that are more effective, safer or less expensive than our products, our business could be adversely impacted.
Technological competition in the pharmaceutical industry is intense and we expect competition to increase. Other companies are conducting research on therapeutics involving innate and adaptive immune responses as well as other novel treatments or therapeutics for the treatment of cancer which may compete with our product. Many of these competitors are more established, benefit from greater name recognition and have substantially greater financial, manufacturing, technical, marketing, drug development and human resources than us. In addition, many of these competitors have significantly greater experience in undertaking research, preclinical studies and human clinical trials of new pharmaceutical products, obtaining regulatory approvals and manufacturing and marketing such products. In addition, there are several other companies and products with which we may compete from time to time, and which may have significantly better and larger resources than we do. Accordingly, our competitors may succeed in manufacturing and/or commercializing products more rapidly or effectively, which could have a material adverse effect on our business, financial condition or results of operations.
Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.
We anticipate that we will face increased competition in the future as new products enter the market and advanced technologies become available. There can be no assurance that existing products or new products developed by our competitors will not be more effective, or be more effectively manufactured, marketed and sold, than any that may be developed or sold by us. Competitive products may render our products obsolete and uncompetitive prior to recovering research, development or commercialization expenses incurred with respect to any such products.
Our products may fail or cause harm, subjecting us to product liability claims.
Use of our product during current clinical trials may entail risk of product liability. We maintain clinical trial liability insurance; however, it is possible this coverage may not provide full protection against all risks. Given the scope and complexity of the clinical development process, the uncertainty of product liability litigation, and the shrinking capacity of insurance underwriters, it is not possible at this time to assess the adequacy of current clinical trial coverage, nor the ability to secure continuing coverage at the same level and at reasonable cost in the foreseeable future. While we carry, and intend to continue carrying amounts believed to be appropriate under the circumstances, it is not possible at this time to determine the adequacy of such coverage.
In addition, the sale and commercial use of our product entails risk of product liability. We currently do not carry any product liability insurance for this purpose. There can be no assurance that we will be able to obtain appropriate levels of product liability insurance prior to any sale of our pharmaceutical products. 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 us. The obligation to pay any product liability claim or a recall of a product could have a material adverse effect on our business, financial condition and future prospects.
Future legal proceedings and the impact of any finding of liability or damages could adversely impact the company and its financial condition and results of operations.
From time to time, we may be named as a defendant in various legal actions or other proceedings, including class action lawsuits. Certain of these actions include and future actual or threatened legal actions may include, claims for substantial and indeterminate amounts of damages, or may result in other results adverse to us. Management does not currently know of any pending, material legal proceedings against the Company, but such legal action could be brought in the future.
The results of possible future legal proceedings cannot be predicted with certainty. Accordingly, we cannot determine whether our insurance coverage would be sufficient to cover the costs or potential losses, if any. Regardless of merit, litigation may be both time-consuming and disruptive to our operations and cause significant expense and diversion of management attention. If we do not prevail in future legal proceedings, we may be faced with significant monetary damages or injunctive relief against us that may adversely affect our business, financial condition and results of operations, possibly materially.
We have limited manufacturing experience and intend to rely on third parties to commercially manufacture our products, if and when developed.
To date, we have relied upon a contract manufacturer to manufacture small quantities of pelareorep. The manufacturer may encounter difficulties in scaling up production, including production yields, quality control and quality assurance. Only a limited number of manufacturers can supply therapeutic viruses and failure by the manufacturer to deliver the required quantities of pelareorep on a timely basis at a commercially reasonable price may have a material adverse effect on us. We have completed a program for the development of a commercial process for manufacturing pelareorep and have filed a number of patent applications related to the process. There can be no assurance that we will successfully obtain sufficient patent protection related to our manufacturing process.
New products may not be accepted by the medical community or consumers.
Our primary activity to date has been research and development and we have no experience in marketing or commercializing products. We will likely rely on third parties to market our products, assuming that they receive regulatory approvals. If we rely on third parties to market our products, the commercial success of such product will be subject to a number of risks that may be outside of our control, including:
•competition in relation to alternative treatments, including efficacy advantages and cost advantages;
•perceived ease of use;
•the availability of coverage or reimbursement by third-party payors;
•uncertainties regarding marketing and distribution support; and
•distribution or use restrictions imposed by regulatory authorities.
Moreover, there can be no assurance that physicians, patients or the medical community will accept our product, even if it proves to be safe and effective and is approved for marketing by Health Canada, the FDA and other regulatory authorities. A failure to successfully market our product would have a material adverse effect on our revenue.
Our technologies may become obsolete.
The pharmaceutical industry is characterized by rapidly changing markets, technology, emerging industry standards and frequent introduction of new products. The introduction of new products embodying new technologies, including new manufacturing processes and the emergence of new industry standards may render our products obsolete, less competitive or less marketable. The process of developing our products is extremely complex and requires significant continuing development efforts and third-party commitments. Our failure to develop new technologies and products and the obsolescence of existing technologies could adversely affect our business.
We may be unable to anticipate changes in our potential customer requirements that could make our existing technology obsolete. Our success will depend, in part, on our ability to continue to enhance our existing technologies, develop new technology that addresses the increasing sophistication and varied needs of the market, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our proprietary technology entails significant technical and business risks. We may not be successful in using our new technologies or exploiting our niche markets effectively or adapting our businesses to evolving customer or medical requirements or preferences or emerging industry standards.
We rely on third-party manufacturers to produce our clinical products and on other third parties to store, monitor and transport bulk drug substance and drug product. We and our third-party partners may encounter difficulties with respect to these activities that could delay or impair our ability to initiate or complete our clinical trials.
We do not currently own or operate any manufacturing facilities. We rely on a contract manufacturer to source suitable raw materials and produce sufficient quantities of pelareorep for preclinical testing and clinical trials, in compliance with applicable regulatory and quality standards. If we are unable to arrange for such third-party manufacturing sources or materials are not available in a timely manner, or fail to do so on commercially reasonable terms, we may not be able to successfully produce sufficient supply of pelareorep or we may be delayed in doing so. The manufacture of biopharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. The process of manufacturing our pelareorep is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, vendor or operator error, contamination and inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the third-party manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Any failure by our third-party manufacturers to comply with applicable regulatory and quality standards or any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates.
In addition to third-party manufacturers, we rely on other third parties to store, monitor and transport bulk drug substance and drug product. If we are unable to arrange for such third-party sources, or fail to do so on commercially reasonable terms, we may not be able to successfully supply sufficient product candidate or we may be delayed in doing so. Such failure or substantial delay could materially harm our business.
We rely on third parties to produce and provide suitable raw materials for pelareorep production, packaging, and testing as well as clinical trial-related testing. We and our third-party partners may encounter difficulties with sourcing these materials that could delay or impair our ability to manufacture pelareorep or complete product or clinical sample testing.
We rely on contract manufacture and testing facilities to source required materials for production and evaluation of pelareorep as well as testing of clinical trial-related samples. As a result, we have less control over the supply timing and cost of these materials than if we sourced these materials directly. In addition, these are often specialized materials and third-party suppliers may also encounter challenges in producing, testing, or distributing materials that can impact delivery quantities and timeframes. If we are unable to arrange for sufficient supply or materials are not available in a timely manner, or fail to do so on commercially reasonable terms, we may not be able to successfully produce sufficient supply of pelareorep or we may be delayed in doing so. If we are unable to arrange for appropriate testing materials or they are not available in a timely manner, we may be unable to execute some clinical trial testing or we may be delayed in doing so.
We rely on third parties to monitor, support, conduct and oversee clinical trials of the products that we are developing and, in some cases, to maintain regulatory files for those product candidates. We may not be able to obtain regulatory approval for our products that may result from our development efforts if we are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services as required, or if these third parties fail to timely transfer any regulatory information held by them to us.
We rely on entities outside of our control, which may include clinical and research consultants, academic institutions and contract research organizations ("CROs"), to perform, monitor, support, conduct and oversee preclinical studies and clinical trials of pelareorep. As a result, we have less control over the timing and cost of these studies and the ability to recruit trial subjects than if we conducted these trials with our own personnel.
If we are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such engagement is terminated prematurely, we may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner we anticipate. In addition, there is no guarantee that these third parties will devote adequate time and resources to our studies or perform as required by our contract or in accordance with regulatory requirements, including maintenance of clinical trial information regarding our products. If these third parties fail to meet expected deadlines, fail to transfer to us any regulatory information in a timely manner, fail to adhere to protocols or fail to act in accordance with regulatory requirements or our agreements with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the data they obtain, then clinical trials of our product candidates may be extended or delayed with additional costs incurred, or our data may be rejected by the FDA, EMA or other regulatory agencies. Ultimately, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities.
If we or any of our CROs fail to comply with applicable regulatory regulations, the clinical data generated in our clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or we may be required to perform additional clinical trials before approving our marketing applications. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and increase our costs. Moreover, our business may be implicated if any of our CROs violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
If any of our clinical trial sites terminate for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. Further, if our relationship with any of our CROs is terminated, we may be unable to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines.
Our license, development, supply and distribution agreement with Adlai Nortye Biopharma Co. is subject to certain risks and uncertainties related to our dependence on Adlai and doing business in foreign jurisdictions.
On November 16, 2017, we announced that we had entered into a license, development, supply, and distribution agreement (the "Licensing Agreement") with Adlai Nortye Biopharma Co., Ltd. ("Adlai"). Under the terms of the Licensing Agreement, Adlai will have exclusive development and commercialization rights to pelareorep in China, Hong Kong, Macau, Singapore, South Korea and Taiwan (the “Territories”). Pursuant to the Licensing Agreement, along with payments to be received by us upon meeting certain requirements and milestones, we are also eligible to receive royalty payments in excess of 10% associated with the commercialization of pelareorep for all indications, subject to regulatory approval. Under the terms of the Licensing Agreement, Adlai will be responsible for all clinical, regulatory and commercialization activities respecting pelareorep in the Territories and therefore the Company will be dependent upon Adlai in successfully undertaking those actions in a timely and economic manner and in compliance with all applicable legal and regulatory requirements within the Territories. If Adlai is unable to fulfill its obligations under the terms of the Licensing Agreement and in compliance with all applicable legal and regulatory requirements, including clinical, regulatory and commercialization of pelareorep, our prospective revenue from royalty payments related to the commercialization of pelareorep in the Territories may be materially diminished, delayed or never realized, which could negatively affect our operating results and financial condition.
Further, conducting business with Adlai within the Territories, and specifically China, subjects us to certain economic, political, currency and legal risks and uncertainties regarding, among other things, the development and commercialization of pelareorep and the release and receipt of payments under the terms of the Licensing Agreement, including the payment of royalties upon commercialization of pelareorep. These risks include:
•different regulatory requirements for drug approvals in foreign countries;
•different standards of care in various countries that could complicate the evaluation of our product candidates;
•different U.S. and foreign drug import and export rules;
•reduced protection for intellectual property rights in certain countries;
•unexpected changes in tariffs, trade barriers and regulatory requirements;
•different reimbursement systems and different competitive drugs indicated to treat the indications for which our product candidates are being developed;
•economic weakness, including inflation, or political instability in particular foreign economies and markets;
•compliance with the FCPA, and other anti-corruption and anti-bribery laws;
•U.S. and foreign taxes;
•foreign currency fluctuations, which could result in reduced revenues, and other obligations incident to doing business in another country;
•a reliance on CROs, clinical trial sites, principal investigators and other third parties that may be less experienced with clinical trials or have different methods of performing such clinical trials than we are used to in the U.S.;
•potential liability resulting from development work conducted by foreign distributors; and
•business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.
The governments of the Territories, and specifically the Chinese government, exercise significant control over all aspects of their respective economies. Accordingly, any adverse change in the economy, the legal system or governmental, economic or other policies could have a material adverse effect on the business prospects of the Licensing Agreement with Adlai, including our ability to receive money out of China under the terms of the Licensing Agreement. Any disruption in relations, inability to work efficiently or disadvantageous treatment of Adlai by the governments of the Territories or other authorities could have a material adverse effect on our business prospects under the Licensing Agreement. Additionally, the regulatory environment in the Territories is evolving, and officials in the governments in the Territories exercise broad discretion in deciding how to
interpret and apply regulations. There can be no assurance that Adlai will be successful in the development and commercialization of pelareorep in the Territories.
Negative developments in the field of immuno-oncology could damage public perception of pelareorep and negatively affect our business.
The commercial success of pelareorep depends in part on public acceptance of the use of cancer immunotherapies including ICIs. Adverse events in clinical trials of pelareorep or in clinical trials of similar products and the resulting publicity, as well as any other negative developments in the field of immuno-oncology that may occur in the future including in connection with competitor therapies, could result in decreased acceptance of and demand for pelareorep. These events could also result in the suspension, discontinuation, or clinical hold of or modification to our clinical trials. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to pelareorep or to competitors’ products, pelareorep may not be accepted by the general public or the medical community, and potential clinical trial participants may be discouraged from enrolling in our trials. As a result, we may not be able to continue or may be delayed in conducting our development programs.
Pelareorep is an oncolytic virus and, as such, adverse developments related vaccines for viral diseases or in clinical trials of other virus-based oncolytic immunotherapy products may result in a disproportionately negative effect on the perception of pelareorep compared to other products in the field of immuno-oncology that are not based on viruses.
Future negative developments in the field of immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approval of pelareorep. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for pelareorep.
Our operations could be adversely affected by events outside of our control, such as natural disasters, wars or health epidemics.
We may be impacted by business interruptions resulting from pandemics and public health emergencies, including those related to COVID-19, geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires. An outbreak of infectious disease, a pandemic or a similar public health threat, such as the COVID-19 pandemic, or a fear of any of the foregoing, could adversely impact us by causing operating, manufacturing supply chain, clinical trial and project development delays and disruptions, labor shortages, travel and shipping disruption and shutdowns (including as a result of government regulation and prevention measures). It is unknown whether and how we may affected if such an epidemic persists for an extended period of time. We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition.
The cost of director and officer liability insurance may increase substantially and may affect our ability to retain quality directors and officers.
We carry liability insurance on behalf of our directors and officers. Given a number of large director and officer liability insurance claims in the U.S. equity markets, director and officer liability insurance has become increasingly more expensive with increased restrictions. Consequently, there is no assurance that we will continue to be offered this insurance or be able to obtain adequate coverage. The inability to acquire the appropriate insurance coverage may limit our ability to attract and maintain directors and officers as required to conduct our business.
We are dependent on our key employees and collaborators.
Our ability to develop the product will depend, to a great extent, on our ability to attract and retain highly qualified scientific personnel and to develop and maintain relationships with leading research institutions. Intense competition for attracting key skill-sets may limit our ability to retain and motivate key personnel on acceptable terms. We are highly dependent on the principal members of our management staff as well as our advisors and collaborators, the loss of whose services might impede the achievement of development objectives. The persons working with us are affected by a number of influences outside of our control. The loss of key employees and/or key collaborators may affect the speed and success of product development.
Barbados law differs from the laws in effect in Canada and the United States and may afford less protection to holders of our securities.
Certain of our assets and intellectual property are held by our wholly-owned subsidiary, Oncolytics Barbados, which is organized under the laws of Barbados. It may not be possible to enforce court judgments obtained in Canada or the United States against Oncolytics Barbados in Barbados based on the civil liabilities provisions of applicable securities laws. In
addition, there is some doubt as to whether the courts of Barbados would recognize or enforce judgments of courts in Canada or the United States obtained against us or our directors or officers based on the civil liabilities provisions of Canadian and United States securities laws or hear actions against us or those persons based on such laws.
Changes in law could adversely affect our business and corporate structure.
There can be no assurances that changes will not occur in corporate, tax, property and other laws in Canada and/or Barbados (or the interpretation thereof by regulatory or tax authorities) which may materially and adversely affect our businesses and corporate structure.
Our failure to comply with data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
We are subject to complex laws and regulations that address privacy and data security. The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues. In the U.S., numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the collection, use, disclosure, and protection of health-related and other personal information. For example, in June 2018, the State of California enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which came into effect on January 1, 2020 and provides new data privacy rights for consumers and new operational requirements for companies, which may increase our compliance costs and potential liability. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA could mark the beginning of a trend toward more stringent state privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.
In addition, in the course of our business, we may obtain health information from third that is subject to privacy and security requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”). Although we are not directly subject to HIPAA (other than potentially with respect to providing certain employee benefits) we could be subject to criminal penalties if we knowingly obtain or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA/HITECH.
We could also be negatively impacted by existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity, data privacy, data localization and data protection outside of the U.S., such as the General Data Protection Regulation (“GDPR”), which took effect in the EU in May 2018. The GDPR extends the geographical scope of EU data protection law to non-EU entities under certain conditions, tightens existing EU data protection principles and creates new obligations for companies and new rights for individuals. The GDPR may increase our responsibility and potential liability in relation to personal data that we process, expose us to substantial potential fines and increase our compliance costs. The GDPR could also cause our development costs to increase in connection with clinical trials we are currently conducting and may conduct in the future in the EU for our products and product candidates.
Failure to comply with data protection laws and regulations both within and outside of the U.S. could result in government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
Our operations may be adversely affected by disruptions to our information technology ("IT") systems, including disruptions from cybersecurity breaches of our IT infrastructure.
We rely on information technology networks and systems, including those of third-party service providers, to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for a variety of functions, including financial reporting, data management, and email communications. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks, sabotage and similar events. Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to our information technology systems to sophisticated and targeted measures known as advanced persistent threats. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our systems or in non-encrypted portable media or storage devices. We could also experience a business interruption, information theft of confidential information, or reputational
damage from industrial espionage attacks, malware or other cyber attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. Despite the implementation of network security measures and disaster recovery plans, our systems and those of third parties on which we rely may also be vulnerable to computer viruses, break-ins and similar disruptions. If we or our vendors are unable (or are perceived as unable) to prevent such outages and breaches, our operations may be disrupted and our business reputation could be adversely affected.
We expect that risks and exposures related to cybersecurity attacks will remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats. In addition, as a result of the COVID-19 pandemic, we may face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.
The Company may fail to achieve and maintain adequate internal control over financial reporting pursuant to the requirements of the Sarbanes-Oxley Act and equivalent Canadian legislation.
The Company documented and tested during its most recent fiscal year its internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) and equivalent Canadian legislation. SOX requires an annual assessment by management of the effectiveness of the Company’s internal control over financial reporting and an attestation report by the Company’s independent auditors addressing this assessment, if applicable. The Company may fail to achieve and maintain the adequacy of its internal control over financial reporting as such standards are modified, supplemented, or amended from time to time, and the Company may not be able to ensure that it can conclude, on an ongoing basis, that it has effective internal control over financial reporting in accordance with Section 404 of SOX. The Company’s failure to satisfy the requirements of Section 404 of SOX on an ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial statements, which in turn could harm the Company’s business and negatively impact the trading price of the common shares or the market value of its other securities. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause it to fail to meet its reporting obligations. Future acquisitions of companies, if any, may provide the Company with challenges in implementing the required processes, procedures and controls in its acquired operations. No evaluation can provide complete assurance that the Company’s internal control over financial reporting will detect or uncover all failures of persons within the Company to disclose material information otherwise required to be reported. The effectiveness of the Company’s processes, procedures and controls could also be limited by simple errors or faulty judgments. In addition, if the Company expands, the challenges involved in implementing appropriate internal control over financial reporting will increase and will require that the Company continue to improve its internal control over financial reporting.
Because the Company is a Canadian Company and some of its directors and officers are resident outside the United States, it may be difficult for investors in the United States to enforce civil liabilities against the Company based solely upon the federal securities laws of the United States.
The Company is a Canadian company, with its principal place of business in Canada. Some of the Company’s directors and officers, including the Company's Chief Executive Officer and Chief Financial Officer, are residents outside the United States and a significant portion of the Company’s assets are located outside the United States. Consequently, it may be difficult for U.S. investors to effect service of process within the United States upon the Company or these directors or officers who are not residents of the United States, or to realize in the United States upon judgments of courts of the United States predicated upon civil liabilities under the U.S. Securities Act of 1933, as amended. Investors should not assume that Canadian courts (1) would enforce judgments of U.S. courts obtained in actions against the Company or such directors or officers predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or “blue sky” laws of any state within the United States or (2) would enforce, in original actions, liabilities against the Company or such directors or officers predicated upon the U.S. federal securities laws or any such state securities or “blue sky” laws. In addition, the protections afforded by Canadian securities laws may not be available to investors in the United States.
As a foreign private issuer, our shareholders may have less complete and timely data.
The Company is a “foreign private issuer” as defined in Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”). Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the U.S. Exchange Act pursuant to Rule 3a12-3 of the U.S. Exchange Act. Therefore, the Company is not required to file a Schedule 14A proxy statement in relation to its annual meeting of shareholders. The submission of proxy and annual meeting of shareholder information on Form 6-K may result in shareholders having less complete and timely information in connection with shareholder actions. The exemption from Section 16 rules regarding reports of beneficial ownership and purchases and sales of common shares by insiders and restrictions on insider trading in our securities may result in shareholders having less data and there being fewer restrictions on insiders’ activities in our securities.
If we were to lose our foreign private issuer status under U.S. federal securities law, we would likely incur additional expenses associated with compliance with the U.S. securities law applicable to U.S. domestic issuers.
As a foreign private issuer, as discussed above under the risk factor titled “As a foreign private issuer, our shareholders may have less complete and timely data”, we are exempt from certain provisions of the U.S. federal securities law. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our common shares are directly or indirectly held by residents of the United States and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors and more expensive to procure director and officer liability insurance.
The Company is likely a "passive foreign investment company" which may have adverse U.S. federal income tax consequences for U.S. shareholders.
U.S. holders of Common Shares should be aware that the Company believes it was classified as a passive foreign investment company (“PFIC”) during the tax year ended December 31, 2020, and based on current business plans and financial expectations, the Company expects that it will be a PFIC for the current tax year and may be a PFIC in future taxable years. If the Company is a PFIC for any year during a U.S. holder’s holding period of the Common Shares, then such U.S. shareholder generally will be required to treat any gain realized upon a disposition of Common Shares, or any “excess distribution” received on its Common Shares, as ordinary income, and to pay an interest charge on a portion of such gain or distribution, unless the shareholder makes a timely and effective qualified electing fund election (“QEF Election”) or a mark-to-market election with respect to the Common Shares. A U.S. holder who makes a QEF Election generally must report on a current basis its share of the Company's net capital gain and ordinary earnings for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to its shareholders. However, U.S. holders should be aware that there can be no assurance that the Company will satisfy the record keeping requirements that apply to a qualified electing fund, or that the Company will supply U.S. holders with information that such U.S. holders require to report under the QEF Election rules, in the event that the Company is a PFIC and a U.S. holder wishes to make a QEF Election. Thus, U.S. holders may not be able to make a QEF Election with respect to their Common Shares. A U.S. holder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the Common Shares over the taxpayer’s adjusted tax basis therein. This paragraph is qualified in its entirety by the discussion below under the heading “Material United States Federal Income Tax Considerations.” Each U.S. holder should consult its own tax advisors regarding the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
Risks related to our Common Shares
Volatility of market price of the Common Shares.
The market price of the Common Shares may be volatile. The volatility may affect the ability of holders of Common Shares to sell the Common Shares at an advantageous price. Market price fluctuations in the Common Shares may be due to the Company’s operating results failing to meet the expectations of securities analysts or investors in any quarter, downward revision in securities analysts’ estimates, governmental regulatory action, adverse change in general market conditions or economic trends, acquisitions, dispositions or other material public announcements by the Company or its competitors, along with a variety of additional factors, including, without limitation, those set forth under “Cautionary Note Regarding Forward-Looking Statements” in this annual report on Form 20-F. In addition, the market price for securities in the stock markets, including the NASDAQ and the TSX, recently experienced significant price and trading fluctuations. These fluctuations have resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating performance. These broad market fluctuations may adversely affect the market price of the Common Shares
Potential dilution of present and prospective shareholdings.
In order to finance future operations and development efforts, the Company may raise funds through the issue of common shares or the issue of securities convertible into common shares. The Company cannot predict the size of future issues of common shares or the issue of securities convertible into common shares or the effect, if any, that future issues and sales of the Company’s common shares will have on the market price of its common shares. Any transaction involving the issue of previously authorized but unissued shares, or securities convertible into shares, would result in dilution, possibly substantial, to present and prospective holders of shares.
The Company does not intend to pay cash dividends in the foreseeable future.
The Company has not declared or paid any dividends since its incorporation. The Company intends to retain earnings, if any, to finance the growth and development of its business and does not intend to pay cash dividends on the Common Shares in the foreseeable future. Any return on an investment in the common shares will come from the appreciation, if any, in the value of the Common Shares. The payment of future cash dividends, if any, will be reviewed periodically by the board of directors and will depend upon, among other things, conditions then existing including earnings, financial condition and capital requirements, restrictions in financing agreements, business opportunities and conditions and other factors.
ITEM 4. INFORMATION ON THE COMPANY
A.History and Development of the Company
Oncolytics Biotech Inc. was formed under the Business Corporations Act (Alberta) on April 2, 1998 as 779738 Alberta Ltd. On April 8, 1998, we changed our name to Oncolytics Biotech Inc.
Our principal executive office is located at 210, 1167 Kensington Cres. NW, Calgary, Alberta, Canada, T2N 1X7, telephone (403) 670-7377. Our agent for service in the U.S. is Registered Agent Solutions, Inc., 9E Lookerman Street, Suite 311, Dover, Delaware 19901.
A description of the important events in our development including licensing transactions, our principal capital expenditures and divestitures and a description of acquisitions of material assets can be found in our MD&A and in the notes to our financial statements included elsewhere in this annual report.
The SEC maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at https://www.sec.gov. The filings are also contained on the Company’s website at https://www.oncolyticsbiotech.com. Information on the Company's website is not incorporated by reference herein.
B.Business Overview
Since our inception in April of 1998, Oncolytics Biotech Inc. has been a development stage company and we have focused our research and development efforts related to pelareorep, a systemically administered immuno-oncology (I-O) viral agent with the potential to treat a variety of cancers. We have not been profitable since our inception and expect to continue to incur substantial losses as we continue research and development efforts. We do not expect to generate significant revenues until, if and when, pelareorep becomes commercially viable.
Our Business
Our potential product for human use, pelareorep, an unmodified reovirus, is a first in class systemically administered I-O viral agent for the treatment of solid tumors and hematological malignancies.
Scientific Background
Pelareorep’s anti-tumor activity is based on three modes of action which are complementary but not interdependent (Figure 1):
•Selective viral replication in permissive cancer cells which leads to tumor cell lysis.
•Activation of innate immunity in response to the infection, which results in a cascade of chemokines/cytokines, causing natural killer (NK) cells to be activated and attack cancer cells.
•A specific adaptive immune response triggered by tumor- and viral-associated antigens displayed by antigen-presenting cells (APCs), infected tumor cells and/or dendritic cells to T cells.
Summary of Research and Development highlights
Preclinical and translational research to date indicates the following:
•Pelareorep has anticancer effects in a variety of animal models demonstrating that it can reduce tumor burden and prolong survival in these models.
•The anticancer effects in animal models can be enhanced when pelareorep is given in combination with chemotherapy, immunotherapy, radiotherapy, and other targeted cancer therapies, highlighting the beneficial adjuvant or anticancer immune-boosting properties of pelareorep.
•A toxic dose of pelareorep has not been reached/established in animal models and infection presents with minimal side-effects.
Clinical data to date indicate the following:
•More than 1,400 patients have been enrolled in clinical studies conducted in countries including the U.S., Canada and EU. Of these, more than 1,000 patients received pelareorep, with over 930 via intravenous (IV) administration.
•Pelareorep has been administered as single or multiple doses (intratumoral or intravenous), either as a mono-therapy or in combination with chemotherapy, immunotherapy (e.g., checkpoint inhibitors), and radiotherapy.
•Pelareorep is generally well-tolerated and has a manageable side effect profile for most patients.
•When combined with chemotherapy or immunotherapy, pelareorep does not appear to enhance either the frequency or severity of the adverse effects of these agents.
•Efficacy analysis from clinical studies show that treatment with pelareorep can improve the outcome of cancer patients in a variety of potential tumor targets:
•In a randomized Phase 2 study with 74 metastatic breast cancer (mBC) patients, known as IND 213, treatment with pelareorep plus paclitaxel versus paclitaxel alone demonstrated a statistically significant improvement in overall survival: 17.4 months versus 10.4 months, respectively (HR = 0.65; 80% CI 0.46–0.91; p=0.1). In a post hoc subgroup analysis, the OS improved with pelareorep plus paclitaxel in estrogen receptor-positive; human epidermal growth factor receptor 2 negative (ER+; HER2-) patients: 21.0 months versus 10.8 months, respectively (HR = 0.60; p=0.1). In patients that were ER+, progesterone receptor-positive, and HER2- (ER+;PgR+;HER2-) the median OS further improved with pelareorep plus paclitaxel: 21.8 months versus 10.8 months (HR = 0.36; p= 0.003)
•In a single-arm study with gemcitabine plus pelareorep, in first-line patients with pancreatic ductal adenocarcinoma (PDAC), known as REO 017, the median OS was 10 months with a 1 year and 2-year survival of 45% and 24%, respectively. For a single-arm study, these results were encouraging relative to 20–22% and 2–5%, landmark 1-year and 2-year survival, respectively for PDAC patients treated with gemcitabine alone from two different phase 3 studies.
•In a two-arm Phase 2 randomized study (NCI 8601), patients with PDAC were randomized to receive either carboplatin, paclitaxel and pelareorep (test arm) or carboplatin and paclitaxel alone (control arm). The median OS was similar for both arms, but the probability of survival at Year 2 was 20% in the test arm vs. 9% in the control arm. Biomarker studies from this clinical trial identified the immunomodulatory CEA cell adhesion molecule 6 (CEACAM6/CD66c) as a potential receptor for specific viral subtypes, where altered CEACAM6 levels may be predictive for pelareorep sensitivity. Specifically, when comparing extraordinary responders in the test arm to those with poor outcomes, low levels of CEACAM6 mRNA expression were associated with prolonged progression-free survival in pela-treated patients (10.32 months in CEACAM6 low versus 7.75 months in CEACAM6 high patients, p=0.05), importantly this effect was not seen in the control arm.
•Biomarker data from an ongoing window-of-opportunity study in early breast cancer (AWARE-1) demonstrates that pelareorep can replicate at high levels in breast cancer tissue following intravenous delivery. Viral replication, in turn, promotes the recruitment of tumor-infiltrating lymphocytes (mainly CD8+cells) and upregulates the expression of PD-L1, creating a tumor microenvironment poised to respond to checkpoint blockade therapy.
Mechanism of Action
Figure 1. Proposed mechanism of action for pelareorep
1.Direct cell lysis - Reovirus Replication in Permissive Cancer Cells
Selective viral replication and lysis in cancer cells and not normal cells is mediated by the host cellular protein dsRNA-activated protein kinase (PKR). In non-cancer cells that are infected with reovirus, PKR activates in the presence of the virus which in turn inhibits viral gene translation. However, in permissive cancer cells, PKR activation is inhibited, allowing for viral gene translation and eventual cell lysis.
It was originally established that selective lysis with reovirus was mediated by tumor cells with an activated rat sarcoma virus oncogene (RAS)-pathway, since active RAS inhibits PKR activation. However, more recent investigations have revealed that reovirus replication is not just restricted to cells with an active RAS pathway, oncogenic mutations and amplifications in upstream and downstream mediators of the RAS-pathway also allow for viral replication and oncolysis. Moreover, active RAS is known to stimulate over 18 downstream effector proteins, many of which have been shown to facilitate viral replication. Cells bearing dysfunctional or deleted tumor suppressor genes and or chemo- or radiation-induced cell stress also show increased sensitivity to reovirus replication and lysis.
2.Induction of Innate Immunity
Preclinical and clinical studies provide compelling evidence that pelareorep functions as a systemically-delivered immunogenic agent which acts locally at the site of the tumor. Indeed, preclinical studies demonstrated that cancer cells infected with pelareorep can produce an innate immune response triggering the release of inflammatory cytokines. This inflammatory environment promotes a chemotactic response in NK cells, dendritic cells, and cytotoxic T-cells, altering the tumor microenvironment to support bystander immune-mediated cancer cell death. Intriguingly, preclinical studies have also demonstrated that the beneficial immunogenic functions of pelareorep can occur independently of viral replication. Pelareorep performs this immunogenic function, in part, by activating dendritic cells, key regulators of both adaptive and innate immunity. Dendritic cells activated by reovirus, in turn, stimulate the innate antitumor activity of NK cells and aid in the priming of specific antitumor cytotoxic lymphocyte, demonstrating that dendritic cell recognition of reovirus may trigger a beneficial innate immune response.
A clinical trial with pelareorep (REO 013) provided an opportunity to study human NK cell activation in a controlled manner. Ten colorectal cancer patients with liver metastases received between one and five doses of pelareorep prior to surgical resection of their tumor. NK cell activation peaked 24-48 hours post-infection, coincident with a peak of pro-inflammatory
cytokines. NK cells within reovirus-treated blood mononuclear cells were stimulated to kill tumor targets, but not normal hepatocytes. Moreover, peripheral blood mononuclear cells were able to hand-off virus to tumors for direct oncolytic killing. Similarly, NK cells within liver mononuclear cells became selectively cytotoxic towards tumor cells when activated by reovirus. These results showed that reovirus modulates human NK cell activity in vivo and suggest that this may contribute to the therapeutic effect of pelareorep.
3.Induction of Adaptive Immunity
Adaptive anti-tumor immunity allows for elimination of existing cancer cells and performs constant surveillance, preventing relapse, and increases overall survival. An adaptive immune response requires two signals: a signal from an APC, as well as a co-stimulation signal in the form of cytokines. In the absence of both signals, the adaptive immune response fails. Therapy with pelareorep has the potential to activate both signals. Following its therapeutic administration, pelareorep enhances the expression of ‘foreign’ antigens/markers on tumor cells. Oncolysis of tumor cells exposes tumor-associated antigens (TAAs) and viral-associated antigens (VAAs) for processing and presentation by APCs, such as dendritic cells. Through the combined actions of these immunological events, pelareorep facilitates the display of novel ‘foreign’ antigens on the surface of infected tumor cells and APCs. Simultaneously, pelareorep induces an inflammatory response promoting the expression of co-stimulatory molecules and inflammatory cytokines. Together, pelareorep mediated immunological events over-rule tumor antigen presentation impairments and initiate adaptive anti-tumor immunity.
By promoting the expression of novel antigens and the release of inflammatory cytokines, pelareorep, promotes an inflamed tumor phenotype. An inflamed tumor phenotype is characterized by NK and T-cell infiltration, increased expression of chemokines/cytokines, and increased expression of checkpoint ligands. This phenotype correlates with an increase in overall survival and has a positive prognostic value for early-stage cancers. In patients with metastatic cancer, an inflamed tumor phenotype is associated with better clinical outcomes when treated with immunotherapies, including immune checkpoint blockade inhibitors, cancer vaccines, and adoptive T-cell therapies. By promoting an inflamed tumor phenotype, pelareorep primes an anti-cancer immune response (Figure 2).
Figure 2. Pelareorep primes an anti-cancer immune response
Clinical Development Plan
The ultimate objective of our clinical development plan is to obtain regulatory approval for pelareorep and is based on the compelling efficacy data from previous studies in breast, multiple myeloma, and selected gastrointestinal cancers. Our current clinical development program centers on the role of pelareorep in immuno-oncology mechanisms, particularly in combination with key immune checkpoint inhibitors and potentially other immune-based therapies. Our primary focus is to demonstrate enhanced antitumor efficacy with high profile checkpoint inhibitors, as we believe this may be the most immediately impactful clinical data and the most expeditious path to approval.
We believe pelareorep has the potential to provoke specific innate and adaptive immune responses when combined with different classes of immunotherapies. Therefore, as our clinical development program evolves and delivers additional data, we will consider appropriate expansion of our plan to investigate potential opportunities with such immunotherapies.
Throughout 2020, we presented preliminary results at multiple conferences from our AWARE-1 study, which received regulatory approval in 2019 and examined the use of pelareorep and atezolizumab (Tecentriq®) in a breast cancer window-of-opportunity study. The preliminary results demonstrated that pelareorep mediated priming of the tumor microenvironment for checkpoint blockade therapy. In the second quarter of 2020, we began enrollment in our BRACELET-1 (BReast cAnCEr with the Oncolytic Reovirus PeLareorEp in CombinaTion with anti-PD-L1 and Paclitaxel) study, for which we initiated start-up activities in the second half of 2019. The BRACELET-1 study will essentially repeat our IND 213 trial in mBC in patients that are hormone receptor-positive (HR+) / human epidermal growth factor receptor 2 negative (HER2-), with the addition of a third arm that includes pelareorep, paclitaxel and avelumab (Bavencio®). Efficacy analysis of our IND213 trial is described in "Summary of Research and Development highlights" above. In the third quarter of 2020, we dosed our first patient in our investigator-sponsored multi-center trial known as IRENE (INCMGA00012, and the oncolytic virus pelaREorep in metastatic triple-NEgative breast cancer). This trial will investigate pelareorep in combination with Incyte’s anti-PD-1, retifanlimab (INCMGA00012) in triple-negative breast cancer.
In addition to breast cancer, we also announced a platform study known as GOBLET (Gastrointestinal tumOrs exploring the treatment comBinations with the oncolytic reovirus peLarEorep and anTi-PD-L1) in the third quarter of 2020. GOBLET will examine combination therapy with pelareorep and atezolizumab (Tecentriq®) in a variety of gastrointestinal indications in four cohorts: (1) Patients with first-line locally advanced/metastatic unresectable pancreatic ductal adenocarcinoma (PDAC); (2) Patients with first-line metastatic colorectal cancer (mCRC), limited to microsatellite instability-high (MSI-H) or mismatch repair deficient (dMMR) tumors; (3) Patients with third-line mCRC independent of microsatellite instability (MSI)/dMMR status; and (4) Patients with ≥ second-line locally advanced/metastatic unresectable squamous cell carcinoma of the anal canal (SCCA) of viral or non-viral origin after prior systemic chemotherapy. We expect to begin enrollment in the second quarter of 2021.
As well, our pancreatic cancer study combination study was ongoing in 2020. This study is an extension of our phase 1 study investigating pelareorep in combination with chemotherapy and pembrolizumab (Keytruda®). In 2019, we published our first data set related to the phase 1 study, in the journal of Clinical Cancer Research, demonstrating the safety and tolerability of this combination treatment regime and showed encouraging clinical efficacy with one patient achieving a partial response (six-month duration) and two patients with stable disease (lasting 126 and 221 days).
Patents and Trade Secrets
The patent positions and proprietary rights of pharmaceutical and biotechnology firms, including us, are generally uncertain and involve complex legal and factual questions. We believe there will continue to be significant litigation in the industry regarding patent and other intellectual property rights.
Currently, we have 377 issued patents including 40 issued in the U.S. and 17 in Canada. We also have 12 patents pending in the U.S., Canada, and other jurisdictions, but we cannot be certain whether any given patent application filed by us will result in the issuance of a patent or if any given patent issued to us will later be challenged and invalidated. Nor can we be certain whether any given patent that may be issued to us will provide any significant proprietary protection to our product and business.
Litigation or other proceedings may also be necessary to enforce or defend our proprietary rights and patents. In Europe, patents can be revoked through opposition or nullity proceedings. In the United States patents may be revoked or invalidated in court actions or challenged in interference, post-grant review, inter partes review, derivation or re-examination proceedings by the United States Patent and Trademark Office ("USPTO"). Such litigation or proceedings could result in substantial cost or distraction to us, resulting in an adverse decision as to our or our licensors’ patent applications and patents.
Our commercial success depends, in part, on not infringing the patents or proprietary rights of others and not breaching licenses granted or that may be granted to us. Competitors may have filed patent applications, obtained patents, may in the future file patent applications, and/or obtain patents relevant to our product and technologies. We are not aware of competing intellectual property relating to our pelareorep project at this time. While we currently believe that we have the necessary freedom to operate in these areas, there can be no assurance that others will not challenge our position in the future. Litigation to defend our position could be costly and time consuming. We also cannot be certain that we will be successful. We may be required to obtain a license from a prevailing party in order to continue the portion of our business that relates to the proceeding. We may also be required to obtain licenses to other third-party technologies necessary in order to market our products. Such licenses may not be available to us on acceptable terms, or on any terms, and we may have to discontinue that portion of our business.
Any failure to license any technologies required to commercialize our technologies or products at reasonable cost may have a material adverse effect on our business, results of operations, financial condition, cash flow and future prospects. We are not currently involved in any litigation concerning our competitors’ patent applications and patents. We may be involved in such litigation in the future.
We also rely on unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. No assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our rights to our unpatented trade secrets.
We require our employees and consultants to execute confidentiality agreements upon the commencement of employment and consulting relationships with us. These agreements provide that all confidential information developed by or made known to an individual during the course of the employment or consulting relationship generally must be kept confidential. In the case of employees, the agreements provide that all inventions conceived by the individual, while employed by us, relating to our business are our exclusive property. While we have implemented reasonable business processes and agreements with which to protect confidential information, these actions may not provide meaningful protection for our trade secrets in the event of unauthorized use or disclosure of such information.
Business Strategy
Our business strategy is to develop and market pelareorep in an effective and timely manner, and access additional technologies at a time and in a manner that we believe is best for our development. We intend to achieve our business strategy by focusing on these key areas:
•Develop pelareorep through our clinical development plan assessing the safety and efficacy in human subjects;
•Establish collaborations with experts to assist us with scientific and clinical developments of this new potential pharmaceutical product;
•Implement strategic alliances with select biopharmaceutical companies and laboratories, at a time and in a manner whereby such alliances may complement and expand our own research and development efforts. Such alliances may also result in an eventual expansion to include providing additive sales and marketing capabilities;
•Utilize our broadening patent base and collaborator network as a mechanism to meet our strategic objectives; and
•Develop relationships with companies that could be instrumental in assisting us to access other innovative therapeutics.
Our business strategy is based on attaining a number of commercial objectives, which, in turn, are supported by a number of product development goals. In the context of this Annual Report, statements of our "belief" are based primarily upon our results derived to date from our research and development program with animals, early-stage human trials and our most recent data in HR+/HER2- mBC patients, upon which we believe that we have a reasonable scientific basis to expect the particular results to occur. It is not possible to predict, based upon studies in animals, or early-stage human trials, whether a new therapeutic will ultimately prove to be safe and effective in humans. There are no assurances that the particular result expected by us will occur.
At this time, we do not intend to become a fully integrated pharmaceutical company with substantial in-house research and development, marketing and distribution or manufacturing capabilities. We are pursuing a strategy of establishing relationships with larger companies as strategic partners. It is anticipated that future clinical development into large international or pivotal trials would generally occur in conjunction with a strategic partner or partners, who would contribute expertise and financial assistance. In exchange for certain product rights and commitments to market our products, the strategic partners would be expected to share in proceeds from the sale of our product or products.
Regulatory Requirements
The development of new pharmaceuticals is strongly influenced by a country's regulatory environment. The drug approval process in Canada is regulated by Health Canada. The primary regulatory body in the United States is the FDA and in Europe is the European Medicines Agency (the “EMA”). Similar processes are conducted in specific countries by equivalent regulatory bodies. Regulations in each jurisdiction require the licensing of manufacturing facilities and mandate strict research and product testing standards. Companies must establish the safety and efficacy of their products, comply with cGMP and potentially
submit marketing materials before being allowed to market pharmaceutical products. While we plan to pursue or support the pursuit of the approval of our product, success in acquiring regulatory approval for any product is not assured.
In order to market our pharmaceutical product in Canada, the United States, Europe and other jurisdictions, we must successfully meet the requirements of those jurisdictions. The requirements of the appropriate regulatory authority will generally include the following stages as part of the regulatory process:
•Pre-Pharmacological Studies - Pre-Pharmacological studies involve extensive testing on laboratory animals to determine if a potential therapeutic product has utility in an in vivo disease model and has any adverse toxicology in a disease model.
•Investigational New Drug Application - An Investigational New Drug (IND) Submission, or the equivalent, must be submitted to the appropriate regulatory authority prior to conducting Pharmacological Studies.
•Pharmacological Studies (or Phase 1 Clinical Trials) - Pharmacological studies are designed to assess the potential harmful or other side effects that an individual receiving the therapeutic compound may experience. These studies, usually short in duration, are often conducted with healthy volunteers or actual patients and use up to the maximum expected therapeutic dose.
•Therapeutic Studies (or Phase 2 and 3 Clinical Trials) - Therapeutic studies are designed primarily to determine the appropriate manner for administering a drug to produce a preventive action or a significant beneficial effect against a disease. These studies are conducted using actual patients with the condition that the therapeutic is designed to remedy. Prior to initiating these studies, the organization sponsoring the program is required to satisfy a number of requirements via the submission of documentation to support the approval for a clinical trial.
•New Drug Submission - After all three phases of a clinical trial have been completed, the results are submitted with the original IND Submission to the appropriate regulatory authority for marketing approval. Once marketing approval is granted, the product is approved for commercial sales.
Marketing Approvals
The results of the preclinical and clinical testing, together with manufacturing and controls information, are submitted to regulatory agencies in order to obtain approval to commence commercial sales. In responding to such an application, regulatory agencies may grant marketing approval, request additional information or further research, or deny the application if they determine that the application does not satisfy their regulatory approval criteria. Approval for a pharmaceutical or biologic product may not be granted on a timely basis, if at all. If granted, the approval may not cover all the clinical indications for which approval is sought, or may contain significant limitations in the form of warnings, precautions or contraindications with respect to conditions of use.
The satisfaction of pre-market approval requirements for new drugs and biologics typically takes several years, with the actual time required varying substantially based upon the type, complexity and novelty of the product or targeted disease. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon our activities. Success in early-stage clinical trials or with prior versions of products does not assure success in later-stage clinical trials. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval.
Post-Marketing Regulations
Once approved, regulatory agencies may withdraw the product approval if compliance with pre- and/or post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace. In addition, they may require post-marketing studies, referred to as Phase 4 studies, to monitor the effect of an approved product, and may limit further marketing of the product based on the results of these post-market studies. The FDA and other foreign regulatory agencies have broad post-market regulatory and enforcement powers, including the ability to levy fines and penalties, suspend or delay issuance of approvals, seize or recall products, or withdraw approvals.
Manufacturing Regulations
We are economically dependent on our toll manufacturers. We primarily use one toll manufacturer in the U.S. to produce the clinical grade pelareorep required for our clinical trial program. Any significant disruption of the services provided by our
primary toll manufacturer has the potential to delay the progress of our clinical trial program. We have used another toll manufacturer in the U.K. that has also produced clinical grade pelareorep at a smaller scale. We have attempted to mitigate this risk by producing sufficient pelareorep in advance of patient enrollment in a particular clinical trial.
Our toll manufacturers are subject to periodic inspection by the FDA, the United States Drug Enforcement Administration, or DEA, and other domestic and foreign authorities where applicable, and must comply with cGMP regulations. Manufacturers of biologics also must comply with general biological product standards. Failure to comply with the statutory and regulatory requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing, seizure of product, or mandatory or voluntary recall of a product. Adverse experiences with the product must be reported to the FDA and foreign agencies and could result in the imposition of market restrictions through labeling changes or in product removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.
Advertising and Promotion Regulations
With respect to both pre- and post-market product advertising and promotion, the FDA and similar foreign agencies impose a number of complex regulations on entities that advertise and promote pharmaceuticals and biologics, which include, among other things, standards and regulations relating to direct-to-consumer advertising, on vs. off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the internet. These agencies have very broad enforcement authority and failure to abide by these regulations can result in penalties including the issuance of a warning letter directing the entity to correct deviations from requisite standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA or relevant foreign agencies, and foreign, state and federal civil and criminal investigations, fines and prosecutions.
Other Government Regulations
We are subject to various laws and regulations regarding laboratory practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as above, the government has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect upon us.
Market and Competition
According to estimates for 2021 from the American Cancer Society, more than 1.9 million Americans are expected to be diagnosed with cancer in the year, and approximately 608,570 Americans are expected to die of cancer. Cancer is the second most common cause of death in the U.S., exceeded only by heart disease. In the United States, the relative lifetime risk of a male or female developing cancer is 1 in 2 and 1 in 3, respectively (Source: American Cancer Society's Cancer Facts & Figures 2021). The prevalence of breast cancer in the United States in 2017 was 3.6 million, of which there were 68% (2.4 million) patients with HR+/HER2- subtype. It was projected that there will be 114,438 patients with HR+/HER2- mBc. (Source: https://seer.cancer.gov/statfacts/html/breast.html (accessed Feb 24, 2021); https://seer.cancer.gov/statfacts/html/breast-subtypes.html (accessed Feb 24, 2021); Marriotto et al. Estimation of the Number of Women Living with Metastatic Breast Cancer in the United States. Cancer, Epidemiology, Biomarkers & Prevention May 18, 2017. https://cebp.aacrjournals.org/content/cebp/26/6/809.full.pdf)
The costs of this disease state are also significant. In the United States, the American Cancer Society reported in its Cancer Facts & Figures 2021 that The National Cancer Institute estimated that the 2015 direct medical costs for cancer were $183 billion and are projected to increase to $246 billion by 2030.
We face substantial competition in the development of products for cancer and other diseases. This competition from other manufacturers of the same types of products and from manufacturers of different types of products designed for the same uses is expected to continue in both U.S. and international markets. Oncolytic virus therapies, our primary focus area, are rapidly evolving areas in the biotechnology industry and are expected to undergo many changes in the coming years as a result of technological advances. We are currently aware of a number of groups that are developing oncolytic virus therapies including early-stage and established biotechnology companies, pharmaceutical companies, academic institutions, government agencies and research institutions. We face competition from all of these groups in areas such as recruiting employees, acquiring technologies that might enhance our ability to commercialize products, establishing relationships with certain research and academic institutions, enrolling patients in clinical trials and seeking program partnerships and collaborations with larger pharmaceutical companies. It is possible that our competitors could achieve earlier market commercialization, could have
superior patent protection, or could have safer, more effective or more cost-effective products. These factors could render our potential products less competitive, which could adversely affect our business.
Product Marketing Strategy
The markets for the cancer product being developed by us may be large and could require substantial sales and marketing capability. Before or upon successful completion of the development of a cancer product, we intend to enter into one or more strategic partnerships or other collaborative arrangements with a pharmaceutical company or other company with marketing and distribution expertise to address this need. If necessary, we will establish arrangements with various partners for different geographical areas or specific applications at various times in the development process. Our management and consultants have relevant experience with the partnering process.
Seasonality of Business
Our results of operations have not been materially impacted by seasonality.
C.Organizational Structure
On December 31, 2020, we had one material wholly-owned operating subsidiary; Oncolytics Biotech (Barbados) Inc. (“OBB”), a Barbados company. In addition, Oncolytics Biotech (U.S.) Inc., a Delaware corporation, is a material wholly-owned subsidiary of OBB.
D. Property, Plant and Equipment
We currently lease our head office in Calgary, Alberta, Canada as well as our office spaces in San Diego, California, U.S. and Barbados. We do not own or lease any other office space, manufacturing facilities or equipment and do not have any current plans to construct or acquire any facilities.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Our Management Discussion and Analysis (“MD&A”) contains forward-looking statements, including our belief as to the potential of pelareorep, a therapeutic reovirus, as a cancer therapeutic and our expectations as to the success of our research and development and manufacturing programs in 2021 and beyond, future financial position, business strategy and plans for future operations, and statements that are not historical facts, involve known and unknown risks and uncertainties, which could cause our actual results to differ materially from those in the forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”.
With respect to the forward-looking statements made within our MD&A, we have made numerous assumptions regarding among other things: our ability to obtain financing to fund our development program, our ability to receive regulatory approval to commence enrollment in our clinical trial program, the final results of our co-therapy clinical trials, our ability to maintain our supply of pelareorep and future expense levels being within our current expectations. Investors are cautioned against placing undue reliance on forward-looking statements. We do not undertake to update these forward-looking statements except as required by applicable law.
A.Operating Results
Please see our 2020 Management Discussion and Analysis in Exhibit 15.1, which is incorporated herein by reference.
B.Liquidity and Capital Resources
Please see our 2020 Management Discussion and Analysis in Exhibit 15.1, which is incorporated herein by reference.
C.Research and Development, Patents, and Licenses, etc.
Please see the disclosure in "Item 4. Information on the Company B. Business Overview" for information on the Company’s research and development policies.
D.Trend Information
It is important to note that historical patterns of expenditures cannot be taken as an indication of future expenditures. The amount and timing of expenditures and availability of capital resources vary substantially from period to period, depending on the level of research and development activity being undertaken at any one time and the availability of funding from investors and prospective commercial partners. See our 2020 MD&A in Exhibit 15.1 for our comparative discussion on our expenditures between 2018 - 2020 and our expectations for 2021.
Except as disclosed elsewhere in our annual report, we know of no trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our liquidity or capital resources or that would cause reported financial information not necessarily to be indicative of future operating results or financial conditions.
E.Critical Accounting Estimates
Not Applicable
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.Directors and Senior Management
The following table sets forth the names and places of residence of all our directors and senior management as at December 31, 2020, as well as the positions and offices held by such persons and their principal occupations.
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Name and Place of Residence
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Position with the Company
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Principal Occupation
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Director of the Company Since
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Deborah M. Brown, MBA, ICD.D(1)(2)
Ontario, Canada
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Director
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Ms. Brown is the Managing Partner at Accelera Canada Ltd., a specialty consultancy firm that assists emerging biopharma ventures in the United States and Europe with the development and implementation of Canadian market strategies. She held progressively senior roles at EMD Serono from 2000 to 2014, including Executive Vice President of Neuroimmunology for the company's U.S. operations, and President and Managing Director of the company's Canadian operations. In 2012, Ms. Brown was Chair of the National Pharmaceutical Organization (now Innovative Medicines Canada) and served on its Board of Directors from 2007 to 2014. She currently sits on the Boards of the HBSPCA, Cardiol Therapeutics, Oncolytics Biotech Inc, and Sernova Corp. Ms. Brown holds an MBA from University of Western Ontario's Ivey School of Business, an Hons B.Sc. from the University of Guelph. She most recently completed the Institute of Corporate Directors Designation (ICD.D).
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November 2, 2017
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Matthew C. Coffey, PhD, MBA
Alberta, Canada
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President and Chief Executive Officer and Director
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A co-founder of the Company, Dr. Coffey completed his doctorate degree in oncology at the University of Calgary with a focus on the oncolytic capabilities of the reovirus. The results of his research have been published in various respected scientific journals, including Science, Human Gene Therapy, and The EMBO Journal. Dr. Coffey took over as Chief Executive Officer in late 2016, prior to which he was Chief Operating Officer since December 2008. Since co-founding Oncolytics he has also held the positions of Chief Scientific Officer from December 2004 to December 2008, Vice-President of Product Development from July 1999 to December 2004 and Chief Financial Officer from September 1999 to May 2000.
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May 11, 2011
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Andrew de Guttadauro
California, USA
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Global Head of Business Development, President, Oncolytics Biotech (U.S.) Inc.
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Andrew de Guttadauro has more than 25 years of biopharmaceutical commercialization and business development experience. He has held executive and senior-level positions at leading pharmaceutical and biotechnology companies, working on initiatives across both developed and emerging markets globally.
Mr. de Guttadauro began his career at TAP Pharmaceuticals, supporting the launch of blockbuster drugs, Lupron® and Prevacid®. He held a variety of marketing positions at Amgen, contributing to the success of Enbrel®, Aranesp®, and Epogen® before joining MedImmune to lead marketing efforts for the FluMist® inhaled influenza vaccine. Following a two-year assignment overseeing the commercial development of Zevalin®, the first radioimmunotherapy product approved for use in the United States, Mr. de Guttadauro took on the role of Senior Director of Strategy at Biogen Idec. He then served as Vice President of Corporate Development at Vical, supporting the execution of distribution agreements for Allovectin®. Prior to joining Oncolytics, Mr. de Guttadauro was a Principal at 1798 Consultants Inc., a healthcare consulting firm providing commercialization, market access, and compliance strategic advice to leading and emerging biopharmaceutical companies.
Mr. de Guttadauro has a Bachelor of Science degree in engineering from the United States Military Academy at West Point.
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Position with the Company
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Principal Occupation
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Director of the Company Since
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Allison Hagerman, P.Eng., PMP, MBT Alberta, Canada
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Vice President, Product Development
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A Professional Engineer focused on biotechnology, Ms. Hagerman joined Oncolytics in 2010 and has been integral to the progress of its product development program ever since. Prior to being appointed as Vice President of Product Development, Ms. Hagerman was the Director, Manufacturing and Engineering from 2013-2017 and Project Manager from 2010-2013, during which time she led the process performance qualification for pelareorep drug substance. Ms. Hagerman is a Professional Engineer (P.Eng., APEGA) and Project Management Professional (PMP, PMI). She holds a Master of Biomedical Technology (MBT) degree from the University of Calgary, and B.Sc. degrees in both Chemical Engineering and Biological Sciences.
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Thomas C. Heineman, MD, PhD
California, USA
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Global Head of Clinical Development and Operations
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Dr. Heineman brings more than 20 years of experience leading clinical development programs to Oncolytics, including 14 years in the biopharmaceutical industry. Most recently, Dr. Heineman served as Senior Vice President and Head of Clinical Development at Denovo Biopharma. Prior to his time at Denovo, Dr. Heineman served as Vice President and Head of Clinical Development at Genocea Biosciences and Halozyme Therapeutics, where he was also the Head of Translational Medicine, and oversaw clinical trials in indications such as breast and pancreatic cancer. Dr. Heineman’s experience further extends into big pharma and academia, as he has previously held roles as Senior Director, Global Clinical Research and Development at GlaxoSmithKline and as an Associate Professor at the Saint Louis University School of Medicine.
Dr. Heineman has co-authored over 60 peer-reviewed publications and is board certified in several specialties, including Internal Medicine and Infectious Diseases. He completed his fellowship in Infectious Diseases at the National Institutes of Health and his internship and residency at the University of Maryland. Dr. Heineman earned his MD at the University of Chicago, where he also received a PhD in molecular genetics.
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Angela Holtham, MBA, FCPA, FCMA, ICD.D(1)(2)
Ontario, Canada
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Director
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Ms. Holtham held a number of financial positions over a 19-year career with the Canadian subsidiary of Nabisco Inc., rising to become Senior Vice President and Chief Financial Officer. In 2002, she joined Toronto, Ontario-based Hospital for Sick Children as Vice President, Finance and Chief Financial Officer, a position she held for eight years. Through her career she has participated in myriad initiatives ranging from traditional finance functions and operations oversight to intellectual property portfolio management and mergers and acquisitions. Ms. Holtham is an FCPA, FCMA, holds an MBA from the University of Toronto - Rotman School of Management and has completed the Institute of Corporate Directors Designation (ICD.D).
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June 18, 2014
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|
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|
|
|
|
|
|
|
|
Name and Place of Residence
|
Position with the Company
|
Principal Occupation
|
Director of the Company Since
|
|
Leonard Kruimer, MBA, CPA(1)(3)
Vinkeveen, The Netherlands
|
Director
|
Mr. Kruimer has over 30 years experience in accounting, corporate finance, and strategy, in senior management positions in private and publicly listed life science companies. Mr. Kruimer served as CFO and Executive Committee Member of Crucell from 1998 through 2011, when Crucell was acquired by JNJ. During his tenure, he led financing activities of the company and contributed to Crucell's strategic acquisition of Swiss-based Berna Biotech. Currently, Mr. Kruimer serves as independent director and Chairman of the Audit Committee for Zealand Pharma (Nasdaq: ZEAL), and Chairman of the Board of BioInvent AB (OMXS: BINV). He is a director of Advent Int. Global Investments and advisor to private equity firm Karmijn Kapitaal Investments. Previously, he was CFO of SkylineDx, a DNA diagnostics company and Chairman of ProFibrix through its acquisition by The Medicines Company (Nasdaq: MDCO) in 2013. Mr. Kruimer held various executive board positions on an interim basis. Prior to Crucell, Mr. Kruimer held senior executive positions at TIP Europe, a GE Capital company and Continental Can Europe. He was a consultant with McKinsey and started his career at Price Waterhouse in New York. Mr. Kruimer holds an MBA from Harvard, a BA in accounting and finance from University of Massachusetts and is a CPA in New York State.
|
October 2, 2019
|
Kirk J. Look, CA
Alberta, Canada
|
Chief Financial Officer
|
Mr. Look is a Chartered Accountant with more than fifteen years of experience in accounting, finance, tax and treasury. Mr. Look joined Oncolytics as the Company's Controller in April 2003, and assumed the role of Chief Financial Officer in November 2012. Prior to joining Oncolytics, from 2000 to April 2003, Mr. Look was Manager of Audit and Assurance Services with Ernst & Young LLP in Canada. From 1998 to the end of 1999, Mr. Look held the positions of Audit Manager and Senior Accountant at Ernst & Young LLP in Chile.
|
N/A
|
|
Wayne Pisano, MBA(3)(5) Pennsylvania, USA
|
Chair of the Board
|
Mr. Pisano has served as a Director/Chairman of several publicly traded companies in the US and Canada and has more than 30 years of experience as a pharmaceutical industry executive. He served as the president and CEO of VaxInnate, a privately held biotech company from January 2012 to November 2016. Mr. Pisano is the former president and CEO of Sanofi Pasteur, one of the largest vaccine companies in the world. He joined Sanofi Pasteur in 1997, assuming increasing levels of responsibility. He was promoted to President and CEO in 2007, the position he successfully held until his retirement in 2011. Prior to joining Sanofi Pasteur, he spent 11 years with Novartis (formerly Sandoz). He has a bachelor's degree in biology from St. John Fisher College, New York and an MBA from the University of Dayton, Ohio.
|
May 9, 2013
|
|
William G. Rice, PhD(3)(4)
California, USA
|
Director
|
Dr. Rice has held the position of Chairman, President and Chief Executive Officer of Aptose Biosciences Inc. since 2013. From 2003 to 2013, he served as Chairman, President and Chief Executive Officer of Cylene Pharmaceutics Inc., prior to which he was the Founder, President, Chief Executive Officer and Director of Achillion Pharmaceuticals, Inc. He has also served as Senior Scientist and Head of the Drug Mechanism Laboratory at the National Cancer Institute-Frederick Cancer Research and Development Center, and as a faculty member in the Division of Pediatric Hematology and Oncology at Emory School of Medicine. Dr. Rice holds a PhD in biochemistry from Emory University Laney Graduate School and was a post-doctoral trainee in the Department of Internal Medicine, Division of Hematology and Oncology at the University of Michigan Medical Center.
|
June 8, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Place of Residence
|
Position with the Company
|
Principal Occupation
|
Director of the Company Since
|
|
Bernd R. Seizinger, MD, PhD(2)(4)
New Jersey, USA and Munich, Germany
|
Director
|
Dr. Seizinger has been board member/chairman in multiple public and private biotech companies in the US and Europe. From 1998 to 2009, he served as President and Chief Executive Officer of GPC Biotech. He also served as Vice President of Oncology Drug Discovery and, in parallel, Vice President of Corporate and Academic Alliances at Bristol-Myers Squibb. Prior to his appointments in the biotechnology and pharmaceuticals sectors, Dr. Seizinger held professorships and senior staff appointments at Harvard Medical School, Princeton University and Massachusetts General Hospital.
|
June 8, 2015
|
Notes:
(1)Member of the Audit Committee. Ms. Holtham is Chair of this Committee.
(2)Member of the Compensation Committee. Ms. Brown is Chair of this Committee.
(3)Member of the Governance Committee. Dr. Rice is Chair of this Committee.
(4)Member of the Science and Technology Committee. Dr. Seizinger is Chair of this Committee.
(5)Mr. Pisano, as Chair of the Board, serves as an ex-officio member of the Compensation, Audit, Governance and Science and Technology Committees.
As at March 1, 2021, the directors and senior management as a group beneficially owned, directly or indirectly, 677,068 of our common shares, representing 1.17% of the issued and outstanding common shares.
Certain of our directors are associated with other companies, which may give rise to conflicts of interest. In accordance with the Alberta Business Corporations Act (ABCA), directors who have a material interest in any person who is a party to a material contract or a proposed material contract with us are required, subject to certain exceptions, to disclose that interest and abstain from voting on any resolution to approve that contract. In addition, the directors are required to act honestly and in good faith with a view to the best interests of Oncolytics Biotech Inc.
None of our directors or officers are related by blood, marriage or adoption to any other director or officer.
We are not aware of any arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or senior management.
B. Compensation
Directors
The following table sets forth information concerning the total compensation paid in 2020 to each director.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Fees Earned
($)(1)(3)
|
Share-
Based Awards
($)(2)(3)
|
Option-
Based Awards
($)(2)
|
Non-Equity Incentive Plan Compensation
($)
|
Pension Value
($)
|
All Other Compensation
($)
|
Total
($)
|
|
Deborah Brown(4)
|
57,294
|
56,912
|
Nil
|
Nil
|
N/A
|
Nil
|
114,206
|
|
Angela Holtham
|
82,758
|
39,162
|
Nil
|
Nil
|
N/A
|
Nil
|
121,920
|
|
Leonard Kruimer(5)
|
60,477
|
52,541
|
Nil
|
Nil
|
N/A
|
Nil
|
113,018
|
|
Wayne Pisano(6)
|
51,724
|
107,877
|
Nil
|
Nil
|
N/A
|
Nil
|
159,601
|
|
William Rice
|
70,026
|
39,162
|
Nil
|
Nil
|
N/A
|
Nil
|
109,188
|
|
Bernd Seizinger(7)
|
45,835
|
77,992
|
Nil
|
Nil
|
N/A
|
Nil
|
123,827
|
Notes:
(1)Directors are paid fees in U.S. Dollars. These amounts are presented in Canadian dollars and have been converted at a U.S./CDN exchange rate of $1.2732.
(2)The value of share-based and option based awards are based on the grant date assumptions as disclosed in note 10 "Share-Based Payments" in our 2020 audited consolidated financial statements.
(3)Directors, annually, may opt to take up to 100% of their respective annual retainer in restricted share awards.
(4)Ms. Brown elected to receive US$15,000 (25%) of her annual retainer in restricted share awards.
(5)Mr. Kruimer elected to receive US$7,500 (14%) of his annual retainer in restricted share awards.
(6)Mr. Pisano elected to receive US$40,625 (50%) of his annual retainer in restricted share awards.
(7)Dr. Seizinger elected to receive US$24,000 (40%) of his annual retainer in restricted share awards.
Senior Management
Summary Compensation Table
The following table sets forth information concerning the total compensation paid to our senior management in 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and principal position
|
Year
|
Salary
$
|
Share-
based awards
$(1)
|
Option-
based
awards
$(1)
|
Bonus
$
|
Non-equity incentive
plan compensation
$
|
Pension value
$
|
All other compensation
$(2)
|
Total
compensation
$
|
|
Dr. Matthew C. Coffey(3)
President and Chief Executive Officer
|
2020
|
540,750
|
—
|
631,970
|
243,000
|
N/A
|
N/A
|
73,657
|
1,489,377
|
Kirk J. Look
Chief Financial Officer
|
2020
|
396,550
|
—
|
526,642
|
142,758
|
N/A
|
N/A
|
60,950
|
1,126,900
|
|
Dr. Thomas C. Heineman(4)(5)
Global Head of Clinical Development and Operations
|
2020
|
212,200
|
—
|
346,507
|
57,294
|
N/A
|
N/A
|
24,992
|
640,993
|
|
Dr. Rita Laeufle(4)(6)
Chief Medical Officer
|
2020
|
313,916
|
—
|
—
|
—
|
N/A
|
N/A
|
279,758
|
593,674
|
|
Andrew de Guttadauro(4)
President, Oncolytics Biotech (U.S.) Inc.
|
2020
|
381,960
|
—
|
421,314
|
85,941
|
N/A
|
N/A
|
14,247
|
903,462
|
Allison Hagerman
Vice President, Product Development
|
2020
|
225,000
|
—
|
421,314
|
50,625
|
N/A
|
N/A
|
41,378
|
738,317
|
|
Michael Moore(4)(7)
Vice President, Investor Relations & Corporate Communications
|
2020
|
168,604
|
—
|
—
|
—
|
N/A
|
N/A
|
219,279
|
387,883
|
Notes:
(1)The value of share and option based awards are based on the grant date assumptions as disclosed in note 10 "Share-Based Payments" in our 2020 audited consolidated financial statements.
(2)The dollar amounts set forth under this column are related to contributions to the senior management's respective retirement savings plan and amounts provided for health care benefits by the Company. With regards to Dr. Laeufle and Mr. Moore, the amount also included severance payments of $265,558 and $183,145, respectively.
(3)None of the compensation paid to Dr. Coffey related to his role as a director of the Company.
(4)U.S. Employees are paid salaries, bonuses and other compensation in U.S. Dollars. These amounts are presented in Canadian dollars and have been converted at a U.S./CDN exchange rate of $1.2732.
(5)Dr. Heineman was appointed as the Global Head of Clinical Development and Operations on August 3, 2020.
(6)Dr. Laeufle ceased to hold the position of Chief Medical Officer effective July 31, 2020.
(7)Mr. Moore ceased to hold the position of Vice President, Investor Relations & Corporate Communications on June 4, 2020.
We have entered into employment agreements with each member of the Company's senior management (each an "Employment Agreement"). The following base salaries for 2021 were approved by the Board of Directors:
|
|
|
|
|
|
|
|
|
|
|
Name and principal position
|
Year
|
Salary
$
|
Dr. Matthew C. Coffey
President and Chief Executive Officer
|
2021
|
637,200
|
|
Kirk J. Look, C.A.
Chief Financial Officer
|
2021
|
473,800
|
|
|
Dr. Thomas C. Heineman(1)
Global Head of Clinical Development and Operations
|
2021
|
410,000
|
|
|
Andrew de Guttadauro(1)
President, Oncolytics Biotech (U.S.) Inc.
|
2021
|
322,900
|
|
Allison Hagerman
Vice President, Product Development
|
2021
|
380,500
|
|
Note 1: U.S. Employees are paid in U.S. Dollars and salaries above for those U.S. employees are presented in U.S. dollars. All other employees are paid in Canadian Dollars and salaries above for those Canadian employees are presented in Canadian dollars.
Further, each member of the Company's senior management is entitled to additional benefits and performance-based bonuses. As well, the Employment Agreements provide that each member of the Company's senior management is subject to certain confidentiality and non-competition restrictions during and following the course of their respective employment with the Company. Each Employment Agreement shall continue until terminated by either party in accordance with the notice provisions thereof.
The Company does not provide pension plan benefits to its senior management and employees. The Company does not currently have a stock appreciation rights plan.
Termination of Employment or Change of Control
The following table reflects amounts payable to the each member of the Company's senior management based on their respective Employment Agreements assuming that their employment was terminated on December 31, 2020 without cause or due to a change of control of the Company.
|
|
|
|
|
|
|
|
|
|
|
Name
|
Termination without Cause Severance(1)
$
|
Change of Control Severance(2)
$
|
Dr. Matthew C. Coffey
President and Chief Executive Officer
|
613,942
|
|
1,227,884
|
|
Kirk J. Look, C.A.
Chief Financial Officer
|
457,845
|
|
915,691
|
|
|
Dr. Thomas C. Heineman(3)(4)
Global Head of Clinical Development and Operations
|
nil
|
438,196
|
|
|
Andrew de Guttadauro(3)
President, Oncolytics Biotech (U.S.) Inc.
|
160,014
|
|
640,057
|
|
Allison Hagerman
Vice President, Product Development
|
133,406
|
|
266,813
|
|
Notes:
(1)As at December 31, 2020, all options granted to senior management had fully vested except for the options granted on March 8, 2018, December 13, 2019, August 1, 2020 and December 11, 2020. As a result, all members of senior management shall be entitled to exercise all or any part of their vested Options, within the period ending on the earlier of the date of expiration of the Option and the 90th day after the date such member is terminated unless otherwise approved by the Board of Directors.
(2)On a change of control of the Company, senior management shall be entitled to exercise all or a part of their Options, whether vested or not, within the period ending on the earlier of the date of expiration of the Option and the 90th day after the date such member is terminated.
(3)U.S. Employees are paid in U.S. Dollars and are presented in U.S. dollars.
(4)Dr. Heineman's probation period, per the terms of his Employment Agreement, expires 6 months following his appointment.
C.Board Practices
Our directors are elected by the shareholders at each Annual General Meeting (or Annual Special Meeting) and typically hold office until the next meeting, at which time they may be re-elected or replaced. Casual vacancies on the board are filled by the remaining directors and the persons filling those vacancies hold office until the next Annual General Meeting (or Annual Special Meeting), at which time they may be re-elected or replaced. The officers are appointed by the Board of Directors and hold office indefinitely at the pleasure of the Board of Directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Place of Residence
|
Position with the Corporation
|
Director of the Corporation Since
|
Date of Expiration of Current Term of Office
|
Matthew C. Coffey, PhD, MBA
Alberta, Canada
|
President and Chief Executive Officer and Director
|
May 11, 2011
|
Date of 2021 Annual General Meeting of the Shareholders
|
Deborah Brown, BSc, MBA, ICD.D
Ontario, Canada
|
Director
|
November 2, 2017
|
Date of 2021 Annual General Meeting of the Shareholders
|
Angela Holtham, MBA, FCPA, FCMA, ICD.D
Ontario, Canada
|
Director
|
June 18, 2014
|
Date of 2021 Annual General Meeting of the Shareholders
|
Leonard Kruimer, MBA, CPA
Vinkeveen, Netherlands
|
Director
|
October 2, 2019
|
Date of 2021 Annual General Meeting of the Shareholders
|
Wayne Pisano, MBA
New Jersey, USA
|
Chair and Director
|
May 9, 2013
|
Date of 2021 Annual General Meeting of the Shareholders
|
William G. Rice, PhD
California, USA
|
Director
|
June 8, 2015
|
Date of 2021 Annual General Meeting of the Shareholders
|
Bernd R. Seizinger, MD, PhD
New Jersey, USA and Munich Germany
|
Director
|
June 8, 2015
|
Date of 2021 Annual General Meeting of the Shareholders
|
Directors’ Contracts
We receive a director’s consent from each of the independent directors upon their acceptance of their director’s position. We also enter into an Indemnity Agreement and Directors Confidentiality and Intellectual Property Assignment Agreement with each director.
The Company does not have any contracts with any of its directors which provide for benefits upon the termination of employment.
Compensation of Directors
Each director who is not a salaried employee of the Company is entitled to the following fees:
Annual Retainer
Each director receives a base retainer of US$40,000. In addition to the base retainer directors are eligible to receive the following additional fees depending on committee involvement:
Additional Retainers (USD):
|
|
|
|
|
|
|
|
Board chair
|
$40,000
|
|
Audit Committee chair
|
$20,000
|
|
Governance & Compensation Committee chair
|
$10,000
|
|
Science & Technology Committee chair
|
$15,000
|
|
Non-chair member of the Audit Committee
|
$10,000
|
|
Non-chair member of the Governance, Compensation or Science & Technology Committee
|
$5,000
|
Directors, annually, may opt to take up to 100% of their respective annual retainer in restricted share awards.
Restricted Share Units
In addition to the combined retainer, in 2020, the Corporation granted US$30,000 of restricted share awards that vested immediately.
We also grant to directors, from time to time, stock options in accordance with the Option Plan and the reimbursement of any reasonable expenses incurred by them while acting in their directors' capacity. During the year ended December 31, 2020, total compensation of $741,760 was paid to the independent directors which consisted of fee payments of $368,114, share-based awards of $373,646 and option based awards of nil .
Compensation Committee
The Corporation has formed a compensation committee (the “Compensation Committee”) in accordance with Rule 5605(d)(1) of the Nasdaq Capital Market which consists of four outside, independent directors, Dr. Seizinger, Ms. Holtham, Ms. Brown, and Mr. Pisano, the Chair of the Board, each of whom is independent in accordance with Rule 5605(a)(2) and Rule 5605(d)(2)(A) of the Nasdaq Capital Market. Ms. Brown is the Chair of the Compensation Committee. No member of the Compensation Committee has been an employee or officer of the Company or any of its affiliates.
The objectives of the Corporation’s compensation arrangements are: (i) to attract and retain key personnel; (ii) to encourage commitment to the Corporation and its goals; (iii) to align executive interests with those of its shareholders; and (iv) to reward executives for performance in relation to overall corporate progress goals.
The key elements of the compensation program are the base salary, health benefits, and payments allocated to employees to be directed by them to their personal retirement accounts. Bonuses and the granting of Options (as defined herein) and Share Awards (as defined herein) are also part of the Corporation’s compensation program and are based on corporate performance. Part of corporate performance includes goals and objectives that are determined based on the strategic planning and budgeting process, which is conducted at least annually. The elements of the compensation plan are intended to reward performance, and the various elements are intended to provide a blend of short-term and long-term incentives to align the interests of management and the shareholders.
In arriving at its recommendations for compensation, the Compensation Committee considers the long-term interests of the Corporation as well as its current stage of development and the economic environment within which it operates. The market for biotechnology companies in the development phase is challenging. Based on these factors, the Compensation Committee recognized the need to strike a balance between compensation to retain employees and resources expended to maintain operations. In the past, the Compensation Committee has engaged specialist consultants to assist in benchmarking its compensation practices and provide recommendations to the committee with respect to compensation for directors and senior management. The Corporation did not retain an external compensation advisor for the year-ended December 31, 2020. The Compensation Committee has retained Radford, An Aon Hewitt Corporation as a specialist consultant to assist with the benchmarking of officer compensation for 2021.
Following a review of the risks in the Corporation’s compensation policies and practices, the Compensation Committee found no risks that are reasonably likely to have a material adverse effect on the Corporation. The Compensation Committee’s role of approving the compensation policies and practices includes considering whether the compensation policies and practices could encourage senior management of the Company to take inappropriate or excessive risks.
Under the Corporation’s corporate trading policy, insiders (including senior management and directors) are not permitted to hedge their position in Common Shares, Options, Share Awards, deferred share units, performance share units, debentures or
other debt instruments by use of any financial instrument, which would include but is not limited to options, puts, calls, warrants or short sells, designed to benefit the holder from a change in the market value of the Common Shares of the Corporation.
For 2020, the following guidelines were employed by the Board in granting bonuses, Options and Share Awards to the Corporation’s executive and senior officers.
Annual Bonus, Option Grants and Share Award Grants
The Chief Executive Officer of the Corporation is eligible for a cash bonus of up to 50% of his base salary and the Chief Financial Officer is eligible for a cash bonus of up to 40% of his/her base salary and the other senior officers are eligible for a cash bonus of up to 30% of their respective base salaries. In addition, when available, the officers are eligible for a combination of Option and Share Award grants. The amount of each grant is determined and approved by the Board with the actual bonus provided and the number of Options and Share Awards granted based upon the overall performance of the Corporation as assessed by the Compensation Committee and approved by the Board. The overall performance of the Corporation is determined by the annual goals and objectives approved by the Board and includes specific objectives with respect to the clinical, manufacturing, and intellectual property plans in combination with financial goals. Previous grants are taken into account when considering new grants of Options and Share Awards.
Compensation Committee Mandate
1.Policy Statement
It is the policy of Oncolytics Biotech Inc. (the "Corporation") to establish and maintain a Compensation Committee (the "Committee"), composed entirely of independent directors, to assist the Board of Directors of the Corporation (the "Board") in carrying out its responsibility for the Corporation’s human resources and compensation policies and processes. The Committee will be provided with resources commensurate with the duties and responsibilities assigned to it by the Board, including administrative support. If determined necessary by the Committee, it will have the discretion to investigate and conduct reviews of any human resource or compensation matter including the standing authority to retain experts and special counsel. In the event of a conflict of interest or potential conflict of interest involving one or more of the directors or members of management, the Committee may modify the procedures and requirements set out in this Mandate restrict communication and sharing of information to independent directors or otherwise take reasonable measures to manage the conflict of interest or potential conflict of interest.
2.Composition of Committee
a.The Committee shall consist of a minimum of three (3) directors. The Board shall appoint the members (“Members”) of the Committee and may seek the advice and assistance of the Governance Committee in identifying qualified candidates. The Board shall appoint one Member of the Committee to be the Chair of the Committee, or delegate such authority to appoint the Chair of the Committee to the Committee.
b.The Chair of the Committee shall be responsible for the leadership of the Committee, including preparing or approving the agenda, presiding over the meetings, and making committee assignments.
c.Each director appointed to the Committee by the Board shall be an outside director who is unrelated. An outside, unrelated director is a director who meets the requirements of NASDAQ Rule 5605 (a)(2) and 5605(d)(2) and National Instrument 58-101 who is independent of management and is free from any interest, any business or other relationship which could, or could reasonably be perceived, to materially interfere with the director’s ability to be independent of management and to act with a view to the best interests of the Corporation, including, but not limited to the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the Corporation to such director and whether such director is affiliated with the Corporation, a subsidiary of the Corporation or an affiliate of a subsidiary of the Corporation other than interests and relationships arising from shareholding. In determining whether a director is independent of management, the Board shall make reference to the then current legislation, rules, policies and instruments of applicable regulatory authorities.
d.Each Member shall be appointed by the Board annually at the next scheduled meeting of the Board following the AGM. The Members will be appointed to hold office until the next annual general meeting of shareholders or until their successors are appointed. The Board may remove a Member at any time and may fill any vacancy occurring on the Committee. A Member may resign at any time and a Member will automatically cease to be a Member upon ceasing to be a director.
e.The Chair of the Board shall be an ex officio Member of the committee.
3.Meetings of the Committee
a.The Committee shall meet a minimum of twice per year at such time and place as may be designated by the Chair of the Committee and whenever a meeting is requested by the Board, a Member of the Committee, or the Chief Executive Officer of the Corporation (the "CEO").
b.Notice of each meeting of the Committee shall be given to each Member of the Committee. The CEO shall attend each meeting of the Committee whenever requested to do so by a Member of the Committee. The CEO may not be present during voting or deliberations on his or her compensation.
c.Notice of a meeting of the Committee shall:
i.be in writing, including by electronic communication facilities;
ii.state the nature of the business to be transacted at the meeting in reasonable detail;
iii.to the extent practicable, be accompanied by copies of documentation to be considered at the meeting; and
iv.be given at least two business days prior to the time stipulated for the meeting or such shorter period as the Members of the Committee may permit.
d.A quorum for the transaction of business at a meeting of the Committee shall consist of a majority of the Members of the Committee.
e.A Member or Members of the Committee may participate in a meeting of the Committee by means of such telephonic, electronic or other communication facilities, as permits all persons participating in the meeting to communicate adequately with each other. A Member participating in such a meeting by any such means is deemed to be present at the meeting.
f.In the absence of the Chair of the Committee, the Members of the Committee shall choose one of the Members present to be Chair of the meeting. If the Board has appointed a Corporate Secretary, the Corporate Secretary shall be the secretary of the meeting. If the Board has not appointed a Corporate Secretary, the Members of the Committee shall choose one of the persons present to be the secretary of the meeting or may have another person who is not a Member of the Committee present to record the minutes of the meeting.
g.Minutes shall be kept of all meetings of the Committee and shall be signed by the Chair and the secretary of the meeting. Minutes of the meetings of the Committee shall be distributed to members of the Committee, to other members of the Board and, with the exception of “in camera” items, to the Chief Executive Officer and Chief Financial Officer. Notwithstanding the foregoing, distribution of minutes of meetings or parts thereof may be restricted to independent directors in the event of a conflict of interest or potential conflict of interest or if otherwise necessary for the Committee to properly discharge its responsibilities, but only for as long as is reasonably necessary.
4.Duties and Responsibilities of the Committee
a.The Committee shall, at the earliest opportunity after each meeting, report to the Board the results of its activities and any reviews undertaken and make recommendations to the Board as deemed appropriate.
b.The Committee’s primary duties and responsibilities are to review and make recommendations to the Board in respect of:
i.human resource policies, practices and structures (to monitor consistency with the Corporation’s goals and near and long-term strategies, support of operational effectiveness and efficiency, and maximization of human resources potential);
ii.compensation policies and guidelines;
iii.management incentive and perquisite plans and any non-standard remuneration plans;
iv.senior management, executive and officer appointments and their compensation;
v.management succession plans, management training and development plans, termination policies and termination arrangements; and
vi.Board compensation matters.
c.In carrying out its duties and responsibilities, the Committee shall:
i.annually assess and make a recommendation to the Board with regard to the competitiveness and appropriateness of the compensation package of the CEO, all other officers of the Corporation and such other key employees of the Corporation or any subsidiary of the Corporation as may be identified by the CEO and approved by the Committee (collectively, the "Designated Employees");
ii.annually review the performance goals and criteria for the CEO and evaluate the performance of the CEO against such goals and criteria and recommend to the Board the amount of regular and incentive compensation to be paid to the CEO;
iii.annually, review and make a recommendation to the Board regarding the CEO’s performance evaluation of Designated Employees and the CEO’s recommendations with respect to the amount of regular and incentive compensation to be paid to such Designated Employees;
iv.review and make a recommendation to the Board regarding any employment contracts or arrangements with each of the Designated Employees, including any retiring allowance arrangements or any similar arrangements to take effect in the event of a termination of employment;
v.periodically, review the compensation philosophy statement of the Corporation and make recommendations for change to the Board as considered necessary;
vi.from time to time, review and make recommendations to the Board in respect of the design, benefit provisions, investment options and text of applicable pension, retirement and savings plans or related matters;
vii.annually, in conjunction with the Corporation’s general and administrative budget, review and make recommendations to the Board regarding compensation guidelines for the forthcoming budget period;
viii.when requested by the CEO, review and make recommendations to the Board regarding short term incentive or reward plans and, to the extent delegated by the Board, approve awards to eligible participants;
ix.review and make recommendations to the Board regarding incentive stock option plans or any other long term incentive plans and to the extent delegated by the Board, approve grants to participants and the magnitude and terms of their participation;
x.as required, fulfill the obligations assigned to the Committee pursuant to any other employee benefit plans approved by the Board;
xi.annually, prepare or review the report on executive compensation required to be disclosed in the Corporation’s information circular or any other human resource or compensation matter required to be publicly disclosed by the Corporation;
xii.annually, review and make a recommendation to the Board regarding the compensation of the Board of Directors;
xiii.as determined in the sole discretion of the Committee, retain independent advice in respect of human resources and compensation matters from a compensation consultant, legal counsel or other advisor (the “Advisor”) and, if deemed necessary by the Committee, meet separately with the Advisor; the Committee shall be directly responsible for the appointment, compensation and oversight of the work of the Advisor retained by the Committee;
xiv.select, or receive advice from, an Advisor to the Committee, other than in-house legal counsel, after taking into consideration the following factors:
i.the provision of other services to the Corporation by the entity that employs the Advisor ;
ii.the amount of fees received from the Corporation by the entity that employs the Advisor, as a percentage of the total revenue of the entity that employs the Advisor;
iii.the policies and procedures of the entity that employs the Advisor that are designed to prevent conflicts of interest;
iv.any business or personal relationship of the Advisor with a member of the Board;
v.any stock of the Corporation owned by the Advisor; and
vi.any business or personal relationship of the Advisor or the entity employing the Advisor with an executive officer of the Corporation;
provided however, none of the above factors shall prevent the Committee from retaining any Advisor as the Committee deems appropriate, in its sole discretion, after consideration of the above factors.
xv.review and consider the implications of the risks associated with the Corporation’s compensation policies and practices, specifically, situations that could potentially encourage an insider to expose the Corporation to inappropriate or excessive risks; and
xvi.assess, on an annual basis, the adequacy of this Mandate and the performance of the Committee.
d.In addition to the foregoing, the Committee shall undertake on behalf of the Board such other initiatives as may be necessary or desirable to assist the Board in discharging its responsibility for the Corporation’s human resources development, performance evaluation, compensation and succession planning programs are in place and operating effectively.
e.The Committee shall assess, on an annual basis, the adequacy of this Mandate and the performance of the Committee.
5.Reporting
The Committee shall, at the earliest opportunity after each meeting, report to the Board the results of its activities and any reviews undertaken and make recommendations to the Board as deemed appropriate. The Committee may restrict such reports to independent directors in the event of a conflict of interest or potential conflict of interest or if otherwise necessary for the Committee to properly discharge its responsibilities, but only for as long as is reasonably necessary.
6.External Advisors
If, in order to properly discharge its function, duties and responsibilities, it is necessary, in the opinion of the Committee that the Committee obtains the advice and counsel of external advisors, the Chair shall, at the request of the Committee, engage the necessary experts. The Committee shall be directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel, and other advisor retained by the Committee. The Corporation will provide adequate funding, as determined by the Committee, for payment of such external advisors. The Committee will only engage a compensation consultant, legal counsel or other external advisor after taking into consideration the factors set forth in NASDAQ Rule 5605 (d)(3)(D) (See Appendix A). The Committee shall keep the Board apprised of both the selection of experts and the expert’s findings through the Committee’s regular reports to the Board. The Committee may restrict such reports to independent directors in the event of a conflict of interest or potential conflict of interest or if otherwise necessary for the Committee to properly discharge its responsibilities, but only for as long as is reasonably necessary.
7.Date of Mandate
This Mandate was last reviewed, amended and approved by the Board on March 4, 2021.
Audit Committee
The Corporation has formed an Audit Committee in accordance with Section 3(a)(58)(A) of the United States Securities Exchange Act of 1934, as amended ("Exchange Act"), consisting of four independent directors pursuant to the Rule 5605(a)(2) and Rule 5605(c)(2) of the Nasdaq Capital Market and Rule 10A-3 of the Exchange Act: Ms. Brown, Ms. Holtham, Mr. Kruimer and Mr. Pisano, none of whom are nor have been employees or officers of the Company or any of its affiliates. Ms. Holtham is presently the Chair of the Audit Committee. Each Audit Committee member is financially literate.
Audit Committee Mandate
1.Policy Statement
It is the policy of Oncolytics Biotech Inc. (the "Corporation") to establish and maintain an Audit Committee, composed entirely of independent directors, to assist the Board of Directors (the "Board") in carrying out their oversight responsibility for the Corporation’s internal controls, financial reporting and financial risk management processes. The Audit Committee will be provided with resources commensurate with the duties and responsibilities assigned to it by the Board including administrative support. If determined necessary by the Audit Committee, it will have the discretion to institute investigations of improprieties, or suspected improprieties within the scope of its responsibilities, including the standing authority to retain special counsel or experts. In the event of a conflict of interest or potential conflict of interest involving one or more of the directors or members of management, the Audit Committee may modify the procedures and requirements set out in this Mandate restrict communication and sharing of information to independent directors or otherwise take reasonable measures to manage the conflict of interest or potential conflict of interest.
2.Composition of the Committee
a.The Audit Committee shall consist of a minimum of three (3) directors. The Board shall appoint the members (“Members”) of the Audit Committee and may seek the advice and assistance of the Governance Committee in identifying qualified candidates. The Board shall appoint one Member of the Audit Committee to be the Chair of the Audit Committee, or delegate such authority to appoint the Chair of the Audit Committee to the Audit Committee.
b.The Chair of the Committee shall be responsible for leadership of the Committee, including preparing or approving the agenda, presiding over the meetings, and making committee assignments.
c.Each director appointed to the Audit Committee by the Board shall be an outside director who is unrelated and independent. An outside, unrelated and independent director is a director who meets the requirements of NASDAQ Rule 5605(a)(2) and National Instrument 52-110. A director appointed to the audit committee shall also meet the requirements of NASDAQ Rule 5605(c)(2) and Rule 10A-3(b)(1) of the United States Securities Exchange Act of 1934, as amended. Such director shall be independent of management and free from any interest, any business or other relationship which could, or could reasonably be perceived, to materially interfere with the director’s ability to act with a view to the best interests of the Corporation, other than interests and relationships arising from shareholding. In determining whether a director is independent of management, the Board shall make reference to the abovementioned rules and any applicable revisions thereto, and any additional relevant and then current legislation, rules, policies and instruments of applicable regulatory authorities.
d.Each Member of the Audit Committee shall be financially literate. In order to be financially literate, a director must be, at a minimum, able to read and understand 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 Corporation's financial statements. At least one Member shall have accounting or related financial management expertise, meaning the ability to analyze and interpret a full set of financial statements, including the notes attached thereto, in accordance with generally accepted accounting principles and shall be a “financial expert” as defined in Item 407 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission and “financially sophisticated” as defined in NASDAQ Rule 5605(c)(2).
e.In determining whether a Member of the Audit Committee is financially literate or has accounting or related financial expertise, reference shall be made to the then current legislation, rules, policies and instruments of applicable regulatory authorities.
f.Each Member of the Audit Committee shall be appointed by the Board annually at the next scheduled meeting of the Board following the AGM. The Members will be appointed to hold office until the next annual general meeting of shareholders or until their successors are appointed. The Board may remove a Member at any time and may fill any vacancy occurring on the Audit Committee. A Member may resign at any time and a Member will automatically cease to be a Member upon ceasing to be a director.
g.The Chair of the Board shall be an ex officio Member of the committee.
3.Meetings of the Committee
a.The Audit Committee shall convene a minimum of four times each year at such times and places as may be designated by the Chair of the Audit Committee and whenever a meeting is requested by the Board, a Member of the Audit Committee, the auditors, or senior management of the Corporation. Scheduled meetings of the Audit Committee shall correspond with the review of the year-end and quarterly financial statements and management discussion and analysis.
b.Notice of each meeting of the Audit Committee shall be given to each Member of the Audit Committee. The auditors are entitled to attend meetings that pertain to the quarterly and year end financial reporting and, if there are any other meetings, only at the request of the Audit Committee.
c.Notice of a meeting of the Audit Committee shall:
i.be in writing, including by electronic communication facilities;
ii.state the nature of the business to be transacted at the meeting in reasonable detail;
iii.to the extent practicable, be accompanied by copies of documentation to be considered at the meeting; and
iv.be given at least two business days prior to the time stipulated for the meeting or such shorter period as the Members of the Audit Committee may permit.
d.A quorum for the transaction of business at a meeting of the Audit Committee shall consist of a majority of the Members of the Audit Committee. However, it shall be the practice of the Audit Committee to require review, and, if necessary, approval of certain important matters by all Members of the Audit Committee.
e.A Member or Members of the Audit Committee may participate in a meeting of the Audit Committee by means of such telephonic, electronic or other communication facilities, as permits all persons participating in the meeting to communicate adequately with each other. A Member participating in such a meeting by any such means is deemed to be present at the meeting.
f.In the absence of the Chair of the Audit Committee, the Members of the Audit Committee shall choose one of the Members present to be Chair of the meeting. If the Board has appointed a Corporate Secretary, the Corporate Secretary shall act as the secretary of the meeting. If the Board has not appointed a Corporate Secretary, the Members of the Committee shall choose one of the persons present to be the secretary of the meeting or may have another person who is not a Member of the Committee present to record the minutes of the meeting.
g.A member of the Board, senior management of the Corporation, external auditors and other parties may attend meetings of the Audit Committee; however the Audit Committee (i) shall, at a meeting attended by the external auditor, meet with them independent of other individuals other than the Audit Committee; (ii) may exclude: (A) management, (B) directors who are not independent directors, or (C) any party that has a conflict of interest or potential conflict of interest, from part or all of a meeting of the Audit Committee if reasonably necessary for the Audit Committee to properly discharge its responsibilities; and (iii) may meet separately with management.
h.The Chief Executive Officer and the Chief Financial Officer shall each attend meetings of the Audit Committee when requested to do so by a Member of the Audit Committee.
i.Minutes shall be kept of all meetings of the Audit Committee and shall be signed by the Chair and the secretary of the meeting. Minutes of the meetings of the Audit Committee shall be distributed to Members of the Audit Committee, to other members of the Board and, with the exception of “in camera” items, to the
Chief Executive Officer and Chief Financial Officer. Notwithstanding the foregoing, distribution of minutes of meetings or parts thereof may be restricted to independent directors in the event of a conflict of interest or potential conflict of interest or if otherwise necessary for the Audit Committee to properly discharge its responsibilities, but only for as long as is reasonably necessary.
4.Duties and Responsibilities of the Committee
a.The Audit Committee’s primary duties and responsibilities are to:
i.identify and monitor the management of the principal risks that could impact the financial reporting of the Corporation;
ii.monitor the integrity of the Corporation’s financial reporting process and system of internal controls regarding financial reporting and accounting compliance;
iii.monitor the independence and performance of the Corporation’s external auditors. This will include receipt, review and evaluation, at least annually, of a formal written statement from the independent auditors confirming their independence, and qualifications, including their compliance with the requirements of the relevant oversight boards and actively engage in a dialogue with the auditors with respect to any disclosed relationships or services that may impact objectivity and independence of the auditors and take, or recommend that the full board take, appropriate action to oversee the independence of the external auditors;
iv.deal directly with the external auditors to pre-approve external audit plans, other services (if any) and fees;
v.directly oversee the external audit process and results (in addition to items described in Section 4(d) below);
vi.provide an avenue of communication among the external auditors, management and the Board;
vii.carry out a review designed to ensure that an effective "whistle blowing" procedure exists to permit stakeholders to express any concerns to an appropriately independent individual;
viii.pre-approve any related party transactions to be entered into by the Company, and ensure appropriate disclosure thereof;
ix.ensure financial disclosure incorporates inclusion of any material correcting adjustments required by the external auditors; and
x.require and ensure that the external auditors are directly responsible to the Audit Committee, to whom they report.
b.The Audit Committee shall have the authority to:
i.inspect any and all of the books and records of the Corporation and its affiliates;
ii.discuss with the management of the Corporation and its affiliates, any affected party and the external auditors, such accounts, records and other matters as any Member of the Audit Committee considers necessary and appropriate;
iii.engage independent counsel and other advisors as it determines necessary to carry out its duties. The Audit Committee shall keep the Board apprised of both the selection of experts and the expert’s findings through the Audit Committee’s regular reports to the Board. The Audit Committee may restrict such reports to independent directors in the event of a conflict of interest or potential conflict of interest or if otherwise necessary for the Audit Committee to properly discharge its responsibilities, but only for as long as is reasonably necessary;
iv.communicate directly with the external auditors; and
v.set and pay the compensation for (A) any external auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services for the Corporation, (b) any advisors employed by the Audit Committee, and (C) ordinary administrative expenses of the Audit Committee.
c.The Audit Committee shall, at the earliest opportunity after each meeting, report to the Board the results of its activities and any reviews undertaken and make recommendations to the Board as deemed appropriate. The Audit Committee may restrict such reports to independent directors in the event of a conflict of interest or potential conflict of interest or if otherwise necessary for the Audit Committee to properly discharge its responsibilities, but only for as long as is reasonably necessary.
d.The Audit Committee shall:
i.review the audit plan with the Corporation’s external auditors and with management;
ii.review with the independent auditors the matters required to be discussed relating to the conduct of the audit, including (a) the proposed scope of their examination, with emphasis on accounting and financial areas where the Committee, the independent auditors or management believes special attention should be directed; (b) the results of their audit, including their audit findings report and resulting letter, if any, of recommendations for management; (c) their evaluation of the adequacy and effectiveness of the Company’s internal controls over financial reporting; (d) significant areas of
disagreement, if any, with management; (e) co-operation received from management in the conduct of the audit; (f) significant accounting, reporting, regulatory or industry developments affecting the Company; and (g) any proposed changes in major accounting policies or principles proposed or contemplated by the independent auditors or management, the presentation and impact of material risks and uncertainties and key estimates and judgements of management that may be material to financial reporting;
iii.review with management and with the external auditors material financial reporting issues arising during the most recent fiscal period and the resolution or proposed resolution of such issues;
iv.review any problems experienced or concerns expressed by the external auditors in performing an audit, including any restrictions imposed by management or material accounting issues on which there was a disagreement with management;
v.review with senior management the process of identifying, monitoring and reporting the principal risks affecting financial reporting;
vi.review audited annual financial statements (including management discussion and analysis) and related documents in conjunction with the report of the external auditors and obtain an explanation from management of all material variances between comparative reporting periods. Without restricting the generality of the foregoing, the committee will discuss with management and the independent auditors to the extent required, any issues and disclosure requirements regarding (a) the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies, (b) any off balance sheet arrangements, and (c) any going concern qualification.
vii.consider and review with management, the internal control memorandum or management letter containing the recommendations of the external auditors and management’s response, if any, including an evaluation of the adequacy and effectiveness of the internal financial controls of the Corporation and subsequent follow-up to any identified weaknesses;
viii.review with financial management and the external auditors the quarterly unaudited financial statements, management discussion and analysis, letter to shareholders and press release (all to be considered the “Quarterly Financial Reports”) and recommend the Quarterly Financial Reports to the Board for approval by the Board before release to the public;
ix.before release, review and if appropriate, recommend for approval by the Board, all public disclosure documents containing audited or unaudited financial information, including any prospectuses, financial statements, including the notes thereto, annual reports, annual information forms, management discussion and analysis and press releases; and
x.oversee, any of the financial affairs of the Corporation or its affiliates, and, if deemed appropriate, make recommendations to the Board, external auditors or management.
e.The Audit Committee shall:
i.evaluate the independence and performance of the external auditors;
ii.recommend the nomination of the external auditors to the Board for appointment by the shareholders at the Corporation’s annual general meeting;
iii. recommend the discharge of the external auditor when circumstances warrant;
iv.monitor the rotation of the audit partner of the external auditors as required by applicable law or regulations;
v.consider the recommendations of management in respect of the appointment of the external auditors;
vi.pre-approve all non-audit services to be provided to the Corporation or its subsidiary entities by its external auditors, or the external auditors of affiliates of the Corporation subject to the over-riding principle that the external auditors are not permitted to be retained by the Corporation to perform specifically listed categories of non-audit services as set forth by the Securities and Exchange Commission as well as internal audit outsourcing services, financial information systems work and expert services. Notwithstanding, the foregoing the pre-approval of non-audit services may be delegated to a Member of the Audit Committee, with any decisions of the Member with the delegated authority reporting to the Audit Committee at the next scheduled meeting;
vii.approve the engagement letter for non-audit services to be provided by the external auditors or affiliates, together with estimated fees, and considering the potential impact of such services on the independence of the external auditors;
viii.when there is to be a change of external auditors, review all issues and provide documentation related to the change, including the information to be included in the Notice of Change of Auditors and documentation required pursuant to the then current legislation, rules, policies and instruments of applicable regulatory authorities and the planned steps for an orderly transition period; and
ix.review all reportable events, including disagreements, unresolved issues and consultations, as defined by applicable securities policies, on a routine basis, whether or not there is to be a change of external auditors.
f.The Audit Committee shall inquire into and determine the appropriate resolution of any conflict of interest in respect of audit or financial matters, which are directed to the Audit Committee.
g.The Audit Committee shall review the Corporation’s accounting and reporting of revenues, costs, liabilities and contingencies.
h.The Audit Committee shall establish and maintain procedures for:
i.the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal controls, or auditing matters; and
ii.the confidential, anonymous submission by employees of the Corporation or concerns regarding questionable accounting or auditing matters.
i.The Audit Committee shall review and approve the Corporation's hiring policies regarding partners and employees and former partners and employees of the present and former external auditors.
j.The Audit Committee shall review with the Corporation's legal counsel, on no less than an annual basis, any legal matter that could have a material impact on the Corporation's financial statements, and any inquiries received from regulators, or government agencies.
k.The Audit Committee shall review with management and the Corporation’s external auditors, on no less than an annual basis, any taxation matters that could have a material impact on the Corporation’s financial statements.
l.The Audit Committee, through the Chair, shall receive notice from management of any instance of non-trivial fraud or other failure or weakness of the control system promptly upon management becoming aware of such.
m.The Audit Committee shall review and approve the signing authority for the Corporation at least annually or when a change is required.
n.The Audit Committee shall assess, on an annual basis, the adequacy of this Mandate and the performance of the Audit Committee.
5.Reporting
The Committee shall, at the earliest opportunity after each meeting, report to the Board the results of its activities and any reviews undertaken and make recommendations to the Board as deemed appropriate. The Audit Committee may restrict such reports to independent directors in the event of a conflict of interest or potential conflict of interest or if otherwise necessary for the Audit Committee to properly discharge its responsibilities, but only for as long as is reasonably necessary.
6.Date of Mandate
This Mandate was last reviewed and approved by the Board on March 4, 2021.
D.Employees
The following table sets out the number of our employees at the end of each of the last three fiscal years by activity and geographic location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity
|
2020
|
2019
|
2018
|
|
Research and development
|
14
|
12
|
10
|
|
Operating
|
11
|
11
|
12
|
|
Total
|
25
|
23
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic location
|
2020
|
2019
|
2018
|
|
Canada
|
15
|
14
|
13
|
|
United States of America
|
6
|
5
|
5
|
|
Other
|
4
|
4
|
4
|
|
Total
|
25
|
23
|
22
|
E.Share Ownership
The following table sets out the share ownership and options held of our directors and officers as of March 1, 2021. Common shares, stock options and exercise prices for all periods have been adjusted retroactively for the Share Consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
% of
Ownership(1)
|
Options(2)
|
Exercise
Price
|
Expiry Date
|
% of Outstanding(3)
|
|
Officers
|
|
|
|
|
|
|
|
Dr. Matthew C. Coffey
|
47,923
|
|
**
|
1,894
|
|
40.95
|
|
July 27, 2021
|
|
|
|
|
|
13,157
|
|
36.96
|
|
December 14, 2021
|
|
|
|
|
|
13,157
|
|
40.00
|
|
December 17, 2022
|
|
|
|
|
|
25,263
|
|
16.53
|
|
December 11, 2023
|
|
|
|
|
|
77,263
|
|
3.99
|
|
December 1, 2025
|
|
|
|
|
|
42,105
|
|
2.66
|
|
January 16, 2027
|
|
|
|
|
|
133,389
|
|
7.41
|
|
March 8, 2022
|
|
|
|
|
|
150,000
|
|
3.44
|
|
November 19, 2023
|
|
|
|
|
|
175,000
|
|
1.45
|
|
December 13, 2023
|
|
|
|
|
|
300,000
|
|
3.17
|
|
December 11, 2024
|
|
|
|
|
|
931,228
|
|
|
|
1.69%
|
|
|
|
|
|
|
|
|
|
Kirk J. Look
|
10,923
|
|
**
|
3,684
|
|
36.96
|
|
December 14, 2021
|
|
|
|
|
|
21,052
|
|
19.00
|
|
November 13, 2022
|
|
|
|
|
|
4,210
|
|
40.00
|
|
December 17, 2022
|
|
|
|
|
|
16,842
|
|
16.53
|
|
December 11, 2023
|
|
|
|
|
|
48,842
|
|
3.99
|
|
December 1, 2025
|
|
|
|
|
|
31,578
|
|
2.66
|
|
January 16, 2027
|
|
|
|
|
|
59,705
|
|
7.41
|
|
March 8, 2022
|
|
|
|
|
|
53,000
|
|
3.44
|
|
November 19, 2023
|
|
|
|
|
|
125,000
|
|
1.45
|
|
December 13, 2023
|
|
|
|
|
|
250,000
|
|
3.17
|
|
December 11, 2024
|
|
|
|
|
|
613,913
|
|
|
|
1.08%
|
|
|
|
|
|
|
|
|
|
Dr. Thomas Heineman
|
—
|
|
**
|
70,000
|
|
2.84
|
|
August 1, 2025
|
|
|
|
|
|
100,000
|
|
3.17
|
|
December 11, 2024
|
|
|
|
|
|
170,000
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
Andrew de Guttadauro
|
10,315
|
|
**
|
13,157
|
|
4.94
|
|
July 3, 2027
|
|
|
|
|
|
14,736
|
|
7.41
|
|
March 8, 2022
|
|
|
|
|
|
30,000
|
|
2.73
|
|
December 14, 2023
|
|
|
|
|
|
100,000
|
|
1.45
|
December 13, 2023
|
|
|
|
|
|
200,000
|
|
3.17
|
|
December 11, 2024
|
|
|
|
|
|
357,893
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
Allison Hagerman
|
—
|
|
**
|
842
|
|
36.96
|
December 14, 2021
|
|
|
|
|
|
526
|
|
20.24
|
December 12, 2022
|
|
|
|
|
|
2,105
|
|
16.53
|
December 11, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
% of
Ownership(1)
|
Options(2)
|
Exercise
Price
|
Expiry Date
|
% of Outstanding(3)
|
|
|
|
|
2,421
|
|
6.84
|
December 11, 2024
|
|
|
|
|
|
5,263
|
|
3.90
|
December 9, 2025
|
|
|
|
|
|
7,894
|
|
2.66
|
December 28, 2026
|
|
|
|
|
|
10,526
|
|
7.41
|
March 8, 2022
|
|
|
|
|
|
30,000
|
|
2.73
|
December 14, 2023
|
|
|
|
|
|
80,000
|
|
1.45
|
December 13, 2023
|
|
|
|
|
|
200,000
|
|
3.17
|
December 11, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,577
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
Deborah Brown
|
45,452
|
|
**
|
5,263
|
|
5.42
|
|
November 7, 2027
|
|
|
|
|
|
5,263
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
Angela Holtham
|
103,169
|
|
**
|
5,263
|
|
13.87
|
|
June 18, 2024
|
|
|
|
|
|
5,263
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
Leonard Kruimer
|
—
|
|
**
|
50,000
|
|
0.54
|
|
October 2, 2024
|
|
|
|
|
|
50,000
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
Wayne Pisano
|
162,364
|
|
**
|
5,263
|
|
27.46
|
|
May 9, 2023
|
|
|
|
|
|
3,157
|
|
16.53
|
|
December 11, 2023
|
|
|
|
|
|
8,420
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
William Rice
|
63,761
|
|
**
|
5,263
|
|
7.60
|
|
June 8, 2025
|
|
|
|
|
|
5,263
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
Bernd Seizinger
|
233,161
|
|
**
|
5,263
|
|
7.60
|
|
June 8, 2025
|
|
|
|
|
|
5,263
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
TOTAL:
|
677,068
|
|
|
2,492,083
|
|
|
|
|
** Less than 1% ownership
Notes:
1)Based on 52,083,924 common shares issued and outstanding on March 1, 2021.
2)Options granted to acquire common shares.
3)Ownership percentage assumes aggregate beneficial ownership of common shares, common shares acquirable upon exercise of options and fully diluted shares outstanding of 57,804,242.
Restricted Share Units
The following table sets out the restricted share units held by our directors as of March 1, 2021. Restricted share awards have been adjusted retroactively for the Share Consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs Granted
|
RSUs Vested and Released
|
RSUs Vested and Undistributed
|
RSUs Unvested
|
|
Deborah Brown
|
81,859
|
|
(73,725)
|
|
—
|
|
8,134
|
|
|
Angela Holtham
|
114,949
|
|
(97,880)
|
|
—
|
|
17,069
|
|
|
Leonard Kruimer
|
22,294
|
|
—
|
|
22,294
|
|
—
|
|
|
Wayne Pisano
|
187,836
|
|
(160,259)
|
|
—
|
|
27,577
|
|
|
William Rice
|
98,581
|
|
(90,447)
|
|
—
|
|
8,134
|
|
|
Bernd Seizinger
|
163,863
|
|
(132,161)
|
|
—
|
|
31,702
|
|
|
|
669,382
|
|
(554,472)
|
|
22,294
|
|
92,616
|
|
The following table sets out the restricted share units held by our officers as of March 1, 2021. Restricted share awards have been adjusted retroactively for the Share Consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs Granted
|
RSUs Vested and Released
|
RSUs Unvested
|
|
Andrew de Guttadauro
|
6,315
|
|
(6,315)
|
|
—
|
|
|
|
6,315
|
|
(6,315)
|
|
—
|
|
Performance Share Units
The following table sets out the performance share units held by our officers as of March 1, 2021. Performance share awards have been adjusted retroactively for the Share Consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs Granted
|
PSUs Vested and Released
|
PSUs Vested and Undistributed
|
|
Matthew Coffey
|
34,736
|
|
—
|
|
34,736
|
|
|
Kirk Look
|
22,105
|
|
—
|
|
22,105
|
|
|
|
56,841
|
|
—
|
|
56,841
|
|
Equity Compensation Plan Information
We currently have two share-based compensation plans: the Stock Option Plan and the Share Award Plan.
Stock Option Plan
The following is a summary of the Corporation’s Amended and Restated Stock Option Plan (the “Stock Option Plan”) dated effective as of May 4, 2017.
The Corporation, with the approval of its Shareholders, has established the Stock Option Plan. The number of Common Shares reserved for issuance under the Stock Option Plan and all other security based compensation arrangements of the Corporation (including the Share Award Plan) in aggregate shall not exceed 10% of the total number of issued and outstanding Common Shares from time to time.
Under the Stock Option Plan, the Board of Directors or the Compensation Committee may from time to time designate directors, officers, employees of, or consultants to, the Corporation or any subsidiary of the Corporation (such persons being “Eligible Persons”) to whom Options may be granted and the number of Options to be granted to each.
Options may be exercised at a price (the “Exercise Price”) which shall be fixed by the Board at the time the Option is granted. No Option can be granted with an Exercise Price at a discount to the market, which shall be the closing price of the Common Shares on the stock exchange upon which the Common Shares are listed on the first day preceding the date of grant on which at least one board lot of Common Shares traded on such exchange.
If any Option shall be exercised or shall expire or terminate for any reason without having been exercised in full, any Common Shares to which such Option relates shall be available for the purposes of the granting of Options under the Stock Option Plan.
The number of Shares that may be acquired under an Option granted to a participant under the Stock Option Plan shall be determined by the Board as at the time the Option is granted, provided that the aggregate number of Shares reserved for issuance to any one participant under the Stock Option Plan or any other security based compensation arrangement of the Corporation, shall not exceed five percent (5%) of the total number of issued and outstanding Common Shares (calculated on a non-diluted basis).
Without obtaining the approval of Shareholders in accordance with the rules of the TSX or the requirements of any other stock exchange on which the Common Shares are then listed, no Options shall be granted pursuant to the Stock Option Plan, if such grant together with grants pursuant to all other share compensation arrangements of the Corporation, could result, at any time, in:
(i) a number of Common Shares issuable pursuant to Options granted to insiders exceeding ten percent (10%) of the number of outstanding Common Shares at any time;
(ii) the issuance within a one year period to insiders, of a number of Common Shares exceeding ten percent (10%) of the number of outstanding Common Shares; or
(iii) the issuance to any one insider and such insider’s associates, within a one year period, of a number of Common Shares exceeding five percent (5%) of the number of outstanding Common Shares.
The value of Option grants to each non-employee director shall not exceed $150,000 annually for any individual non-employee director (other than initial Option grants to new directors).
Options are generally granted for a term expiring on the tenth anniversary of the date of grant and typically either vest immediately or as to one-third on each of the first, second and third anniversary following the date of grant, as determined by the Board at the time the Option is granted. Options are not transferable or assignable except to the person or persons to whom the participant’s rights pass by the participant’s will or applicable law following the death or permanent disability of a participant. The Stock Option Plan provides that if the expiration date of an Option occurs during a “blackout period” or within five (5) business days after a blackout period, such expiration date shall be deemed to be extended to the date which is the tenth (10th) business day after the last day of the applicable blackout period.
Subject to any written agreement between the Corporation and a participant providing otherwise, if any participant shall cease to be an Eligible Person for any reason other than the termination for cause or the death or permanent disability of the participant, such participant’s Option will terminate immediately as to the then unvested portion thereof and at 5:00 p.m. (Calgary time) on the earlier of the date of the expiration of the applicable option period and the ninetieth (90th) day after the date such participant ceases to be an Eligible Person as to the then vested portion of the Option. If a participant ceases to be an Eligible Person as a result of the termination of such participant for cause, effective as of the date notice is given to the participant of such termination, all outstanding Options shall be terminated and all rights to receive Common Shares thereunder shall be forfeited by such participant, and the participant shall not be entitled to receive any Common Shares or other compensation in lieu thereof.
Subject to any written agreement between the Corporation and a participant providing otherwise, if in the event of the death or permanent disability of a participant, any Option previously granted to such participant shall be exercisable until the end of the applicable option period or until the expiration of 12 months after the date of death or permanent disability of such participant, whichever is earlier, and then only: (i) by the person or persons to whom the participant’s rights under the Option shall pass by the participant’s will or applicable law; (ii) to the extent that he or she was entitled to exercise the Option as at the date of the participant’s death or permanent disability.
Notwithstanding the foregoing, the Board may, at its sole discretion, extend the period during which any Options may be exercised, in the case of Options held by non-employee directors, by not more than one year, and in the case of Options held by other persons, by not more than three years, but in no case longer than the normal expiry of the Options.
In the event of a change of control of the Corporation (as such term is defined in the Stock Option Plan), all Options which have not otherwise vested in accordance with their terms shall immediately vest and be exercisable, notwithstanding the other terms of the Options or the Stock Option Plan for a period of time ending on the earlier of the expiry time of the Option and the ninetieth (90th) day following the change of control.
Subject to any required approval of the TSX and any other stock exchange on which the Common Shares are then listed, the Stock Option Plan and any Options granted thereunder may be amended, modified or terminated by the Board without approval
of any participant or Shareholder (provided that no such amendment may be made that will materially prejudice the rights of any participant under any Option previously granted to the participant without consent by such participant). Such changes may include, without limitation:
(i) amending, modifying or terminating the Stock Option Plan with respect to all Common Shares in respect of Options which have not yet been granted thereunder;
(ii) making any amendment of a “housekeeping nature”;
(iii) changing the provisions relating to the manner of exercise of Options;
(iv) accelerating vesting or extending the expiration date of any Option (provided that such Option is not held by an insider), provided that the period during which an Option is exercisable does not exceed 10 years from the date the Option is granted;
(v) adding a cashless exercise feature, payable in cash or securities, whether or not providing for a full deduction of the number of underlying Common Shares from the Stock Option Plan reserve; and
(vi) making any addition to, deletion from or alteration of the provisions of the Stock Option Plan or any Option that are necessary to comply with applicable law, the rules of the TSX, or the requirements of any other exchange on which the Shares are then listed and to avoid unanticipated consequences deemed by the Board to be inconsistent with the purpose of the Stock Option Plan.
Notwithstanding the foregoing, Shareholder approval is required for any change to the Stock Option Plan or Options granted under it which:
(i) increases the number of Common Shares reserved for issuance under the Stock Option Plan;
(ii) extends eligibility to participate in the Stock Option Plan to persons other than Eligible Persons;
(iii) permits Options to be transferred, other than for normal estate settlement purposes or to an RRSP or similar plan;
(iv) permits awards other than Options to be made under the Stock Option Plan;
(v) extends the term of an Option beyond the maximum expiry date set out in the Stock Option Plan (except where an expiry date would have fallen within a blackout period;
(vi) reduces the exercise price of an Option, except for the purpose of maintaining Option value in connection with a conversion, change, reclassification, redivision, redesignation, subdivision or consolidation of shares or a reorganization, amalgamation, consolidation, merger, takeover bid or similar transaction involving the Corporation (for this purpose, cancellation or termination of an Option prior to its expiry date for the purpose of reissuing Options to the same Option-holder with a lower exercise price will be considered an amendment to reduce the exercise price of an Option);
(vi) changes the insider participation limitation at any time under the Stock Option Plan; or
(vii) amends the amending provision of the Stock Option Plan.
Share Award Plan
The following is a summary of the Corporation’s Amended and Restated Incentive Share Award Plan (the “Share Award Plan”) dated effective as of May 4, 2017.
The Corporation, with the approval of its Shareholders, has established the Share Award Plan. Under the Share Award Plan, the Board may, at such times and in such amounts as the Board may deem advisable in its sole and absolute discretion, issue Performance Share Awards (“PSAs”) to eligible employees, including officers, and Restricted Share Awards (“RSAs” and, together with PSAs, “Share Awards”) to Eligible Persons. The number of Common Shares reserved for issuance under the Share Award Plan and all other security based compensation arrangements of the Corporation (including the Stock Option Plan) in aggregate shall not exceed 10% of the total number of issued and outstanding Common Shares from time to time.
Subject to earlier vesting in accordance with the terms of the Share Award Plan and unless otherwise determined by the Board, Share Awards granted under the Share Award Plan vest on the third anniversary date of the date of grant. Upon vesting, each RSA is deemed to be redeemed for no further consideration for one Common Share (subject to adjustment for dividend equivalents) and each PSA is deemed to be redeemed for no further consideration for one Common Share (subject to adjustment for dividend equivalents) multiplied by the percentage (“Vesting Percentage”) of outstanding PSAs that will vest based upon the relative achievement of any performance-related measures or criteria as determined by the Board in its sole discretion, which may include the Corporation’s performance compared to identified operational or financial targets and the Corporation’s shareholder return.
The aggregate number of Common Shares issuable at any time to insiders, under all security based compensation arrangements of the Corporation shall not exceed 10% of the issued and outstanding Common Shares (calculated on a non-diluted basis). The aggregate number of Common Shares issued pursuant to all security based compensation arrangements of the Corporation, within a one year period, shall not exceed 10% of the issued and outstanding Common Shares (calculated on a non-diluted
basis). The Share Award Plan further provides that the aggregate number of Common Shares reserved for issuance to any one participant under all security based compensation arrangements of the Corporation, shall not exceed 5% of the total number of issued and outstanding Common Shares (calculated on a non-diluted basis).
The maximum number of Common Shares that may be reserved for issuance to non-employee directors pursuant to RSAs under the Share Award Plan is 1% of the Common Shares outstanding at the time of the grant (on a non-diluted basis), less the aggregate number of Common Shares reserved for issuance to such non-employee director under any other security based compensation arrangement, and the total annual grant of RSAs to any one non-employee director cannot exceed a grant value of $150,000 (less the amount awarded to such non-employee director).
The Share Award Plan provides that if the issue date of any Share Award occurs during a blackout period, then the issue date for such Share Award shall not occur until the date which is the tenth (10th) business day after the last day of the such blackout period.
Unless otherwise determined by the Board in its sole discretion, upon a Change of Control (as such term is defined in the Share Award Plan), all unvested Share Awards shall become automatically vested (in the case of PSAs, with a deemed Vesting Percentage of 100). Common Shares issuable in respect of Share Awards shall be, and shall be deemed to be, issued to participants effective immediately prior to the completion of the transaction which would result in the Change of Control unless issued prior thereto in accordance with the Share Award Plan.
Unless otherwise determined by the Board or unless otherwise expressly set forth in a Share Award agreement pertaining to a particular Share Award or any written employment or other agreement governing a participant’s role as an Eligible Person if a participant ceases to be an Eligible Person as a result of the termination of such participant for cause or if a participant voluntarily ceases to be an Eligible Person for any reason other than as a result of the death, permanent disability or retirement of the participant, all outstanding Share Awards Agreements under which Share Awards have been granted to such participant shall be terminated. Upon the death, permanent disability or retirement of a participant (other than the early retirement of an eligible employees), all outstanding Share Awards shall immediately vest. If a participant ceases to be an Eligible Person other than in the circumstances provided above, all Share Awards awarded to such participant under any outstanding Share Awards shall fully vest effective as of the date of cessation of employment (the “Cessation Date”), unless otherwise determined by the Board, and the participant shall be entitled to receive the number of Common Shares equal to the number of Share Awards granted multiplied by a fraction (A) the numerator of which is the number of days from the date of grant thereof to the Cessation Date; and (B) the denominator of which is the total number of days during which such Share Award were scheduled to vest upon grant. In such circumstances, the Vesting Percentage in respect of PSAs shall be determined as of the Cessation Date.
The Share Award Plan and any Share Awards granted thereunder may be amended, modified or terminated by the Board without approval of Shareholders, subject to any required approval of the TSX. Such changes may include, without limitation:
(i) amending, modifying or terminating the Share Award Plan with respect to all Common Shares in respect of Share Awards which have not yet been granted thereunder;
(ii) making any amendment of a “housekeeping nature”; and
(iii) making any addition to, deletion from or alteration of the provisions of this Plan or any Share Award that are necessary to comply with applicable law, the rules of the TSX, or the requirements of any other stock exchange on which the Common Shares are then listed and to avoid unanticipated consequences deemed by the Board to be inconsistent with the purpose of this Plan.
Notwithstanding the foregoing, the Share Award Plan or a Share Award may not be amended without shareholder approval to:
(iv) increase the number of Common Shares issuable pursuant to outstanding Share Awards at any time;
(v) change the insider participation limit under the Share Award Plan;
(vi) expand the categories of individuals who are “eligible employees” who are eligible to participate in the Share Award Plan;
(vii) extend the term of any Share Award beyond the term of such awards provided for under the terms and conditions of the Share Award Plan;
(viii) permit the transfer or assignment of Share Awards, except to permit a transfer to a family member, an entity controlled by the holder of the Share Awards or a family member, a charity or for estate planning or estate settlement purposes; or
(ix) change the amendment provisions of the Share Award Plan.
In addition, no amendment to the Share Award Plan or any Share Awards granted pursuant thereto may be made without the consent of an Share Award Plan participant if it adversely alters or impairs the rights of such participant in respect of any Share Award previously granted to such participant under the Share Award Plan.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.Major Shareholders
We are not directly or indirectly owned or controlled by another corporation(s) or by any foreign government. To the knowledge of our directors and senior officers, as at March 5, 2021, we are not aware of any shareholder who beneficially owns, directly or indirectly, or exercises control or direction over, our common shares carrying more than 5% of the voting rights.
Shares Held in the United States
The following table indicates, as of February 26, 2021, the total number of common shares issued and outstanding, the approximate total number of holders of record of common shares, the number of holders of record of common shares with U.S. addresses, the portion of the outstanding common shares held by U.S. holders of record, and the percentage of common shares held by U.S. holders of record. This table does not indicate beneficial ownership of common shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Holders of Record
|
Total Number of Common Shares Issued and Outstanding
|
Number of U.S. Holders of Record
|
Number of Common Shares Held by U.S. Holders of Record(1)
|
Percentage of Common Shares Held by U.S. Holders of Record
|
|
197
|
52,083,924
|
59
|
43,933,581
|
|
84.35
|
%
|
Change of Control
As of March 5, 2021, there were no arrangements known to the Company which may, at a subsequent date, result in a change of control of the Company.
Control by Others
To the best of the Company’s knowledge, the Company is not directly or indirectly owned or controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly.
B.Related Party Transactions
We have entered into employment contracts with each of our senior management members (see Item 6).
Since the beginning of the fiscal year ended December 31, 2020 up to March 5, 2021, we did not enter into any other related party transactions and we do not have any loans outstanding with any officer, director or major shareholder.
C.Interests of Experts and Counsel
Not Applicable
ITEM 8. FINANCIAL INFORMATION
A.Consolidated Statements and Other Financial Statements
Financial Statements
The consolidated financial statements filed as part of this annual report are filed under Item 18.
Legal Proceedings
The directors and the management of the Company do not know of any material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation.
The directors and the management of the Company know of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.
Dividend Policy
The Company has not paid any dividends on its common shares. The Company may pay dividends on its common shares in the future if it generates profits. Any decision to pay dividends on common shares in the future will be made by the board of directors on the basis of the earnings, financial requirements and other conditions existing at such time.
B.Significant Changes
No significant changes have occurred since the date of our annual financial statements included in this annual report on Form 20-F.
ITEM 9. THE OFFER AND LISTING
A.Offering and Listing Details
Our Common Shares are traded on the TSX and on the Nasdaq Capital Market under the symbol ONC and ONCY, respectively. Between November 5, 2015 and June 1, 2018, our Common Shares were quoted for trading on the OTCQX International ("OTCQX") under the symbols ONCYF and ONCYD, after our Common Shares were delisted from the Nasdaq on November 5, 2015. On June 1, 2018, our Common Shares were approved for listing and commenced trading on the Nasdaq Capital Market.
B.Plan of Distribution
Not Applicable
C.Markets
Our Common Shares, no par value, are traded/quoted on the Nasdaq and the TSX under the symbol “ONCY" and “ONC”, respectively.
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
Articles of Continuance
We are governed by our amended articles of incorporation (the "Articles") under the Business Corporations Act of Alberta (the “Act”) and by our by-laws (the "By-laws"). Our Alberta corporate access number is 207797382. Our Articles provide that there are no restrictions on the business we may carry on or on the powers we may exercise. Companies incorporated under the Act are not required to include specific objects or purposes in their articles or by-laws.
Directors
Subject to certain exceptions, including in respect of voting on any resolution to approve a contract that relates primarily to the director's remuneration, directors may not vote on resolutions to approve a material contract or material transaction if the director is a party to such contract or transaction. The directors are entitled to remuneration as shall from time to time be determined by the Board of Directors with no requirement for a quorum of independent directors. The directors have the ability under the Act to exercise our borrowing power, without authorization of the shareholders. The Act permits shareholders to restrict this authority through a company's articles or by-laws (or through a unanimous shareholder agreement), but no such restrictions are in place for us. Our Articles and By-laws do not require directors to hold shares for qualification.
Rights, Preferences and Dividends Attaching to Shares
The holders of common shares have the right to receive dividends if and when declared. Each holder of common shares, as of the record date prior to a meeting, is entitled to attend and to cast one vote for each common share held as of such record date at such annual and/or special meeting, including with respect to the election or re-election of directors. Subject to the provisions of our By-laws, all directors may, if still qualified to serve as directors, stand for re-election. The numbers of our Board of Directors are not replaced at staggered intervals but are elected annually.
On a distribution of assets on a winding-up, dissolution or other return of capital (subject to certain exceptions) the holders of common shares shall have a right to receive their pro rata share of such distribution. There are no sinking fund or redemption provisions in respect of the common shares. Our shareholders have no liability to further capital calls as all shares issued and outstanding are fully paid and non-assessable.
No other classes of shares are currently permitted to be issued.
Action Necessary to Change the Rights of Shareholders
The rights attaching to the different classes of shares may be varied by special resolution passed at a meeting of that class's shareholders.
Annual and Special Meetings of Shareholders
Under the Act and our By-laws, we are required to mail a Notice of Meeting and Management Information Circular to registered shareholders not less than 21 days and not more than 50 days prior to the date of the meeting. Such materials must be filed concurrently with the applicable securities regulatory authorities in Canada and the U.S.. Subject to certain provisions of the By-laws, a quorum of two or more shareholders in person or represented by proxy holding or representing by proxy not less than five (5%) percent of the total number of issued and outstanding shares enjoying voting rights at such meeting is required to properly constitute a meeting of shareholders. Shareholders and their duly appointed proxies and corporate representatives are entitled to be admitted to our annual and/or special meetings.
Limitations on the Rights to Own Shares
The Articles do not contain any limitations on the rights to own shares. Except as described below, there are currently no limitations imposed by Canadian federal or provincial laws on the rights of non-resident or foreign owners of Canadian securities to hold or vote the securities held. There are also no such limitations imposed by the Articles and By-laws with respect to our common shares.
Disclosure of Share Ownership
In general, under applicable securities regulation in Canada, a person or company who beneficially owns, directly or indirectly, voting securities of an issuer or who exercises control or direction over voting securities of an issuer or a combination of both, carrying more than 10% of the voting rights attached to all the issuer's outstanding voting securities is an insider and must, within 10 days of becoming an insider, file a report in the required form effective the date on which the person became an insider. The report must disclose any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer. Additionally, securities regulation in Canada provides for the filing of a report by an insider of a reporting issuer whose holdings change, which report must be filed within 10 days from the day on which the change takes place.
The rules in the U.S. 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 Rule 13d-3 under the Exchange Act) of more than 5% 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 SEC 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.
Other Provisions of Articles and By-laws
There are no provisions in the Articles or By-laws:
•delaying or prohibiting a change in control of our company that operate only with respect to a merger, acquisition or corporate restructuring;
•discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares;
•requiring disclosure of share ownership; or
•governing changes in capital, where such provisions are more stringent than those required by law.
C.Material Contracts
We have employment contracts with each of our officers as summarized in Item 6B. Other than these employment contracts, we have not entered into any other contract other than in the ordinary course of business over the last two years.
D.Exchange Controls
Canada presently has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of our securities, except as discussed below in Section E, Taxation.
Restrictions on Share Ownership by Non-Canadians
There are no limitations under the laws of Canada or in our organizing documents on the right of foreigners to hold or vote securities of our company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of “control” of our company by a “non-Canadian”. The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the company. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
E.Taxation
MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is, as of the date of this Annual Report, a summary of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) (“Tax Act”) and the regulations thereunder (the “Regulations”) generally applicable to an investor who acquires as beneficial owner Common Shares pursuant to the Offering and who, for the purposes of the Tax Act and the Regulations and at all relevant times deals at arm’s length with the Corporation and the Agent, is not affiliated with the
Corporation or the Agent, is not exempt from tax under Part I of the Tax Act, and who acquires and holds the Common Shares, as capital property (a “Holder”). Generally, the Common Shares will be considered to be capital property to a Holder provided that the Holder does not hold the Common Shares in the course of carrying on a business as part of an adventure or concern in the nature of trade.
This summary is generally applicable to a Holder who, at all relevant times, for purposes of the Tax Act: (i) is not, and is not deemed to be, resident in Canada for the purposes of the Tax Act or any applicable income tax treaty or convention; and (ii) does not and will not use or hold, and is not and will not be deemed to hold, the Common Shares in connection with carrying on a business in Canada (a “Non-Resident Holder”).
Special rules, which are not discussed in this summary, may apply to certain holders that are insurers carrying on an insurance business in Canada and elsewhere. Such Holders should consult their own tax advisors with respect to an investment in Common Shares.
This summary is based upon the current provisions of the Tax Act and the Regulations in force as of the date hereof and counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (the “CRA”) published in writing by the CRA prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act and the Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”) and assumes that the Tax Proposals will be enacted in the form proposed, although no assurance can be given that the Tax Proposals will be enacted in their current form or at all.
Other than the Tax Proposals, this summary does not otherwise take into account or anticipate any changes in law, whether by legislative, governmental, administrative or judicial decision or action, nor does it take into account or consider any provincial, territorial or foreign income tax considerations, which considerations may differ significantly from the Canadian federal income tax considerations discussed in this summary. This summary also does not take into account any change in the administrative policies or assessing practices of the CRA.
This summary is of a general nature only, is not exhaustive of all possible Canadian federal income tax considerations and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder. Holders should consult their own tax advisors with respect to their particular circumstances.
Currency
For purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Common Shares (including dividends, adjusted cost base and proceeds of disposition) must, to the extent such amounts are not in Canadian dollars, be converted into Canadian dollars based on an exchange rate determined in accordance with the Tax Act.
Dividends
Dividends paid or credited or deemed to be paid or credited on the Common Shares to a Non-Resident Holder by the Corporation are subject to Canadian withholding tax at the rate of 25% on the gross amount of the dividend, unless such rate is reduced by the terms of an applicable tax treaty. For example, under the Canada-United States Tax Convention (1980), as amended (the “Treaty”), the rate of withholding tax on dividends paid or credited to a Non-Resident Holder who is a beneficial owner of dividends and who is a resident of the United States for purposes of the Treaty and who is entitled to the benefits of the Treaty is generally limited to 15% of the gross amount of the dividend. Non-Resident Holders are urged to consult their own tax advisors to determine their entitlement to relief under an applicable income tax treaty.
Dispositions of Common Shares
Upon a disposition (or a deemed disposition) of a Common Share (other than to the Corporation unless purchased by the Corporation in the open market in the manner in which shares are normally purchased by any member of the public in the open market), a Non-Resident Holder generally will realize a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition of such Common Shares, net of any reasonable costs of disposition, are greater (or are less) than the adjusted cost base of such Common Share to the Non-Resident Holder.
A Non-Resident Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition or deemed disposition of a Common Share, unless the Common Share constitutes “taxable Canadian property” and is not “treaty-protected property” (each as defined under the Tax Act) of the Non-Resident Holder at the time of disposition.
Provided the Common Shares are listed on a “designated stock exchange”, as defined in the Tax Act (which currently includes the NASDAQ and TSX), at the time of disposition, the Common Shares generally will not constitute taxable Canadian property of a Non-Resident Holder at that time, unless at any time during the 60 month period immediately preceding the disposition the following two conditions are met concurrently: (i) one or any combination of (a) the Non-Resident Holder, (b) persons with whom the Non-Resident Holder did not deal at arm’s length, and (c) partnerships in which the Non-Resident Holder or a person with whom the Non-Resident Holder did not deal at arm’s length held a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares of any class or series of shares of the Corporation; and (ii) more than 50% of the fair market value of such shares was derived directly or indirectly from one or any combination of (a) real or immovable property situated in Canada, (b) “Canadian resource properties” (as defined in the Tax Act), (c) “timber resource properties” (as defined in the Tax Act) or (d) an option in respect of, an interest in, or for civil law a right in any of the foregoing property, whether or not such property exists. Notwithstanding the foregoing, a Common Share may otherwise be deemed to be taxable Canadian property to a Non-Resident Holder for purposes of the Tax Act.
Non-Resident Holders whose Common Shares may be taxable Canadian property should consult their own tax advisors.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain 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 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 arising from and relating to 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 to such U.S. Holder, including, without limitation, specific tax consequences to a U.S. Holder under an applicable income tax treaty. 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 U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal net investment income, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal net investment income, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of Common Shares.
No legal 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, and contrary to, the positions taken in this summary. In addition, because the authorities on 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 conclusions described 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 document. 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 retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation.
U.S. Holders
For purposes of this summary, the term “U.S. Holder” means a beneficial owner of Common Shares that is for U.S. federal income tax purposes:
•an individual who is a citizen or resident of the United States;
•a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
•an estate whose income is subject to U.S. federal income taxation regardless of its source; or
•a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
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 considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a “functional currency” other than the U.S. dollar; (e) own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquire Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are required to accelerate the recognition of any item of gross income with respect to Common Shares as a result of such income being recognized on an applicable financial statement; or (i) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of the Corporation. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold Common Shares in connection with carrying on a business in Canada; (d) persons whose Common Shares constitute “taxable Canadian property” under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal net investment income, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of Common Shares.
If an entity or arrangement 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 entity or arrangement and the partners (or other owners or participants) of such entity or arrangement generally will depend on the activities of the entity or arrangement and the status of such partners (or owners or participants). This summary does not address the tax consequences to any such partner (or owner or participants). Partners (or other owners or participants) of entities or arrangements that are classified as partnerships or as “pass-through” entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Common Shares.
Passive Foreign Investment Company Rules
PFIC Status of the Corporation
If the Corporation were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC”, as defined below) for any year during a U.S. Holder’s holding period, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder as a result of the acquisition, ownership and disposition of Common Shares. The Corporation believes that it was classified as a PFIC during the tax year ended December 31, 2019, and based on current business plans and financial expectations, the Corporation expects that it will be a PFIC for the current tax year and may be a PFIC in future tax years. No opinion of legal counsel or ruling from the IRS concerning the status of the Corporation as a PFIC has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Corporation (or any subsidiary of the Corporation) concerning its PFIC status. Each U.S. Holder should consult its own tax advisors regarding the PFIC status of the Corporation and each subsidiary of the Corporation.
In any year in which the Corporation is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S.
Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.
The Corporation generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Corporation is passive income (the “PFIC income test”) or (b) 50% or more of the value of the Corporation’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “PFIC asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
For purposes of the PFIC income test and PFIC asset test described above, if the Corporation owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Corporation 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, for purposes of the PFIC income test and PFIC asset test described above, and assuming certain other requirements are met, “passive income” does not include certain interest, dividends, rents, or royalties that are received or accrued by the Corporation from certain “related persons” (as defined in Section 954(d)(3) of the Code) also organized in Canada, to the extent such items are properly allocable to the income of such related person that is not passive income.
Under certain attribution rules, if the Corporation is a PFIC, U.S. Holders will generally be deemed to own their proportionate share of the Corporation’s direct or indirect equity interest in any company that is also a PFIC (a ‘‘Subsidiary PFIC’’), and will generally be subject to U.S. federal income tax on their proportionate share of (a) any “excess distributions,” as described below, on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC by the Corporation or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of Common Shares. Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions are received and no redemptions or other dispositions of Common Shares are made.
Default PFIC Rules Under Section 1291 of the Code
If the Corporation is a PFIC for any tax year during which a U.S. Holder owns Common Shares, the U.S. federal income tax consequences to such U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether and when such U.S. Holder makes an election to treat the Corporation and each Subsidiary PFIC, if any, as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or makes a mark-to-market election 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 will be referred to in this summary as a “Non-Electing U.S. Holder.”
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code (described below) with respect to (a) any gain recognized on the sale or other taxable disposition of Common Shares and (b) any “excess distribution” received on the Common Shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder’s holding period for the Common Shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares (including an indirect disposition of the stock of any Subsidiary PFIC), and any “excess distribution” received on Common Shares or with respect to the stock of a Subsidiary PFIC, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the respective Common Shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income (and not eligible for certain preferred rates). The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.
If the Corporation is a PFIC for any tax year during which a Non-Electing U.S. Holder holds Common Shares, the Corporation will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Corporation ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above), but not loss, as if such Common Shares were sold on the last day of the last tax year for which the Corporation was a PFIC.
QEF Election
A U.S. Holder that makes a timely and effective QEF Election for the first tax year in which the holding period of its Common Shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its Common Shares. A U.S. Holder that makes a timely and effective QEF Election 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 Corporation, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Corporation, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Corporation is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Corporation. However, for any tax year in which the Corporation is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election with respect to the Corporation generally (a) may receive a tax-free distribution from the Corporation to the extent that such distribution represents “earnings and profits” of the Corporation that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the Common Shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder’s holding period for the Common Shares in which the Corporation was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year. If a U.S. Holder does not make a timely and effective QEF Election for the first year in the U.S. Holder’s holding period for the Common Shares, the U.S. Holder may still be able to make a timely and effective QEF Election in a subsequent year if such U.S. Holder meets certain requirements and makes a “purging” election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Common Shares were sold for their fair market value on the day the QEF Election is effective. If a U.S. Holder makes a QEF Election but does not make a “purging” election to recognize gain as discussed in the preceding sentence, then such U.S. Holder shall be subject to the QEF Election rules and shall continue to be subject to tax under the rules of Section 1291 discussed above with respect to its Common Shares. If a U.S. Holder owns PFIC stock indirectly through another PFIC, separate QEF Elections must be made for the PFIC in which the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF rules to apply to both PFICs.
A QEF Election will apply to the tax year for which such QEF Election is timely made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Corporation ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Corporation is not a PFIC. Accordingly, if the Corporation becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Corporation qualifies as a PFIC.
The Corporation: (a) will make available to U.S. Holders, upon their written request, information as to its status as a PFIC and the PFIC status of any subsidiary in which the Corporation owns more than 50% of such subsidiary’s total aggregate voting power and (b) for each year in which the Corporation is a PFIC, provide to a U.S. Holder, upon written request, such information and documentation that a U.S. Holder making a QEF Election with respect to the Corporation and such more than 50% owned subsidiary which constitutes a PFIC is reasonably required to obtain for U.S. federal income tax purposes. The Corporation may elect to provide such information on its website. With respect to any Subsidiary PFIC in which the Corporation owns 50% or less of the aggregate voting power, upon the written request of a U.S. Holder acquiring Common Shares, the Corporation will request that such Subsidiary PFIC provide such U.S. Holder with the information that such U.S. Holder requires to report under the QEF rules; provided, however, the Corporation can provide no assurances that such Subsidiary PFIC will provide such information.
A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed United States federal income tax return. However, if the Corporation does not provide the required information with regard to the Corporation or any of its Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are marketable stock. The Common Shares generally will be “marketable stock” if the Common Shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the U.S. Exchange Act, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and surveillance requirements, and meets other requirements, and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange effectively promote active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Provided that the Common Shares are “regularly traded” as described in the preceding sentence, the Common Shares are expected to be marketable stock. However, each U.S. Holder should consult its own tax advisor in this matter.
A U.S. Holder that makes a Mark-to-Market Election with respect to its Common Shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such Common Shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder’s holding period for the Common Shares for which the Corporation is a PFIC and such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the Common Shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Corporation 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 tax year over (b) such U.S. Holder’s adjusted tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will 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 (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder’s tax basis in the Common Shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of Common Shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years). Losses that exceed this limitation are subject to the rules generally applicable to losses provided in the Code and Treasury Regulations.
A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed United States federal income tax return. A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the Common Shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisors regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the Common Shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to avoid 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 from a Subsidiary PFIC to its shareholder.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Common Shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which Common Shares are transferred.
Certain additional adverse rules may apply with respect to a U.S. Holder if the Corporation is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such Common Shares.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with its own tax advisors regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisors 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.
General Rules Applicable to the Ownership and Disposition of Common Shares
The following discussion describes the general rules applicable to the ownership and disposition of the Common Shares but is subject in its entirety to the special rules described above under the heading “Passive Foreign Investment Company Rules.”
Distributions on Common Shares
A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share 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 and accumulated “earnings and profits” of the Corporation, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Corporation is a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Corporation, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares and thereafter as gain from the sale or exchange of such Common Shares. (See “Sale or Other Taxable Disposition of Common Shares” below). However, the Corporation may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution by the Corporation with respect to the Common Shares will constitute ordinary dividend income. Dividends received on Common Shares by corporate U.S. Holders generally will not be eligible for the “dividends received deduction.” Subject to applicable limitations and provided the Corporation is eligible for the benefits of the Canada-U.S. Tax Convention or the Common Shares are readily tradable on a United States securities market, dividends paid by the Corporation to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Corporation not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisors regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Upon the sale or other taxable disposition of Common Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of cash received plus the fair market value of any property received and such U.S. Holder’s tax basis in such Common Shares sold or otherwise disposed of. A U.S. Holder’s tax basis in Common Shares generally will be such holder’s U.S. dollar cost for such Common Shares. Gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, the Common Shares have been held for more than one year.
Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Considerations
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of Common Shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult
its own U.S. tax advisors regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the 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. 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 that is 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. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances. Accordingly, each U.S. Holder should consult its own U.S. tax advisors regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain thresholds. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their Common Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, Common Shares will generally be subject to information reporting and backup withholding tax if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on 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, certain exempt persons generally are excluded from these information reporting and backup withholding 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.
The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL 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 OWN PARTICULAR CIRCUMSTANCES.
F.Dividends and Paying Agents
Not Applicable
G.Statements by Experts
Not Applicable
H.Documents on Display
We are subject to the informational requirements of the Exchange Act and file reports and other information with the SEC. The SEC maintains a Website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at https://www.sec.gov.
We are required to file reports and other information with the securities commissions in Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") (https://www.sedar.com), the Canadian equivalent of the SEC's electronic document gathering and retrieval system.
We "incorporate by reference" information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this Form 20-F and more recent information automatically updates and supersedes more dated information contained or incorporated by reference in this Form 20-F.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders.
We will provide without charge to each person, including any beneficial owner, to whom a copy of this annual report has been delivered, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this annual report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address: Oncolytics Biotech Inc., 210 – 1167 Kensington Crescent, NW, Calgary, Alberta, Canada, T2N 1X7, Attention: Kirk Look. Telephone (403) 670 - 7377. Facsimile (403) 283-0858 EMAIL: info@oncolyticsbiotech.com.
I.Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Please see Item 4 – “Information on the Company” and Note 17 Financial Instruments in our audited consolidated financial statements beginning on page F-1 of this annual report on Form 20-F.
We do not currently have any long-term debt, nor do we currently utilize interest rate swap contracts to hedge against interest rate risk.
We do not use financial instruments for trading purposes and are not parties to any leverage derivatives. We do not currently engage in hedging transactions.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
A.Debt Securities
Not Applicable
B.Warrants and Rights
Not Applicable
C.Other Securities
Not Applicable
D.American Depository Shares
The Company’s Common Shares are not represented by American Depository Receipts.