Table of
Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 20-F
o
|
Registration Statement Pursuant to Section 12(b) or
12(g) of The Securities Exchange Act of 1934
|
OR
x
|
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 for the fiscal year ended December 31,
2009
|
OR
o
|
Transition Report Pursuant to Section 13 or
15(d) of The Securities Exchange Act of 1934
|
OR
o
|
Shell Company Report Pursuant to Section 13
or 15(d) of The Securities Exchange Act of 1934
|
Commission
file number 0-30752
ÆTERNA
ZENTARIS INC.
(Exact Name of Registrant as Specified in its Charter)
Not Applicable
(Translation of
Registrants Name into English)
Canada
(Jurisdiction of Incorporation)
1405 du Parc-Technologique Blvd.
Quebec City, Quebec
Canada, G1P 4P5
(Address
of Principal Executive Offices)
Dennis Turpin
Telephone: 418-652-8525
E-mail: dturpin@aezsinc.com
1405 du Parc-Technologique
Blvd.
Quebec City, Quebec
Canada, G1P 4P5
(Name,
Telephone, E-mail and Address of Company Contact Person)
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
|
|
Title of Each Class
|
|
|
|
|
Name of Each Exchange on Which
Registered
|
|
Common
Shares
|
|
NASDAQ
Global Market
|
|
|
Toronto
Stock Exchange
|
Securities registered or to be registered pursuant to
Section 12(g) of the Act:
NONE
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the ACT:
NONE
Indicate the number of outstanding shares of each of
the issuers classes of capital or common stock as of the close of the period
covered by the annual report: 63,089,954
common shares as of December 31, 2009.
Indicate by check mark whether the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
o
No
x
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Yes
o
No
x
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check mark
whether the registrant
has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post
such files). Yes
o
No
x
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer or, or a non-accelerated
filer. See definitions of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one):
Large
accelerated filer
o
|
|
Accelerated
filer
x
|
|
Non-accelerated
filer
o
|
Indicate by check mark which basis of accounting the
registrant has used to prepare the financial statements included in this
filing:
U.S.
GAAP
o
|
|
International
Financial Reporting Standards as issued by the International Accounting
Standards Board
o
|
|
Other
x
|
If other has been checked in response to the
previous question, indicate by check mark which financial statement item the
registrant has elected to follow. Item
17
o
Item 18
x
If this is an annual report, indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
x
Table of Contents
Basis of Presentation
General
Except where the context
otherwise requires, all references in this annual report on Form 20-F (Form 20-F)
to the Company, Æterna Zentaris Inc., we, us, our or similar words or
phrases are to Æterna Zentaris Inc. and its subsidiaries, taken together.
In this annual report, references to $ and US$ are to United States dollars
and references to CAN$ are to Canadian dollars. Unless otherwise
indicated, the statistical and financial data contained in this annual report
are presented as at December 31, 2009.
Forward-Looking Statements
This annual report contains forward-looking statements made pursuant to the safe harbor provisions of the U.S. Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which could cause the Companys actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, among others, the availability of funds and resources to pursue R&D projects, the successful and timely completion of clinical studies, the ability of the Company to take advantage of business opportunities in the pharmaceutical industry, uncertainties related to the regulatory process and general changes in economic conditions. Investors should consult the Companys quarterly and annual filings with the Canadian and U.S. securities commissions for additional information on risks and uncertainties relating to the forward-looking statements. Investors are cautioned not to rely on these forward-looking statements. The Company does not undertake to update these forward-looking statements and we disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments except if we are requested to do so by a governmental authority or applicable law.
Table of Contents
PART I
Item 1. Identity
of Directors, Senior Management and Advisers
A. Directors and senior management
Not applicable.
B. Advisors
Not applicable.
C. Auditors
Not applicable.
Item 2. Offer
Statistics and Expected Timetable
A. Offer statistics
Not applicable.
B. Method and expected timetable
Not applicable.
Item 3. Key
Information
A. Selected financial data
The selected financial
data should be read in conjunction with our audited consolidated financial
statements and the related notes included elsewhere in this annual report, and Item
5. Operating and Financial Review and Prospects of this annual report.
1
Table of
Contents
Consolidated
Statements of Operations Data
(in
thousands of US dollars, except share and per share data)
Canadian GAAP
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
63,237
|
|
38,478
|
|
42,068
|
|
38,799
|
|
44,813
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and
amortization
|
|
16,501
|
|
19,278
|
|
12,930
|
|
11,270
|
|
8,250
|
|
Research and development costs
|
|
44,217
|
|
57,448
|
|
39,248
|
|
27,422
|
|
25,544
|
|
Research and development tax credits and grants
|
|
(403
|
)
|
(343
|
)
|
(2,060
|
)
|
(1,564
|
)
|
(317
|
)
|
Selling, general and administrative expenses
|
|
16,040
|
|
17,325
|
|
20,403
|
|
16,478
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|
14,403
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|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
3,285
|
|
1,515
|
|
1,562
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|
2,816
|
|
1,665
|
|
Intangible assets
|
|
7,555
|
|
5,639
|
|
4,004
|
|
6,148
|
|
4,279
|
|
Impairment of long-lived assets held for sale
|
|
|
|
|
|
735
|
|
|
|
|
|
|
|
87,195
|
|
100,862
|
|
76,822
|
|
62,570
|
|
53,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(23,958
|
)
|
(62,384
|
)
|
(34,754
|
)
|
(23,771
|
)
|
(9,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
349
|
|
868
|
|
1,904
|
|
1,441
|
|
1,235
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and convertible term loans
|
|
|
|
|
|
(85
|
)
|
(1,270
|
)
|
(6,979
|
)
|
Other
|
|
(5
|
)
|
(118
|
)
|
|
|
(163
|
)
|
(31
|
)
|
Foreign exchange (loss) gain
|
|
(1,110
|
)
|
3,071
|
|
(1,035
|
)
|
319
|
|
(87
|
)
|
Loss on disposal of long-lived assets held for sale
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
Loss on disposal of equipment
|
|
|
|
(44
|
)
|
(28
|
)
|
|
|
|
|
Gain on disposal of long-term investment
|
|
|
|
|
|
|
|
409
|
|
|
|
|
|
(766
|
)
|
3,742
|
|
756
|
|
736
|
|
(5,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Share in the results of an affiliated company
|
|
|
|
|
|
|
|
1,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes from continuing operations
|
|
(24,724
|
)
|
(58,642
|
)
|
(33,998
|
)
|
(21,460
|
)
|
(14,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) recovery
|
|
|
|
(1,175
|
)
|
1,961
|
|
29,037
|
|
(609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from continuing operations
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,037
|
)
|
7,577
|
|
(15,482
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from discontinued operations
|
|
|
|
|
|
(259
|
)
|
25,813
|
|
26,053
|
|
Net (loss) earnings for the year
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,296
|
)
|
33,390
|
|
10,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.43
|
)
|
(1.12
|
)
|
(0.61
|
)
|
0.14
|
|
(0.34
|
)
|
Diluted
|
|
(0.43
|
)
|
(1.12
|
)
|
(0.61
|
)
|
0.14
|
|
(0.34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
0.50
|
|
0.57
|
|
Diluted
|
|
|
|
|
|
|
|
0.48
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.43
|
)
|
(1.12
|
)
|
(0.61
|
)
|
0.64
|
|
0.23
|
|
Diluted
|
|
(0.43
|
)
|
(1.12
|
)
|
(0.61
|
)
|
0.62
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
56,864,484
|
|
53,187,470
|
|
53,182,803
|
|
52,099,290
|
|
46,139,814
|
|
Diluted
|
|
56,864,484
|
|
53,187,470
|
|
53,182,803
|
|
52,549,260
|
|
46,139,814
|
|
2
Table of Contents
US GAAP
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings for the year
|
|
(16,794
|
)
|
(56,070
|
)
|
(37,428
|
)
|
34,262
|
|
15,970
|
|
Of which:
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from continuing operations
|
|
(16,794
|
)
|
(56,070
|
)
|
(36,415
|
)
|
8,449
|
|
(10,083
|
)
|
Net (loss) earnings from discontinued operations
|
|
|
|
|
|
(1,013
|
)
|
25,813
|
|
26,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.30
|
)
|
(1.05
|
)
|
(0.68
|
)
|
0.16
|
|
(0.22
|
)
|
Diluted
|
|
(0.30
|
)
|
(1.05
|
)
|
(0.68
|
)
|
0.16
|
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
(0.02
|
)
|
0.50
|
|
0.56
|
|
Diluted
|
|
|
|
|
|
(0.02
|
)
|
0.49
|
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
(0.30
|
)
|
(1.05
|
)
|
(0.70
|
)
|
0.66
|
|
0.34
|
|
Diluted
|
|
(0.30
|
)
|
(1.05
|
)
|
(0.70
|
)
|
0.65
|
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
56,864,484
|
|
53,187,470
|
|
53,182,803
|
|
52,099,290
|
|
46,139,814
|
|
Diluted
|
|
56,864,484
|
|
53,187,470
|
|
53,182,803
|
|
52,549,260
|
|
46,139,814
|
|
Consolidated
Balance Sheet Data
(in thousands of US dollars)
Canadian GAAP
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
38,100
|
|
49,226
|
|
10,272
|
|
8,939
|
|
12,234
|
|
Short-term investments
|
|
|
|
493
|
|
31,115
|
|
51,550
|
|
22,370
|
|
Working capital
|
|
29,745
|
|
39,554
|
|
37,325
|
|
85,413
|
|
99,502
|
|
Restricted cash
|
|
878
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
86,262
|
|
108,342
|
|
123,363
|
|
223,491
|
|
419,785
|
|
Long-term debt and payable
|
|
143
|
|
172
|
|
|
|
687
|
|
29,866
|
|
Share capital
|
|
41,203
|
|
30,566
|
|
30,566
|
|
168,466
|
|
130,344
|
|
Shareholders equity
|
|
9,226
|
|
21,475
|
|
88,591
|
|
178,879
|
|
109,531
|
|
US GAAP
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
38,100
|
|
49,226
|
|
10,272
|
|
8,939
|
|
12,234
|
|
Short-term investments
|
|
|
|
493
|
|
31,115
|
|
51,550
|
|
22,370
|
|
Working capital
|
|
29,745
|
|
39,554
|
|
37,325
|
|
85,413
|
|
99,502
|
|
Restricted cash
|
|
878
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
84,116
|
|
100,001
|
|
109,182
|
|
209,143
|
|
404,587
|
|
Long-term debt and payable
|
|
143
|
|
172
|
|
|
|
687
|
|
30,858
|
|
Share capital
|
|
33,226
|
|
22,589
|
|
22,589
|
|
160,489
|
|
129,750
|
|
Shareholders equity
|
|
5,729
|
|
13,134
|
|
74,410
|
|
169,704
|
|
99,797
|
|
3
B. Capitalization and indebtedness
Not applicable.
C. Reasons for the offer and use of
proceeds
Not applicable.
D. Risk factors
Risks Related to Us and Our Business
Investments in biopharmaceutical companies
are generally considered to be speculative.
The
prospects for companies operating in the biopharmaceutical industry may
generally be considered to be uncertain, given the very nature of the industry
and, accordingly, investments in biopharmaceutical companies should be
considered to be speculative.
We have a history of operating losses and
we may never achieve or maintain operating profitability.
Our
product candidates remain at the development stage and we have incurred
substantial expenses in our efforts to develop products. Consequently, we have
incurred recurrent operating losses and, as disclosed in our audited
consolidated financial statements for the years ended December 31, 2009,
2008 and 2007, we had an accumulated deficit of $127.5 million as of December 31,
2009. Our operating losses have adversely impacted, and will continue to
adversely impact, our working capital, total assets and shareholders equity.
We do not expect to reach operating profitability in the immediate future, and
our expenses are likely to increase as we continue to expand our research and
development (R&D) and clinical study programs and our sales and marketing
activities and seek regulatory approval for our product candidates. Even if we
succeed in developing new commercial products, we expect to incur additional
operating losses for at least the next several years. If we do not ultimately
generate sufficient revenue from commercialized products and achieve or
maintain operating profitability, an investment in our securities could result
in a significant or total loss.
Our clinical trials may not yield results
which will enable us to obtain regulatory approval for our products, and a
setback in any of our clinical trials would likely cause a drop in the price of
our securities.
We
will only receive regulatory approval for a product candidate if we can
demonstrate in carefully designed and conducted clinical trials that the
product candidate is both safe and effective. We do not know whether our pending
or any future clinical trials will demonstrate sufficient safety and efficacy
to obtain the requisite regulatory approvals or will result in marketable
products. Unfavorable data from those studies could result in the withdrawal of
marketing approval for approved products or an extension of the review period
for developmental products. Clinical trials are inherently lengthy, complex,
expensive and uncertain processes and have a high risk of failure. It typically
takes many years to complete testing, and failure can occur at any stage of
testing. Results attained in preclinical testing and early clinical studies, or
trials, may not be indicative of results that are obtained in later studies.
None
of our product candidates has to date received regulatory approval for its
intended commercial sale. We cannot market a pharmaceutical product in any
jurisdiction until it has completed rigorous preclinical testing and clinical
trials and passed such jurisdictions extensive regulatory approval process. In
general, significant research and development and clinical studies are required
to demonstrate the safety and efficacy of our product candidates before we can
submit regulatory applications. Pre-clinical testing and clinical development
are long, expensive and uncertain processes. Preparing, submitting and
advancing applications for regulatory approval is complex, expensive and
time-consuming and entails significant uncertainty. Data obtained from
pre-clinical and clinical tests can be interpreted in different ways, which
could delay, limit or prevent regulatory approval. It may take us many years to
complete the testing of our product candidates and failure can occur at any
stage of this process. In addition, we have limited experience in conducting
and managing the clinical trials necessary to obtain regulatory approval in the
United States, in Canada and abroad and, accordingly, may encounter unforeseen
problems and delays in the approval process. Though we may engage a clinical
research organization with experience in conducting regulatory trials, errors
in the conduct, monitoring and/or auditing could invalidate the results from a
regulatory perspective. Even if a product candidate is approved by the U.S.
Food and Drug Administration (FDA), the Canadian Therapeutic Products
Directorate or any other regulatory authority, we may not obtain approval for
an indication whose market is large enough to recoup our investment in that
product candidate. In addition, there can be no assurance that we will ever
obtain all or any required regulatory approvals for any of our product
candidates.
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We
are currently developing our product candidates based on R&D activities,
preclinical testing and clinical trials conducted to date, and we may not be
successful in developing or introducing to the market these or any other new
products or technology. If we fail to develop and deploy new products
successfully and on a timely basis, we may become non-competitive and unable to
recoup the R&D and other expenses we incur to develop and test new
products.
Interim
results of preclinical or clinical studies do not necessarily predict their
final results, and acceptable results in early studies might not be obtained in
later studies. Safety signals detected during clinical studies and pre-clinical
animal studies may require us to do additional studies, which could delay the
development of the drug or lead to a decision to discontinue development of the
drug. Product candidates in the later stages of clinical development may fail
to show the desired safety and efficacy traits despite positive results in
initial clinical testing. Results from earlier studies may not be indicative of
results from future clinical trials and the risk remains that a pivotal program
may generate efficacy data that will be insufficient for the approval of the
drug, or may raise safety concerns that may prevent approval of the drug.
Interpretation of the prior pre-clinical and clinical safety and efficacy data
of our product candidates may be flawed and there can be no assurance that
safety and/or efficacy concerns from the prior data were overlooked or
misinterpreted, which in subsequent, larger studies appear and prevent approval
of such product candidates.
Furthermore,
we may suffer significant setbacks in advanced clinical trials, even after
promising results in earlier studies. Based on results at any stage of clinical
trials, we may decide to repeat or redesign a trial or discontinue development
of one or more of our product candidates. Further, actual results may vary once
the final and quality-controlled verification of data and analyses has been
completed. If we fail to adequately demonstrate the safety and efficacy of our
products under development, we will not be able to obtain the required
regulatory approvals to commercialize our product candidates.
Clinical
trials are subject to continuing oversight by governmental regulatory
authorities and institutional review boards and:
·
must meet the requirements
of these authorities;
·
must meet requirements for
informed consent; and
·
must meet requirements for
good clinical practices.
We
may not be able to comply with these requirements in respect of one or more of
our product candidates.
In
addition, we rely on third parties, including Contract Research Organizations (CROs)
and outside consultants, to assist us in managing and monitoring clinical
trials. Our reliance on these third parties may result in delays in completing,
or in failing to complete, these trials if one or more third parties fails to
perform with the speed and level of competence we expect.
A
failure in the development of any one of our programs or product candidates
could have a negative impact on the development of the others. Setbacks in any
phase of the clinical development of our product candidates would have an
adverse financial impact (including with respect to any agreements and
partnerships that may exist between us and other entities), could jeopardize
regulatory approval and would likely cause a drop in the price of our
securities.
If we are unable to successfully complete
our clinical trial programs, or if such clinical trials take longer to complete
than we project, our ability to execute our current business strategy will be
adversely affected.
Whether
or not and how quickly we complete clinical trials is dependent in part upon
the rate at which we are able to engage clinical trial sites and, thereafter,
the rate of enrollment of patients, and the rate we collect, clean, lock and
analyze the clinical trial database. Patient enrollment is a function of many
factors, including the design of the protocol, the size of the patient
population, the proximity of patients to and availability of clinical sites,
the eligibility criteria for the study, the perceived risks and benefits of the
drug under study and of the control drug, if any, the efforts to facilitate
timely enrollment in clinical trials, the patient referral practices of
physicians, the existence of competitive clinical trials, and whether existing
or new drugs are approved for the indication we are studying. Certain clinical
trials are designed to continue until a pre-determined number of events have
occurred to the patients enrolled. Trials such as this are subject to delays
stemming from patient withdrawal and from lower than expected event rates and
may also incur increased costs if enrollment is increased in order to achieve
the desired number of events. If we experience delays in identifying and
contracting with sites and/or in patient enrollment in our clinical trial
programs, we may incur additional costs and delays in our development programs,
and may not be able to complete our clinical trials on a cost-effective or
timely basis. In addition, conducting multi-national studies adds another level
of complexity and risk as we are subject to events affecting countries outside
Canada. Moreover, negative or inconclusive results from the clinical trials we
conduct or adverse medical events could cause us to have to repeat or terminate
the clinical trials. Accordingly, we may not be able to complete the clinical
trials within an acceptable time frame, if at all. If we or any third party have
difficulty enrolling a sufficient number of patients to conduct our clinical
trials as planned, we may need to delay or terminate ongoing clinical trials.
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Additionally,
we have never filed a new drug application (NDA), or similar application for
approval in the United States or in any country for our current product
candidates, which may result in a delay in, or the rejection of, our filing of
an NDA or similar application. During the drug development process, regulatory
agencies will typically ask questions of drug sponsors. While we endeavor to
answer all such questions in a timely fashion, or in the NDA filing, some
questions may not be answered by the time we file our NDA. Unless the FDA
waives the requirement to answer any such unanswered questions, submission of
an NDA may be delayed or rejected.
Even if we obtain regulatory approvals for
our product candidates, we will be subject to stringent ongoing government
regulation.
Even
if regulatory authorities approve any of our product candidates, the
manufacture, marketing and sale of such products will be subject to strict and
ongoing regulation. Compliance with such regulation will be expensive and
consume substantial financial and management resources. For example, an
approval for a product may be conditioned on our agreement to conduct costly
post-marketing follow-up studies to monitor the safety or efficacy of the
products. In addition, as a clinical experience with a drug expands after
approval because the drug is used by a greater number and more diverse group of
patients than during clinical trials, side effects or other problems may be
observed after approval that were not observed or anticipated during
pre-approval clinical trials. In such a case, a regulatory authority could
restrict the indications for which the product may be sold or revoke the
products regulatory approval.
We
and our contract manufacturers will be required to comply with applicable
current Good Manufacturing Practice (cGMP) regulations for the manufacture of
our products. These regulations include requirements relating to quality
assurance, as well as the corresponding maintenance of rigorous records and
documentation. Manufacturing facilities must be approved before we can use them
in the commercial manufacturing of our products and are subject to subsequent
periodic inspection by regulatory authorities. In addition, material changes in
the methods of manufacturing or changes in the suppliers of raw materials are
subject to further regulatory review and approval.
If
we, or any future marketing collaborators or contract manufacturers, fail to
comply with applicable regulatory requirements, we may be subject to sanctions
including fines, product recalls or seizures and related publicity
requirements, injunctions, total or partial suspension of production, civil
penalties, suspension or withdrawals of previously granted regulatory approvals,
warning or untitled letters, refusal to approve pending applications for
marketing approval of new products or of supplements to approved applications,
import or export bans or restrictions, and criminal prosecution and penalties.
Any of these penalties could delay or prevent the promotion, marketing or sale
of our products.
If our products do not gain market
acceptance, we may be unable to generate significant revenues.
Even
if our products are approved for commercialization, they may not be successful
in the marketplace. Market acceptance of any of our products will depend on a
number of factors including, but not limited to:
·
demonstration of clinical
efficacy and safety;
·
the prevalence and severity
of any adverse side effects;
·
limitations or warnings
contained in the products approved labeling;
·
availability of alternative
treatments for the indications we target;
·
the advantages and
disadvantages of our products relative to current or alternative treatments;
·
the availability of acceptable
pricing and adequate third-party reimbursement; and
·
the effectiveness of
marketing and distribution methods for the products.
If
our products do not gain market acceptance among physicians, patients,
healthcare payers and others in the medical community, which may not accept or
utilize our products, our ability to generate significant revenues from our
products would be limited and our financial conditions will be materially
adversely affected. In addition, if we fail to further penetrate our core markets
and existing geographic markets or successfully expand our business into new
markets, the growth in sales of our products, along with our operating results,
could be negatively impacted.
Our
ability to further penetrate our core markets and existing geographic markets
in which we compete or to successfully expand our business into additional
countries in Europe, Asia or elsewhere is subject to numerous factors, many of
which are beyond our control. Our products, if successfully developed, may
compete with a number of drugs and therapies currently manufactured and
marketed by major pharmaceutical and other biotechnology companies. Our
products may also compete with new products currently under development by
others or with products which may be less expensive than our products. We
cannot assure you that our efforts to increase market penetration in our core
markets and existing geographic markets will
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be
successful. Our failure to do so could have an adverse effect on our operating
results and would likely cause a drop in the price of our securities.
We may require significant additional
financing, and we may not have access to sufficient capital.
We
may require additional capital to pursue planned clinical trials, regulatory
approvals, as well as further R&D and marketing efforts for our product
candidates and potential products. Except as expressly described in this
document and the documents incorporated by reference herein, we do not
anticipate generating significant revenues from operations in the near future
and we currently have no committed sources of capital.
We
may attempt to raise additional funds through public or private financings,
collaborations with other pharmaceutical companies or financing from other
sources. Additional funding may not be available on terms which are acceptable
to us. If adequate funding is not available to us on reasonable terms, we may
need to delay, reduce or eliminate one or more of our product development
programs or obtain funds on terms less favorable than we would otherwise
accept. To the extent that additional capital is raised through the sale of
equity securities or securities convertible into or exchangeable for equity
securities, the issuance of those securities could result in dilution to our
shareholders. Moreover, the incurrence of debt financing could result in a
substantial portion of our future operating cash flow, if any, being dedicated
to the payment of principal and interest on such indebtedness and could impose
restrictions on our operations. This could render us more vulnerable to
competitive pressures and economic downturns.
We
anticipate that our existing working capital, including the proceeds from any
sale of securities and anticipated revenues, will be sufficient to fund our
development programs, clinical trials and other operating expenses for the near
future. However, our future capital requirements are substantial and may
increase beyond our current expectations depending on many factors including:
·
the duration and results of
our clinical trials for our various product candidates going forward;
·
unexpected delays or
developments in seeking regulatory approvals;
·
the time and cost in
preparing, filing, prosecuting, maintaining and enforcing patent claims;
·
other unexpected
developments encountered in implementing our business development and commercialization
strategies;
·
the outcome of litigation,
if any; and
·
further arrangements, if
any, with collaborators.
In
addition, the ongoing recessionary global market and economic conditions as
well as certain continuing difficulties in the credit and capital markets may
make it even more difficult for us to raise additional financing in the future.
A substantial
portion of our future revenues may be dependent upon our agreement with
Keryx
Biopharmaceuticals, Inc. (Keryx)
.
We currently expect that a substantial portion of our
future revenues may be dependent upon our strategic partnership with Keryx.
Under this strategic partnership, Keryx has significant development and
commercialization responsibilities with respect to the development and sale of
Perifosine. If Keryx were to terminate its agreement with us, fail to meet its
obligations or otherwise decrease its level of efforts, allocation of resources
or other commitments under this agreement, our future revenues and/or prospects
could be negatively impacted and the development and commercialization of
Perifosine would be interrupted. In addition, if Keryx does not achieve some or
any of the development, regulatory and commercial milestones or if it does not
achieve certain net sales thresholds as set forth in the agreement, we will not
fully realize the expected economic benefits of the agreement. Further, the
achievement of certain of the milestones under this strategic partnership
agreement will depend on factors that are outside of our control and most are
not expected to be achieved for several years, if at all. Any failure to
successfully maintain our strategic partnership agreement could materially and
adversely affect our ability to generate revenues.
If we are unsuccessful in increasing our
revenues and/or raising additional funding, we may possibly cease to continue
operating as we currently do.
Although
our audited consolidated financial statements for the years ended December 31,
2009, 2008 and 2007 have been prepared on a going concern basis, which
contemplates the realization of assets and liquidation of liabilities during
the normal course of operations, our ability to continue as a going concern is
dependent on the successful execution of our business plan, which will require
an increase in revenue and/or additional funding to be provided by potential
investors as well as non-traditional sources of financing. Although we stated
in our audited consolidated financial statements for the years
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ended
December 31, 2009, 2008 and 2007 that management believed that the Company
had, as at December 31, 2009, sufficient financial resources to fund planned
expenditures and other working capital needs for at least the 12-month period
following such date, there can be no assurance that management will be able to
reiterate such belief in our future financial statements.
We
have had sustained losses, accumulated deficits and negative cash flows from
operations since our inception. We expect that this will continue throughout
2010.
Additional
funding may be in the form of debt or equity or a hybrid instrument depending
on the needs of the investor. Given the prevailing global economic and credit
market conditions, we may not be able to raise additional cash resources
through these traditional sources of financing. Although we are also pursuing
non-traditional sources of financing, the global credit market crisis has also
adversely affected the ability of potential parties to pursue such
transactions. We do not believe that the ability to access capital markets or
these adverse conditions are likely to improve significantly in the near
future. Accordingly, as a result of the foregoing, we continue to review
traditional sources of financing, such as private and public debt or equity
financing alternatives, as well as other alternatives to enhance shareholder
value, including, but not limited to, non-traditional sources of financing,
such as alliances with strategic partners, the sale of assets or licensing of
our technology or intellectual property, a combination of operating and related
initiatives or a substantial reorganization of our business. If we do not raise
additional capital, we do not expect our operations to generate sufficient cash
flow to fund our obligations as they come due.
There
can be no assurances that we will achieve profitability or positive cash flows
or be able to obtain additional funding or that, if obtained, they will be
sufficient, or whether any other initiatives will be successful, such that we
may continue as a going concern. There are material uncertainties related to
certain adverse conditions and events that could cast significant doubt on our
ability to remain a going concern.
We may not achieve our projected
development goals in the time-frames we announce and expect.
We
set goals and make public statements regarding the timing of the accomplishment
of objectives material to our success, such as the commencement, enrollment and
completion of clinical trials, anticipated regulatory submission and approval
dates and time of product launch. The actual timing of these events can vary
dramatically due to factors such as delays or failures in our clinical trials,
the uncertainties inherent in the regulatory approval process and delays in
achieving manufacturing or marketing arrangements sufficient to commercialize
our products. There can be no assurance that our clinical trials will be
completed, that we will make regulatory submissions or receive regulatory
approvals as planned or that we will be able to adhere to our current schedule
for the launch of any of our products. If we fail to achieve one or more of
these milestones as planned, the price of our securities would likely decline.
If we fail to obtain acceptable prices or
adequate reimbursement for our products, our ability to generate revenues will
be diminished.
The
ability for us and/or our partners to successfully commercialize our products
will depend significantly on our ability to obtain acceptable prices and the
availability of reimbursement to the patient from third-party payers, such as
governmental and private insurance plans. These third-party payers frequently
require companies to provide predetermined discounts from list prices, and they
are increasingly challenging the prices charged for pharmaceuticals and other
medical products. Our products may not be considered cost-effective, and
reimbursement to the patient may not be available or sufficient to allow us or
our partners to sell our products on a competitive basis. It may not be
possible to negotiate favorable reimbursement rates for our products.
In
addition, the continuing efforts of third-party payers to contain or reduce the
costs of healthcare through various means may limit our commercial opportunity
and reduce any associated revenue and profits. We expect proposals to implement
similar government control to continue. In addition, increasing emphasis on managed
care will continue to put pressure on the pricing of pharmaceutical and
biopharmaceutical products. Cost control initiatives could decrease the price
that we or any current or potential collaborators could receive for any of our
products and could adversely affect our profitability. In addition, in the
United States, in Canada and in many other countries, pricing and/or
profitability of some or all prescription pharmaceuticals and
biopharmaceuticals are subject to government control.
If
we fail to obtain acceptable prices or an adequate level of reimbursement for
our products, the sales of our products would be adversely affected or there
may be no commercially viable market for our products.
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Competition in our targeted markets is
intense, and development by other companies could render our products or
technologies non-competitive.
The
biomedical field is highly competitive. New products developed by other
companies in the industry could render our products or technologies
non-competitive. Competitors are developing and testing products and
technologies that would compete with the products that we are developing. Some
of these products may be more effective or have an entirely different approach
or means of accomplishing the desired effect than our products. We expect
competition from biopharmaceutical and pharmaceutical companies and academic
research institutions to increase over time. Many of our competitors and
potential competitors have substantially greater product development
capabilities and financial, scientific, marketing and human resources than we
do. Our competitors may succeed in developing products earlier and in obtaining
regulatory approvals and patent protection for such products more rapidly than
we can or at a lower price.
We may not obtain adequate protection for
our products through our intellectual property.
We
rely heavily on our proprietary information in developing and manufacturing our
product candidates. Our success depends, in large part, on our ability to
protect our competitive position through patents, trade secrets, trademarks and
other intellectual property rights. The patent positions of pharmaceutical and
biopharmaceutical firms, including Æterna Zentaris, are uncertain and involve
complex questions of law and fact for which important legal issues remain
unresolved. Applications for patents and trademarks in Canada, the United
States and in other foreign territories have been filed and are being actively
pursued by us. Pending patent applications may not result in the issuance of
patents and we may not be able to obtain additional issued patents relating to
our technology or products. Even if issued, patents to us or our licensors may
be challenged, narrowed, invalidated, held to be unenforceable or circumvented,
which could limit our ability to stop competitors from marketing similar
products or limit the length of term of patent protection we may have for our
products. Changes in either patent laws or in interpretations of patent laws in
the United States and other countries may diminish the value of our
intellectual property or narrow the scope of our patent protection. The patents
issued or to be issued to us may not provide us with any competitive advantage
or protect us against competitors with similar technology. In addition, it is
possible that third parties with products that are very similar to ours will
circumvent our patents by means of alternate designs or processes. We may have
to rely on method of use and new formulation protection for our compounds in
development, and any resulting products, which may not confer the same
protection as claims to compounds per se.
In
addition, our patents may be challenged by third parties in patent litigation,
which is becoming widespread in the biopharmaceutical industry. There may be
prior art of which we are not aware that may affect the validity or
enforceability of a patent claim. There also may be prior art of which we are
aware, but which we do not believe affects the validity or enforceability of a
claim, which may, nonetheless, ultimately be found to affect the validity or
enforceability of a claim. No assurance can be given that our patents would, if
challenged, be held by a court to be valid or enforceable or that a competitors
technology or product would be found by a court to infringe our patents. Our
granted patents could also be challenged and revoked in opposition or nullity
proceedings in certain countries outside the United States. In addition, we may
be required to disclaim part of the term of certain patents.
Patent
applications relating to or affecting our business have been filed by a number
of pharmaceutical and biopharmaceutical companies and academic institutions. A
number of the technologies in these applications or patents may conflict with
our technologies, patents or patent applications, and any such conflict could
reduce the scope of patent protection which we could otherwise obtain. Because
patent applications in the United States and many other jurisdictions are
typically not published until eighteen months after their first effective
filing date, or in some cases not at all, and because publications of discoveries
in the scientific literature often lag behind actual discoveries, neither we
nor our licensors can be certain that we or they were the first to make the
inventions claimed in our or their issued patents or pending patent
applications, or that we or they were the first to file for protection of the
inventions set forth in these patent applications. If a third party has also
filed a patent application in the United States covering our product candidates
or a similar invention, we may have to participate in an adversarial
proceeding, known as an interference, declared by the United States Patent and
Trademark Office to determine priority of invention in the United States. The
costs of these proceedings could be substantial and it is possible that our
efforts could be unsuccessful, resulting in a loss of our U.S. patent position.
In
addition to patents, we rely on trade secrets and proprietary know-how to
protect our intellectual property. 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. We seek to protect our
unpatented proprietary information in part by requiring our employees,
consultants, outside scientific collaborators and sponsored researchers and
other advisors to enter into confidentiality agreements. These agreements
provide that all confidential information developed or made known to the
individual during the course of the individuals relationship with us is to be
kept confidential and not disclosed to third parties except in specific
circumstances. In the case of our employees, the agreements provide that all of
the technology which is conceived by
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the
individual during the course of employment is our exclusive property. These
agreements may not provide meaningful protection or adequate remedies in the
event of unauthorized use or disclosure of our proprietary information. In
addition, it is possible that third parties could independently develop
proprietary information and techniques substantially similar to ours or
otherwise gain access to our trade secrets. 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
and technologies, which could adversely impact our business.
We
currently have the right to use certain technology under license agreements
with third parties. Our failure to comply with the requirements of material
license agreements could result in the termination of such agreements, which
could cause us to terminate the related development program and cause a
complete loss of our investment in that program.
As
a result of the foregoing factors, we may not be able to rely on our
intellectual property to protect our products in the marketplace.
We may infringe the intellectual property
rights of others.
Our
commercial success depends significantly on our ability to operate without
infringing the patents and other intellectual property rights of third parties.
There could be issued patents of which we are not aware that our products or
methods may be found to infringe, or patents of which we are aware and believe
we do not infringe but which we may ultimately be found to infringe. Moreover,
patent applications and their underlying discoveries are in some cases
maintained in secrecy until patents are issued. Because patents can take many
years to issue, there may be currently pending applications of which we are
unaware that may later result in issued patents that our products or methods
are found to infringe. Moreover, there may be published pending applications
that do not currently include a claim covering our products or methods but
which nonetheless provide support for a later drafted claim that, if issued,
our products or methods could be found to infringe.
If
we infringe or are alleged to infringe intellectual property rights of third
parties, it will adversely affect our business. Our research, development and
commercialization activities, as well as any product candidates or products
resulting from these activities, may infringe or be accused of infringing one
or more claims of an issued patent or may fall within the scope of one or more
claims in a published patent application that may subsequently issue and to
which we do not hold a license or other rights. Third parties may own or control
these patents or patent applications in the United States and abroad. These
third parties could bring claims against us or our collaborators that would
cause us to incur substantial expenses and, if successful against us, could
cause us to pay substantial damages. Further, if a patent infringement suit
were brought against us or our collaborators, we or they could be forced to
stop or delay research, development, manufacturing or sales of the product or
product candidate that is the subject of the suit.
The
biopharmaceutical industry has produced a proliferation of patents, and it is
not always clear to industry participants, including us, which patents cover
various types of products. The coverage of patents is subject to interpretation
by the courts, and the interpretation is not always uniform. In the event of
infringement or violation of another partys patent or other intellectual
property rights, we may not be able to enter into licensing arrangements or
make other arrangements at a reasonable cost. Any inability to secure licenses
or alternative technology could result in delays in the introduction of our
products or lead to prohibition of the manufacture or sale of products by us or
our partners and collaborators.
Patent litigation is costly and time
consuming and may subject us to liabilities.
Our
involvement in any patent litigation, interference, opposition or other
administrative proceedings will likely cause us to incur substantial expenses,
and the efforts of our technical and management personnel will be significantly
diverted. In addition, an adverse determination in litigation could subject us
to significant liabilities.
We may not obtain trademark registrations.
We
have filed applications for trademark registrations in connection with our
product candidates in various jurisdictions, including the United States. We
intend to file further applications for other possible trademarks for our
product candidates. No assurance can be given that any of our trademark
applications will be registered in the United States or elsewhere, or that the
use of any registered or unregistered trademarks will confer a competitive
advantage in the marketplace. Furthermore, even if we are successful in our
trademark registrations, the FDA and regulatory authorities in other countries
have their own process for drug nomenclature and their own views concerning
appropriate proprietary names. The FDA and other regulatory authorities also
have the power, even after granting market approval, to request a company to
reconsider the name for a product because of evidence of confusion in the
marketplace. No assurance can be given that the FDA or any other regulatory
authority will approve of any of our trademarks or will not request
reconsideration of one of our trademarks at some time in
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the
future. The loss, abandonment, or cancellation of any of our trademarks or
trademark applications could negatively affect the success of the product
candidates to which they relate.
Our revenues and expenses may fluctuate
significantly, and any failure to meet financial expectations may disappoint
securities analysts or investors and result in a decline in the price of our
securities.
We
have a history of operating losses. Our revenues and expenses have fluctuated
in the past and are likely to do so in the future. These fluctuations could
cause our share price to decline. Some of the factors that could cause our
revenues and expenses to fluctuate include but are not limited to:
·
the inability to complete
product development in a timely manner that results in a failure or delay in
receiving the required regulatory approvals to commercialize our product
candidates;
·
the timing of regulatory
submissions and approvals;
·
the timing and willingness
of any current or future collaborators to invest the resources necessary to
commercialize our product candidates;
·
the revenue available from
royalties derived from our strategic partners;
·
licensing fees revenues;
·
tax credits and grants
(R&D);
·
the outcome of litigation,
if any;
·
changes in foreign currency
fluctuations;
·
the timing of achievement
and the receipt of milestone payments from current or future collaborators; and
·
failure to enter into new
or the expiration or termination of current agreements with collaborators.
Due
to fluctuations in our revenues and expenses, we believe that period-to-period
comparisons of our results of operations are not necessarily indicative of our
future performance. It is possible that in some future quarter or quarters, our
revenues and expenses will be above or below the expectations of securities
analysts or investors. In this case, the price of our securities could
fluctuate significantly or decline.
We will not be able to successfully
commercialize our product candidates if we are unable to make adequate
arrangements with third parties for such purposes.
We
currently have a lean sales and marketing staff. In order to commercialize our
product candidates successfully, we need to make arrangements with third
parties to perform some or all of these services in certain territories.
We
contract with third parties for the sales and marketing of our products. Our
revenues will depend upon the efforts of these third parties, whose efforts may
not be successful. If we fail to establish successful marketing and sales
capabilities or to make arrangements with third parties for such purposes, our
business, financial condition and results of operations will be materially
adversely affected.
If
we had to resort to developing a sales force internally, the cost of
establishing and maintaining a sales force would be substantial and may exceed
its cost effectiveness. In addition, in marketing our products, we would likely
compete with many companies that currently have extensive and well-funded
marketing and sales operations. Despite our marketing and sales efforts, we may
be unable to compete successfully against these companies.
We
are currently dependent on strategic partners and may enter into future
collaborations for the research, development and commercialization of our
product candidates. Our arrangements with these strategic partners may not
provide us with the benefits we expect and may expose us to a number of risks.
We
are dependent on, and rely upon, strategic partners to perform various
functions related to our business, including, but not limited to, the research,
development and commercialization of some of our product candidates. Our
reliance on these relationships poses a number of risks.
We
may not realize the contemplated benefits of such agreements nor can we be
certain that any of these parties will fulfill their obligations in a manner
which maximizes our revenue. These arrangements may also require us to transfer
certain material rights or issue our equity, voting or other securities to
corporate partners, licensees and others. Any license or sublicense of our
commercial rights may reduce our product revenue.
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These
agreements also create certain risks. The occurrence of any of the following or
other events may delay product development or impair commercialization of our
products:
·
not all of our strategic
partners are contractually prohibited from developing or commercializing,
either alone or with others, products and services that are similar to or
competitive with our product candidates, and, with respect to our strategic
partnership agreements that do contain such contractual prohibitions or
restrictions, prohibitions or restrictions do not always apply to our partners
affiliates and they may elect to pursue the development of any additional
product candidates and pursue technologies or products either on their own or
in collaboration with other parties, including our competitors, whose
technologies or products may be competitive with ours;
·
our strategic partners may
under-fund or fail to commit sufficient resources to marketing, distribution or
other development of our products;
·
we may not be able to renew
such agreements;
·
our strategic partners may
not properly maintain or defend certain intellectual property rights that may
be important to the commercialization of our products;
·
our strategic partners may
encounter conflicts of interest, changes in business strategy or other issues
which could adversely affect their willingness or ability to fulfill their
obligations to us (for example, pharmaceutical companies historically have
re-evaluated their priorities following mergers and consolidations, which have
been common in recent years in this industry);
·
delays in, or failures to
achieve, scale-up to commercial quantities, or changes to current raw material
suppliers or product manufacturers (whether the change is attributable to us or
the supplier or manufacturer) could delay clinical studies, regulatory
submissions and commercialization of our product candidates; and
·
disputes may arise between
us and our strategic partners that could result in the delay or termination of
the development or commercialization of our product candidates, resulting in
litigation or arbitration that could be time-consuming and expensive, or
causing our strategic partners to act in their own self-interest and not in our
interest or those of our shareholders or other stakeholders.
In
addition, our strategic partners can terminate our agreements with them for a
number of reasons based on the terms of the individual agreements that we have
entered into with them. If one or more of these agreements were to be
terminated, we would be required to devote additional resources to developing
and commercializing our product candidates, seek a new partner or abandon this
product candidate which would likely cause a drop in the price of our
securities.
We
have entered into important strategic partnership agreements relating to
certain of our product candidates for various indications. Detailed information
on our research and collaboration agreements is available in our various
reports and disclosure documents filed with the Canadian securities regulatory
authorities and filed with or furnished to the U.S. Securities and Exchange
Commission (the SEC), including the documents incorporated into this annual
report on Form 20-F. See, for example, Notes 4 and 26 to our audited
consolidated balance sheets as at December 31, 2009 and 2008 and our
audited consolidated statements of operations, changes in shareholders equity,
comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 2009, which are included elsewhere in
this annual report on Form 20-F.
We
have also entered into a variety of collaborative licensing agreements with
various universities and institutes under which we are obligated to support
some of the research expenses incurred by the university laboratories and pay
royalties on future sales of the products. In turn, we have retained exclusive
rights for the worldwide exploitation of results generated during the
collaborations.
In
particular, we have entered into an agreement with the
Tulane
Educational Fund (Tulane)
, which provides for the payment by us of
single-digit royalties on future worldwide net sales of cetrorelix and
including Cetrotide
®
. Tulane is
also entitled to receive a low double-digit participation payment on any
lump-sum, periodic or other cash payments received by us from sub-licensees
(see Note 26 to our audited consolidated financial statements for the years
ended December 31, 2009, 2008 and 2007 included in this annual report on Form 20-F).
We rely on third parties to conduct,
supervise and monitor our clinical trials, and those third parties may not
perform satisfactorily.
We
rely on third parties such as CROs, medical institutions and clinical
investigators to enroll qualified patients and conduct, supervise and monitor
our clinical trials. Our reliance on these third parties for clinical
development activities reduces our control over these activities. Our reliance
on these third parties, however, does not relieve us of our regulatory
responsibilities, including ensuring that our clinical trials are conducted in
accordance with Good Clinical Practice (GCP) guidelines and the
investigational plan and protocols contained in an Investigational New Drug
application, or comparable
12
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foreign
regulatory submission. Furthermore, these third parties may also have
relationships with other entities, some of which may be our competitors. In
addition, they may not complete activities on schedule, or may not conduct our
preclinical studies or clinical trials in accordance with regulatory
requirements or our trial design. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines, our efforts to
obtain regulatory approvals for, and commercialize, our product candidates may
be delayed or prevented.
In carrying out our operations, we are
dependent on a stable and consistent supply of ingredients and raw materials.
There
can be no assurance that we, our contract manufacturers or our partners, will
be able, in the future, to continue to purchase products from our current
suppliers or any other supplier on terms similar to current terms or at all. An
interruption in the availability of certain raw materials or ingredients, or
significant increases in the prices paid by us for them, could have a material
adverse effect on our business, financial condition, liquidity and operating
results.
The failure to perform satisfactorily by
third parties upon which we rely to manufacture and supply products may lead to
supply shortfalls.
We
rely on third parties to manufacture and supply marketed products. We also have
certain supply obligations
vis-à-vis
our
licensing partners who are responsible for the marketing of the products. To be
successful, our products have to be manufactured in commercial quantities in
compliance with quality controls and regulatory requirements. Even though it is
our objective to minimize such risk by introducing alternative suppliers to
ensure a constant supply at all times, we cannot guarantee that we will not
experience supply shortfalls and, in such event, we may not be able to perform
our obligations under contracts with our partners.
We are subject to intense competition for
our skilled personnel, and the loss of key personnel or the inability to
attract additional personnel could impair our ability to conduct our
operations.
We
are highly dependent on our management and our clinical, regulatory and
scientific staff, the loss of whose services might adversely impact our ability
to achieve our objectives. Recruiting and retaining qualified management and
clinical, scientific and regulatory personnel is critical to our success.
Competition for skilled personnel is intense, and our ability to attract and
retain qualified personnel may be affected by such competition.
Our strategic partners manufacturing
capabilities may not be adequate to effectively commercialize our product
candidates.
Our
manufacturing experience to date with respect to our product candidates
consists of producing drug substance for clinical studies. To be successful,
these product candidates have to be manufactured in commercial quantities in
compliance with regulatory requirements and at acceptable costs. Our strategic
partners current manufacturing facilities have the capacity to produce
projected product requirements for the foreseeable future, but we will need to
increase capacity if sales continue to grow. Our strategic partners may not be
able to expand capacity or to produce additional product requirements on favorable
terms. Moreover, delays associated with securing additional manufacturing
capacity may reduce our revenues and adversely affect our business and
financial position. There can be no assurance that we will be able to meet
increased demand over time.
We are subject to the risk of product
liability claims, for which we may not have or be able to obtain adequate
insurance coverage.
The
sale and use of our products, in particular our biopharmaceutical products,
involve the risk of product liability claims and associated adverse publicity.
Our risks relate to human participants in our clinical trials, who may suffer
unintended consequences, as well as products on the market whereby claims might
be made directly by patients, healthcare providers or pharmaceutical companies
or others selling, buying or using our products. We manage our liability risks
by means of insurance. We maintain liability insurance covering our liability
for our preclinical and clinical studies and for our pharmaceutical products
already marketed. However, we may not have or be able to obtain or maintain
sufficient and affordable insurance coverage, including coverage for
potentially very significant legal expenses, and without sufficient coverage
any claim brought against us could have a materially adverse effect on our
business, financial condition or results of operations.
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Our business involves the use of hazardous
materials which requires us to comply with environmental and occupational
safety laws regulating the use of such materials. If we violate these laws, we
could be subject to significant fines, liabilities or other adverse consequences.
Our
discovery and development processes involve the controlled use of hazardous and
radioactive materials. We are subject to federal, provincial and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and certain waste products. The risk of accidental contamination
or injury from these materials cannot be completely eliminated. In the event of
an accident or a failure to comply with environmental or occupational safety
laws, we could be held liable for any damages that result, and any such
liability could exceed our resources. We may not be adequately insured against
this type of liability. We may be required to incur significant costs to comply
with environmental laws and regulations in the future, and our operations,
business or assets may be materially adversely affected by current or future
environmental laws or regulations.
Legislative actions, new accounting pronouncements and
higher insurance costs are likely to impact our future financial position or
results of operations.
Changes in financial
accounting standards or implementation of accounting standards may cause
adverse, unexpected revenue or expense fluctuations and affect our financial
position or results of operations. New pronouncements and varying
interpretations of pronouncements have occurred with greater frequency and are
expected to occur in the future, and we may make or be required to make changes
in our accounting policies in the future. Compliance with changing regulations
of corporate governance and public disclosure, notably with respect to internal
controls over financial reporting, may result in additional expenses. Changing
laws, regulations and standards relating to corporate governance and public
disclosure are creating uncertainty for companies such as ours, and insurance
costs are increasing as a result of this uncertainty.
We are subject to
additional reporting requirements under applicable Canadian securities laws and
the Sarbanes-Oxley Act in the United States. We can provide no assurance
that we will at all times in the future be able to report that our internal
controls over financial reporting are effective.
As a public
company
, we are required to comply with Section 404
of the Sarbanes-Oxley Act (Section 404) and National
Instrument 52-109
Certification
of Disclosure in Issuers Annual and Interim Filings
, and we have to
obtain an annual attestation from our independent auditors regarding our
internal control over financial reporting. In any given year, we cannot be
certain as to the timing of completion of our internal control evaluation,
testing and remediation actions or of their impact on our operations. Upon
completion of this process, we may identify control deficiencies of varying
degrees of severity under applicable SEC and Public Company Accounting
Oversight Board rules and regulations. As a public
company
, we are required to report, among other
things, control deficiencies that constitute material weaknesses or changes in
internal controls that, or that are reasonably likely to, materially affect
internal controls over financial reporting. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a
material misstatement of the
company
s annual financial statements will not be prevented
or detected on a timely basis. If we fail to comply with the requirements of Section 404,
Canadian requirements or report a material weakness, we might be subject to
regulatory sanction and investors may lose confidence in our financial
statements, which may be inaccurate if we fail to remedy such material
weakness.
It is possible that we may be a passive foreign investment
company, which could result in adverse tax consequences to U.S. investors.
Adverse U.S. federal
income tax rules apply to U.S. Holders (as defined in Item 10.E.
Taxation Certain U.S. Federal Income Tax Considerations) that directly or
indirectly hold common shares or warrants of a passive foreign investment
company (PFIC). We will be classified as a PFIC for U.S. federal income tax
purposes for a taxable year if (i) at least 75 percent of our gross
income is passive income or (ii) at least 50 percent of the average
value of our assets, including goodwill (based on annual quarterly average), is
attributable to assets which produce passive income or are held for the
production of passive income.
We
believe that we were not a PFIC for the 2009 taxable year. However, since the
fair market value of our assets may be determined in large part by the market
price of our Common Shares, which is likely to fluctuate, and the composition
of our income and assets will be affected by how, and how quickly, we spend any
cash that is raised in any financing transaction, no assurance can be provided
that we will not be classified as a PFIC for the 2010 taxable year and for any
future taxable year.
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PFIC characterization
could result in adverse U.S. federal income tax consequences to U.S. Holders.
In particular, absent certain elections, a U.S. Holder would be subject to U.S.
federal income tax at ordinary income tax rates, plus a possible interest
charge, in respect of a gain derived from a disposition of our common shares,
as well as certain distributions by us. If we are treated as a PFIC for any
taxable year, a U.S. Holder may be able to make an election to mark to market
Common Shares each taxable year and recognize ordinary income pursuant to such
election based upon increases in the value of the Common Shares. However, a
mark-to-market election is not available to be made in respect of a warrant.
Under recently enacted U.S. tax legislation
and subject to future guidance
, if we are a PFIC, U.S. Holders will be required to file, for returns
due after March 18, 2010, an annual information return with the IRS
relating to their ownership of our Common Shares. Although expected, no
guidance has yet been issued about such return, including on the information
required to be reported on such return, the form of the return, or the due date
for the return.
For a more detailed
discussion of the potential tax impact of us being a PFIC, see Item 10.E.
Taxation Certain U.S. Federal Income Tax Considerations.
We will report under International Financial Reporting
Standards for our interim and annual consolidated financial statements for the
financial year ending December 31, 2011.
The Accounting Standards
Board of the Canadian Institute of Chartered Accountants has announced that
Canadian publicly accountable enterprises are required to adopt International
Financial Reporting Standards (IFRS), as issued by the International
Accounting Standards Board, effective January 1, 2011. We will be required
to report under IFRS for our interim and annual consolidated financial
statements for the financial year ending December 31, 2011.
Although IFRS uses a
conceptual framework similar to Canadian GAAP, we will need to address
differences in accounting policies. We are currently considering the impact
that IFRS will have on our financial statements. See Item 5.
Operating
and Financial Review and Prospects.
We may incur losses associated with foreign currency
fluctuations.
Our operations are in
many instances conducted in currencies other than the euro, our functional
currency. Fluctuations in the value of currencies could cause us to incur
currency exchange losses. We do not currently employ a hedging strategy against
exchange rate risk. We cannot assert with any assurance that we will not suffer
losses as a result of unfavorable fluctuations in the exchange rates between
the United States dollar, the euro, the Canadian dollar and other currencies.
We may not be able to successfully integrate acquired
businesses.
Future acquisitions may
not be successfully integrated. The failure to successfully integrate the
personnel and operations of businesses which we may acquire in the future with
ours could have a material adverse effect on our operations and results.
Risks
Related to the Securities
Our share price is volatile, which may result from factors
outside of our control. If our common shares are delisted from the TSX or
NASDAQ, investors may have difficulty in disposing of our common shares held by
them.
Our common shares are
currently listed and traded only on the Toronto Stock Exchange (the TSX) and
National Association of Securities Dealers Automated Quotations (NASDAQ). Our
valuation and share price since the beginning of trading after our initial
listings, first in Canada and then in the United States, have had no meaningful
relationship to current or historical financial results, asset values, book
value or many other criteria based on conventional measures of the value of
shares.
During the year ended December 31,
2009, the closing price of our common shares ranged from CAN$0.57 to CAN$3.11
per share on the TSX, and from $0.46 to $2.83 on the NASDAQ. Our share price
may be affected by developments directly affecting our business and by
developments out of our control or unrelated to us. The biopharmaceutical
sector in particular, and the stock market generally, are vulnerable to abrupt
changes in investor sentiment. Prices of shares and trading volume of companies
in the biopharmaceutical industry can swing dramatically in ways unrelated to,
or that bear a disproportionate relationship to, operating performance. Our
share price and trading volume may fluctuate based on a number of factors
including, but not limited to:
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·
clinical and regulatory developments
regarding our product candidates;
·
delays in our anticipated development or
commercialization timelines;
·
developments regarding current or future
third-party collaborators;
·
other announcements by us regarding technological,
product development or other matters;
·
arrivals or departures of key personnel;
·
governmental or regulatory action
affecting our product candidates and our competitors products in the United
States, Canada and other countries;
·
developments or disputes concerning
patent or proprietary rights;
·
actual or anticipated fluctuations in our
revenues or expenses;
·
general market conditions and
fluctuations for the emerging growth and biopharmaceutical market sectors; and
·
economic conditions in the United States,
Canada or abroad.
Our listing on both the
TSX and NASDAQ may increase price volatility due to various factors including:
different ability to buy or sell our common shares; different market conditions
in different capital markets; and different trading volumes. In addition, low
trading volume may increase the price volatility of our common shares. A thin
trading market could cause the price of our common shares to fluctuate
significantly more than the stock market as a whole.
In the past, following
periods of large price declines in the public market price of a companys
securities, securities class action litigation has often been initiated against
that company. Litigation of this type could result in substantial costs and
diversion of managements attention and resources, which would adversely affect
our business. Any adverse determination in litigation could also subject us to
significant liabilities.
We must meet continuing
listing requirements to maintain the listing of our common shares on the TSX
and NASDAQ. For continued listing, NASDAQ requires, among other things, that
listed securities maintain a minimum closing bid price of not less than $1.00
per share. On January 22, 2010, we announced that we had received a letter
from the NASDAQ Listing Qualifications Department indicating that the minimum
closing bid price of the common shares had fallen below $1.00 for 30
consecutive trading days, and therefore, Æterna Zentaris was not in compliance
with NASDAQ Listing Rule 5450(a)(1) (the Rule). In accordance with
NASDAQ Listing Rule 5810(C)(3)(a), we have been provided a grace period of
180 calendar days, or until July 20, 2010, to regain compliance with this
requirement. We can regain compliance with the Rule if the bid price of
our common shares closes at $1.00 or higher for a minimum of ten consecutive
business days during the grace period, although NASDAQ may, in its discretion,
require us to maintain a minimum closing bid price of at least $1.00 per share
for a period in excess of ten consecutive business days before determining that
we have demonstrated the ability to maintain long-term compliance.
If we are unsuccessful in
meeting the minimum bid requirement by July 20, 2010, NASDAQ will provide
notice to us that our common shares will be subject to delisting from the
NASDAQ Global Market. If the
Company
receives a delisting notification, we may appeal to
the Listing Qualifications Panel or apply to transfer the listing of our common
hares to the NASDAQ Capital Market if we satisfy at such time all of the
initial listing standards on the NASDAQ Capital Market, other than compliance
with the minimum closing bid price requirement. If the application to the
NASDAQ Capital Market is approved, then we will have an additional 180-day grace
period in order to regain compliance with the minimum bid price requirement
while listed on the NASDAQ Capital Market. There can be no assurance that we
will meet the requirements for continued listing on the NASDAQ Global Market or
whether our application to the NASDAQ Capital Market will be approved or that
any appeal would be granted by the Listing Qualifications Panel.
Our largest shareholders have influence over our business
and corporate matters, including those requiring shareholder approval. This
could delay or prevent a change in control. Sales of common shares by such
shareholders could have an impact on the market price of our Securities.
Our two largest
shareholders, which held 13.97% and 12.94% of our outstanding common shares as
of the date of this annual report on Form 20-F, have certain rights to
nominate members of our Board of Directors as well as influence over our
business and corporate matters, including those requiring shareholder approval.
This could delay or prevent a change in control. Sales of common shares by such
shareholders could have an impact on the price of our securities.
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We do not intend to pay dividends in the
near future.
To
date, we have not declared or paid any dividends on our common shares. We
currently intend to retain our future earnings, if any, to finance further
research and the expansion of our business. As a result, the return on an
investment in our securities will, for the foreseeable future, depend upon any
future appreciation in value. There is no guarantee that our securities will
appreciate in value or even maintain the price at which shareholders have
purchased their securities.
Item 4. Information
on the Company
A. History and development of the
Company
Æterna
Zentaris Inc. is a late-stage drug development company specialized in oncology
and endocrine therapy.
We
were incorporated on September 12, 1990 under the Canada Business
Corporations Act (the CBCA) and continue to be governed by the CBCA. Our
registered office is located at 1405 du Parc-Technologique Blvd., Quebec City,
Quebec, Canada G1P 4P5, our telephone number is (418) 652-8525 and
our website is www.aezsinc.com. None of the documents or information found on
our website shall be deemed to be included in or incorporated into this annual
report.
On December 30, 2002,
we acquired Zentaris AG, a biopharmaceutical company based in Frankfurt,
Germany. Zentaris was a spin-off of Degussa AG and Asta Medica GmbH, a former
pharmaceutical company. With this acquisition, the Company changed its risk
profile and inherited an extensive and robust product pipeline with
capabilities from drug discovery to commercialization with a particular focus
on endocrine therapy and oncology. As part of the acquisition, we also
inherited a very experienced pharmaceutical team along with a network of
strategic pharmaceutical partners. The total consideration paid for the
acquisition of Zentaris was $51.9 million, net of cash and cash equivalents
acquired of $2.3 million, of which an amount of $26.7 million was paid in cash
and the remaining amount of $25.2 million as a balance of purchase price.
In
May 2004, we changed our name to Æterna Zentaris Inc. and on May 11,
2007, Zentaris GmbH was renamed Æterna Zentaris GmbH. Æterna Zentaris GmbH is
our principal operating subsidiary.
On
April 6, 2005, our former subsidiary Atrium Biotechnologies Inc. (now
Atrium Innovations Inc.) (Atrium), completed its initial public offering in
Canada and began trading on the TSX under the ticker symbol ATB.
Throughout
2006, as part of a thorough, strategic planning process, our management and
Board of Directors (the Board) made the decision to spin off Atrium in two
phases. On September 19, 2006, we initiated the first phase, a secondary
offering in which we sold 3,485,000 Subordinate Voting Shares of Atrium at a
price of CAN$15.80 per share. This secondary offering closed on October 18,
2006, generating net proceeds of nearly $45 million to Æterna Zentaris.
With this transaction closed, our remaining interest in Atrium was 11,052,996
Subordinate Voting Shares representing 36.1% of its issued and outstanding
shares. Therefore, we no longer had a controlling interest in Atrium as of October 18,
2006.
The
second phase was to distribute our remaining interest in Atrium to our
shareholders concurrently with a reduction of the stated capital of our common
shares.
On
December 15, 2006, our shareholders approved a reduction of the stated
capital of our common shares in an amount equal to the fair market value of our
remaining interest in Atrium by way of a special distribution in kind to all
our shareholders. This special distribution was completed on January 2,
2007. For each common share held as of the record date of December 29,
2006, our shareholders received 0.2078824 Subordinate Voting Shares of Atrium.
In May 2007, we opened an office in the United States, located at
20 Independence Boulevard, Warren, New Jersey 07059-2731.
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We
currently have three wholly-owned direct and indirect subsidiaries,
Æterna Zentaris GmbH (AEZS Germany), based in Frankfurt, Germany,
Æterna Zentaris, Inc., based in Warren, New Jersey in the United
States, and Zentaris IVF GmbH, a direct wholly-owned subsidiary of AEZS Germany
based in Frankfurt, Germany.
|
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Æterna
Zentaris Inc.
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(Canada)
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|
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|
|
|
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|
|
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|
|
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100%
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100%
|
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Æterna
Zentaris GmbH
|
|
Æterna
Zentaris, Inc
|
(Germany)
|
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(Delaware)
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100%
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Zentaris IVF GmbH
(Germany)
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From
the formation of Atrium as our subsidiary in 1999 until the distribution of our
remaining interest in Atrium on January 2, 2007, Atrium did not declare or
pay any dividends to its shareholders. Since the disposition of our entire
interest in Atrium, we have not had access to the liquidity or cash flows
generated by Atrium. Our current drug development strategy focuses mainly on
our late-stage compounds perifosine (Phase 3 in multiple myeloma) and our Phase
2 program in multiple cancers, AEZS-108 (Phase 2 in ovarian and endometrial
cancer) and AEZS-130 (Solorel
TM
) (Phase 3 as diagnostic
test for adult growth hormone deficiency), as well as on targeted earlier-stage
compounds, as depicted in the chart reproduced under the heading, Our
Product Pipeline.
Our
common shares are listed for trading on the TSX under the trading symbol AEZ
and on the NASDAQ under the trading symbol AEZS.
The Companys agent for SEC matters in the United
States is its wholly-owned subsidiary, Æterna Zentaris, Inc., located at
20 Independence Boulevard, Warren, New Jersey 07059-2731.
There have been no public
takeover offers by third parties with respect to the Company or by the Company
in respect of other companies shares during the last or current fiscal year.
B. Business overview
We
are
a late-stage drug
development company specialized in oncology and endocrine therapy. Our pipeline
encompasses compounds at all stages of development, from drug discovery through
marketed products. The highest priorities in oncology are our Phase 3
program with perifosine in multiple myeloma and our Phase 2 program in
multiple cancers, including metastatic colon cancer, as well as our
Phase 2 program with AEZS-108 in advanced endometrial and advanced ovarian
cancer combined with potential developments in other cancer indications. In
endocrinology, our lead program is the reactivation of a Phase 3 trial with
AEZS-130 (Solorel
TM
) as a growth hormone (GH) stimulation test for
the diagnosis of GH deficiency in adults (AGHD).
Recent
Developments
For a complete description of our recent
corporate and pipeline developments, refer to Item 5, Operating and Financial
Review and ProspectsHighlights.
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Our Business Strategy
Our
primary business strategy is to advance, with the collaboration of our
strategic partners, our product development pipeline with a focus on our flagship
product candidates in oncology and endocrinology. In addition, we also continue
to advance certain other clinical and pre-clinical programs as described below.
Our vision is to become a fully-integrated specialty biopharmaceutical company.
Oncology
Our
highest oncology priorities are our perifosine Phase 3 program in multiple
myeloma and Phase 2 program in multiple cancers including metastatic colon
cancer, as well as our Phase 2 program with AEZS-108 in advanced endometrial
and advanced ovarian cancer combined with potential development in other cancer
indications.
Perifosine
Perifosine
is an orally active PI3K/Akt pathway inhibitor in a Phase 3 registration trial
in multiple myeloma conducted by our North American partner Keryx for the
territories of North America and Mexico under a Special Protocol Assessment
reached with the Food and Drug Administration (FDA), which has also granted
perifosine Orphan Drug and Fast Track designations. Perifosine is also in
current multiple Phase 2 clinical studies, including metastatic colon cancer,
renal cell carcinoma and various other cancers.
Furthermore,
our partner Keryx announced on February 3, 2010 that it has reached
another special protocol assessment in refractory metastatic colon cancer with
the FDA and is planning the initiation of a registration Phase 3 trial in this
indication.
AEZS-108
AEZS-108
represents a new targeting concept in oncology leading to personalized medicine
using a cytotoxic peptide conjugate which is a hybrid molecule composed of a
synthetic peptide carrier and doxorubicin. The design of AEZS-108 allows for
the specific binding and selective uptake of the cytotoxic conjugate by
LHRH-receptor-positive tumors. Phase 2 trials in advanced endometrial cancer
and advanced ovarian cancer have met their predefined primary efficacy
endpoints.
Endocrinology
In
endocrinology, aside from Cetrotide
®
, we intend to
further advance the development of our lead program by the reactivation and
further advancement of a Phase 3 trial with AEZS-130 (Solorel
) as a GH stimulation test
for the diagnosis of AGHD.
AEZS-130
AEZS-130,
a growth hormone secretagogue (GHS), is a novel synthetic small molecule acting
as a ghrelin mimetic that is orally active and stimulates the secretion of GH.
A pivotal Phase 3 trial was initiated in the United States to investigate its
safety and efficacy as a GH stimulation test for the diagnosis of AGHD for
which Orphan Drug status has been granted by the FDA. In addition to the
diagnostic indication, we believe that AEZS-130, based on the results of Phase
1 studies, has potential applications for the treatment of cachexia, a
condition frequently associated with severe chronic diseases such as cancer,
chronic obstructive pulmonary disease and AIDS.
Clinical and Preclinical Programs
Additionally,
we are advancing in Phase 1, AEZS-112, an oral anticancer agent which involves
three mechanisms of action, tubulin and topoisomeras II and angiogenesic
inhibition, as well as several preclinical programs with targeted potential development
candidates. Among the targets for which we expect to propose clinical
development candidates in the coming years are: AEZS-120 (prostate cancer
vaccine), AEZS-127 (erucylphosphocholine derivatives), AEZS-129 (Erk and PI3K
inhibitor), AEZS-115 (non-peptide LHRH antagonists) and AEZS-123 (ghrelin
receptor antagonist).
We
also continue to perform targeted drug discovery activities from which we are
able to derive pre-clinical candidates. This drug discovery includes high
throughput screening systems and a library of more than 120,000 compounds.
19
Table of Contents
We are currently in a stage
in which some of our products and product candidates are being further
developed or marketed jointly with strategic partners. We expect we will
continue to seek strategic partnerships in the future as we move to realize our
vision of becoming a fully-integrated specialty biopharmaceutical company.
Our product pipeline
Pipeline table
Status of our drug pipeline
as at March 22, 2010
Discovery
|
|
Preclinical
|
|
Phase 1
|
|
Phase 2
|
|
Phase 3
|
|
Commercial
|
120,000 compound library
|
|
AEZS-120
Prostate cancer vaccine
(oncology)
AEZS-129
Erk & PI3K Inhibitors (oncology)
AEZS-127
ErPC (oncology)
AEZS-123
Ghrelin receptor antagonist (endocrinology)
AEZS-115
Non-peptide LHRH antagonists
(endometriosis & urology)
|
|
AEZS-112 (oncology)
AEZS-130
Therapeutic in tumor induced cachexia
(endocrinology)
|
|
Perifosine
·
Metastatic colon cancer
·
Kidney cancer
·
AEZS-108
·
Ovarian cancer
·
Endometrial cancer
|
|
Perifosine
·
Multiple myeloma
AEZS-130 (Solorel
TM
)
·
Diagnostic
in adult growth
hormone
deficiency (endocrinology)
|
|
Cetrotide
®
(
in vitro
fertilization)
|
Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perifosine:
Keryx
North America
Handok
Korea (oncology)
|
|
Perifosine:
Keryx
North America
Handok
Korea (oncology)
|
|
Cetrotide
®
:
Merck Serono
(World ex-Japan)
Nippon Kayaku / Shionogi
Japan
|
20
Table of Contents
ONCOLOGY
SIGNAL TRANSDUCTION INHIBITORS
Perifosine
Perifosine is an
alkylphosphocholine compound with structural similarity to phospholipids, which
are the main constituents of cellular membranes, and it is an active ingredient
with anti-tumor capacities. In tumor cells, perifosine has demonstrated
interactions with vital signal transduction mechanisms and induction of
programmed cell death (apoptosis).
Perifosine
exerts a marked cytotoxic effect in animal and human tumor cell lines. The most
sensitive cancer cell lines were larynx carcinoma, breast, small cell lung,
prostate and colon. Based on the
in vitro
trials, the mode of action of perifosine appears to be fundamentally different
from that of currently available cytotoxics. Pharmacodynamic data have
demonstrated that perifosine possesses anti-tumor activity, including tumor
models that are resistant to currently available agents for cancer therapy.
This activity is based on a direct and relatively specific action on tumors.
In
preclinical and clinical Phase 1 trials (solid tumors), this orally
administered agent has been found to have good tolerability. Five Phase 1
trials have been conducted on perifosine, including one trial of perifosine in
combination with radiotherapy.
Based
on findings in various tumor models, the U.S. National Cancer Institute, along
with our North American partner, Keryx, investigated additional dosage regimens
of perifosine in oncology patients. A number of screening Phase 2 studies
examined perifosine as a single agent or in combination in several tumor types.
Encouraging results lead to further development in specific indications.
Perifosine,
the first-in-class AKT inhibitor in multiple Phase 2 studies, is being
developed as an orally active anti-cancer agent.
21
Table of
Contents
Perifosine
Anti-cancer agent
Perifosine Multiple myoloma (MM)
In
June and December 2007, Keryx announced preliminary positive Phase 1
and Phase 2 data on perifosine in patients with relapsed/refractory MM. Data
demonstrated clinical activity of perifosine in combination with bortezomib and
dexamethasone, and with lenalidomide plus dexamethasone.
In
December 2008, Keryx presented final results of the Phase 1 clinical trial
in which patients with relapsed or refractory MM were administered a
combination of perifosine + lenalidomide and dexamethasone. Four cohorts
of
>
6 patients each were enrolled and perifosine dose was 50 or 100
mg (daily), lenalidomide dose was 15 or 25 mg for days 1 to 21 and
dexamethasone dose was 20 mg (for days 1-4; 9-12; and 17-20 for 4 cycles,
followed by 20 mg for days 1-4) in 28-day cycles. To limit
dexamethasone-related toxicities, the protocol was amended to use weekly
dexamethasone (40 mg), applying to cohorts 3, 4, and the Maximal Tolerated Dose
(MTD) cohort. Dose Limiting Toxicity (DLT) was defined as grade (G) 3
non-hematologic toxicity, G4 neutropenia for 5 days and/or neutropenic fever,
or platelets <25,000/mm
3
on >1 occasion
despite transfusion. Response was assessed by modified EBMT criteria. To be
enrolled, patients had to have received at least one but no more than four
prior therapies. Patients refractory to lenalidomide/dexamethasone were
excluded. 32 patients (17 men and 15 women, median age 61 years old,
range 37-80) were enrolled; 6 patients in cohort 1 (Perifosine 50 mg,
lenalidomide 15 mg, Dexamethasone 20 mg); 6 patients in cohort 2 (Perifosine 50
mg, lenalidomide 25 mg, Dexamethasone 20 mg); 8 patients in cohort 3
(Perifosine 100 mg, lenalidomide 15 mg, Dexamethasone 40mg/week); 6 patients in
cohort 4 (Perifosine 100 mg, lenalidomide 25 mg, Dexamethasone 40 mg/week) and
6 patients at MTD (Cohort 4). Median prior lines of treatment was 2 (range
1-4). Prior therapy included dexamethasone (94%), thalidomide (83%),
bortezomib (47%), and stem cell transplant (47%). 37% of patients had
progressed on prior Thalidomide/Dexamethasone. Two patients did not
complete one full cycle (non-compliance and adverse event not related to study
drugs both in cohort 3) and were not included in the safety and efficacy
analysis. Of the 30 patients evaluable for safety, the most common (
>
10%) grade 1 / 2 events included nausea (13%); diarrhea (17%); weight loss
(17%); upper respiratory infection (23%); fatigue (30%); thrombocytopenia
(20%); neutropenia (20%); hypophosphatemia (23%); increased creatinine (23%);
anemia (36%); hypercalcemia (47%). Grade 3 / 4 adverse events
>
5% included neutropenia (20%); hypophosphatemia (17%); thrombocytopenia (13%);
anemia (10%), fatigue (7%). There was one reported DLT in cohort 3
(nausea). Lenalidomide was reduced in 8 patients, Perifosine reduced in 8
patients and Dexamethasone reduced in 6 patients. All 30 patients in the
analysis were evaluable for response, with best response as follows:
Response: N = 30
|
|
N (%)
|
|
Duration
(wks)
|
|
ORR (
>
PR)
|
Near Complete
Response (nCR)
|
|
2 (7%)
|
|
79+, 15+
|
|
|
Very Good Partial Response (VGPR)
|
|
3 (10%)
|
|
62+, 34, 17
|
|
15 (50%)
|
Partial Response (PR)
|
|
10 (33%)
|
|
26+ (range 11
54+)
|
|
|
Minimal Response (MR)
|
|
6 (20%)
|
|
17+ (range 9 -
30+)
|
|
|
Stable Disease (SD)
|
|
7 (23%)
|
|
14+ (range 8
19)
|
|
|
Progression (PD)
|
|
2 (7%)
|
|
8, 4
|
|
|
stable disease:
< 25% reduction in M-protein
|
Patients
have tolerated the treatment regimen of Perifosine + Lenalidomide +
Dexamethasone well with manageable toxicity, and with encouraging clinical activity
demonstrated by an overall response rate (ORR) (> PR) of 50%.
Updated results of this
study were presented in February 2009 at the 12
th
International Multiple Myeloma Meeting by our
partner Keryx. Results indicated that
Perifosine in combination with Lenalidomide (Revlimid) + dexamethasone
continues to be well tolerated, with a median progression-free survival in
responding patients of 10.9 months. Median overall survival still has not been
reached now at 17 months. Nine patients remain on active treatment.
Also in December 2008
during the meeting of the American Society of Hematology, Keryx presented
results of a Phase 1/2 multicenter trial of perifosine + bortezomib in patients
with relapsed or relapsed/refractory MM who were previously relapsed from or
refractory to bortezomib ± dexamethasone. The Phase I stage of the study
enrolled a total of 18 patients in 4 cohorts of 3 patients each with dosing of
Perifosine 50 mg or 100 mg (daily) and bortezomib 1.0 or 1.3 mg/m
2
(on day
1, 4, 8, 11) in 21-day cycles. The selected dose for Phase 2 was perifosine 50
mg once daily + bortezomib 1.3 mg/m
2
(on day 1, 4, 8, 11)
in 21-day cycles, with a planned enrollment of 64 patients. Dexamethasone 20 mg
(on day of and after each bortezomib dose) could be added in patients with
progressive disease (PD). For the Phase 1 portion, Dose limiting toxicity (DLT)
was defined as any grade (G) 3 non-hematologic toxicity, G4 neutropenia
for 5 day and/or neutropenic fever, or platelets <10,000/mm
3
on more
than one occasion despite transfusion. Response was assessed by modified EBMT
and Uniform criteria. A total of 76 patients have been enrolled (18 patients in
Phase 1 and 58 patients in Phase 2) comprised of 45 men and
22
Table of Contents
31 women, median age 63
years old, (range 41-89). 84% of patients had relapsed/refractory MM, with a
median of 6 lines of prior treatment (range 2-13). Prior therapy included
bortezomib (100%), dexamethasone (95%), thalidomide (79%), lenalidomide (71%)
and stem cell transplant (57%). 63 patients have completed at least one
cycle and were evaluable for safety (13 patients are currently not evaluable; 3
were removed in cycle 1 and 10 are too early in their treatment). Most common
(>10%) grade 1 / 2 events were nausea, diarrhea, fatigue and
myelosuppression, which were manageable with supportive care and growth
factors. Grade 3 / 4 adverse events >5% included thrombocytopenia (40%);
lymphopenia (36%); neutropenia (21%); anemia (14%); hyponatremia (13%);
leukopenia (11%); proteinuria (8%), and upper respiratory infection (6%).
No deep vein thrombosis has been seen, and only one worsening peripheral
neuropathy from grade 1 to 3 has been reported to date. Two patients had
perifosine reduced to 50 mg (nausea, fatigue) in the Phase 1 cohort, and 7
patients had bortezomib dose reductions primarily due to hematologic
toxicity. 57 patients have completed at least 2 cycles and are evaluable
for response, with best response to perifosine + bortezomib (+/- dexamethasone)
as follows:
|
|
|
|
CR
|
|
PR
|
|
MR
|
|
ORR
|
|
SD
|
|
All Patients: Best Response
|
|
N=57
|
|
2
|
|
4%
|
|
7
|
|
12%
|
|
14
|
|
25%
|
|
23
|
|
40%
|
|
23
|
|
40%
|
|
perifosine
+ bortezomib
|
|
57
|
|
1
|
|
2%
|
|
5
|
|
9%
|
|
8
|
|
14%
|
|
14
|
|
24%
|
|
17
|
|
30%
|
|
With
dexamethasone added*
|
|
31
|
|
1
|
|
2%
|
|
2
|
|
3%
|
|
6
|
|
11%
|
|
9
|
|
16%
|
|
6
|
|
11%
|
|
(* as a subset of the evaluable population)
9
of 76 patients (12%) rapidly progressed without response or stable disease,
including 6 patients in whom dexamethasone was also added. As of August 2008,
the median time to progression (TTP) for patients achieving
>
PR is
34 weeks, and for all patients achieving
>
MR is 33 weeks. Perifosine
in combination with bortezomib (+/- dexamethasone) was generally well tolerated
and is remarkably active in a heavily pre-treated Bortezomib-exposed patient
population, with an ORR of 40%, including an ORR of 37% and a median TTP of
9.25 months in responding but previously bortezomib-refractory patients.
Updated
data for the effect of perifosine in combination with bortezomib +/-
dexamethosone were reported at the 12
th
International Multiple Myeloma Meeting in February 2009
by our partner Keryx.
Eighty-four patients were enrolled in a combined Phase I/II study (18 patients
in the Phase I component and 66 patients in the Phase II component). At the
time of this analysis, 73 patients were evaluable for response. Median prior
lines of therapy was 5 (range 1 - 13), including; 100% of patients had been
treated with bortezomib (50% of the patients were previously treated with at
least 2 bortezomib-based therapies and 81% were previously treated with
bortezomib plus dexamethasone); 98% of patients were previously treated with
dexamethasone; 99% of patients were previously treated with lenalidomide
(Revlimid) and/or thalidomide (Thalomid); and 57% of patients had prior stem
cell transplant. No unexpected adverse events have been seen. Toxicities were
manageable with supportive care and/or dose reductions as required.
Best response (MR or better) and stable disease
(no progression for 3 months) to either perifosine + bortezomib
(+/-dexamethasone) for patients previously relapsed from or refractory to prior
bortezomib treatment was as follows:
Evaluable
Patients
|
|
CR
|
|
PR
|
|
MR
|
|
ORR
|
|
SD
> 3 mos
|
|
Bortezomib Relapsed
(n=20)
|
|
2
|
|
10%
|
|
6
|
|
30%
|
|
3
|
|
15%
|
|
11
|
|
55%
|
|
9
|
|
45%
|
|
Bortezomib Refractory
(n=53)
|
|
1
|
|
2%
|
|
6
|
|
11%
|
|
10
|
|
19%
|
|
17
|
|
32%
|
|
24
|
|
45%
|
|
All Evaluable
Patients (n=73)
|
|
3
|
|
4%
|
|
12
|
|
16%
|
|
13
|
|
18%
|
|
28
|
|
38%
|
|
33
|
|
45%
|
|
Patients who had
previously relapsed on a bortezomib-based treatment had a median time to
progression (TTP) of 8.5 months. The median TTP for all 73 evaluable study
patients (both bortezomib relapsed and refractory) was 6.4 months. As stated in
Keryxs February 26, 2009 press release, there were 16 patients remain on
active treatment.
Updated efficacy and safety data as well as
new survival data on the clinical activity of perifosine in combination with
bortezomib (Velcade
®
) +/- dexamethasone in patients with
relapsed/refractory multiple myeloma
were presented by our
partner Keryx during the ASH 2009 meeting in December 2009.
Of the 73 evaluable patients, 53 patients
(73%) were previously refractory to bortezomib (defined as progression on or
within 60 days of treatment to a bortezomib-based regimen), including 44
patients who were refractory to the combination of bortezomib + dexamethasone.
Twenty evaluable patients (27%) were relapsed to a prior bortezomib-based
regimen. Best response for all 73 evaluable patients was as follows:
23
Table of
Contents
Evaluable Patients
|
|
CR /nCR*
|
|
PR
|
|
MR
|
|
ORR
|
|
SD**
|
|
All Evaluable Patients (n=73)
|
|
3
|
|
4%
|
|
13
|
|
18%
|
|
14
|
|
19%
|
|
30
|
|
41%
|
|
30
|
|
41%
|
|
Bortezomib Relapsed (n=20)
|
|
2
|
|
10%
|
|
7
|
|
35%
|
|
4
|
|
20%
|
|
13
|
|
65%
|
|
7
|
|
35%
|
|
Bortezomib Refractory (n=53)
|
|
1
|
|
2%
|
|
6
|
|
11%
|
|
10
|
|
19%
|
|
17
|
|
32%
|
|
23
|
|
43%
|
|
*
nCR = Near Complete Response is defined as meeting the
criteria for CR (non-detectable monoclonal protein by serum and urine), except
with detectable monoclonal protein by immunofixation.
**
SD = Stable Disease for a
minimum of 3 months
.
Approximately 60% (45 /
73) of patients demonstrated progression (or SD for 4 cycles) at some point in
their treatment and received 20 mg dexamethasone, four times per week, in
addition to perifosine plus bortezomib. Responses occurred both with patients
taking perifosine in combination with bortezomib and with patients receiving
the combination plus dexamethasone. Best response for each group was as
follows:
Best Response
|
|
CR /nCR
|
|
PR
|
|
MR
|
|
ORR
|
|
SD
|
|
Perifosine + Bortezomib (n=73)
|
|
2
|
|
3%
|
|
10
|
|
14%
|
|
6
|
|
8%
|
|
18
|
|
25%
|
|
19
|
|
26%
|
|
Dexamethasone added (n=45)
|
|
1
|
|
2%
|
|
6
|
|
13%
|
|
10
|
|
23%
|
|
17
|
|
38%
|
|
14
|
|
31%
|
|
Five patients achieved an
initial response on perifosine + bortezomib alone, and subsequently responded
again with the addition of dexamethasone. Three additional patients achieved
stable disease on perifosine + bortezomib alone, and subsequently achieved
stable disease again with the addition of dexamethasone.
Reported for the first
time was median Progression-Free Survival (PFS) and Overall Survival (OS) data
for all evaluable patients, as follows:
Evaluable Patients
|
|
Median PFS*
|
|
Median OS**
|
All
Evaluable Patients (n=73)
|
|
6.4 months
95% CI (5.3, 7.1)
|
|
25 months
95% CI (15.5, NR)
|
NR = Not Reached
*
Median PFS and median TTP were identical, as no
patient deaths occurred prior to progression.
**
Kaplan Meier methodology was
used to determine overall survival figures.
Of
particular interest was the comparison of evaluable patients who were
previously refractory and the patients who were relapsed to a bortezomib-based
regimen. Median PFS and OS for bortezomib relapsed vs. refractory were as
follows:
Bortezomib Relapsed vs. Refractory
|
|
Median PFS*
|
|
Median OS**
|
Bortezomib
Relapsed (n=20)
|
|
8.8
months
95% CI
(6.3, 11.2)
|
|
Not
Reached at 38+ months
95%
CI (25, NR)
|
Bortezomib
Refractory (n=53)
|
|
5.7
months
95% CI
(4.3, 6.4)
|
|
22.5
months
95% CI
(12.3, NR)
|
*
Median PFS and median TTP were identical, as no
patient deaths occurred prior to progression.
**
Kaplan Meier methodology was used to determine overall
survival figures.
No unexpected adverse events have been observed.
Toxicities were manageable with supportive care.
In August 2009, our
partner Keryx announced that it has reached an agreement with the FDA regarding
a Special Protocol Assessment (SPA) on the design of a Phase 3 trial for
perifosine, in relapsed or relapsed/refractory multiple myeloma patients
previously treated with bortezomib (Velcade
®
).
The SPA provides agreement that the Phase 3 study design adequately addresses
objectives in support of a regulatory submission. The study, entitled, A Phase
3 Randomized Study to Assess the Efficacy and Safety of Perifosine Added to the
Combination of Bortezomib and Dexamethasone in Multiple Myeloma Patients
Previously Treated with Bortezomib, will be a double-blind, placebo-controlled
study comparing the efficacy and safety of perifosine vs. placebo when combined
with bortezomib and dexamethasone. The trial, powered at 90%, will enroll
approximately 400 patients with relapsed or relapsed/refractory multiple
myeloma (patients can be relapsed from and refractory to all non-bortezomib
based therapies, however, patients can only be relapsed (progressed > 60
days after
24
Table
of Contents
discontinuing therapy)
from prior bortezomib-based therapies). The primary endpoint is
progression-free survival and secondary endpoints include overall response
rate, overall survival and safety. The Phase 3 trial is a randomized (1:1),
double-blind trial comparing the efficacy and safety of perifosine to placebo
when combined with bortezomib and dexamethasone. Patients must have been
previously treated with both bortezomib (Velcade
®
)
and an immunomodulatory agent (Revlimid
®
or Thalidomid
®
)
and previously treated with one to four prior lines of therapy. The primary
endpoint is progression-free survival and secondary endpoints include overall
response rate, overall survival and safety.
We announced the initiation, by our partner Keryx, of the enrollment of
patients for this Phase 3 trial on December 16, 2009. Enrolled patients
will be randomized to bortezomib (Velcade
®
)
at 1.3 mg/m
2
days 1, 4, 8 and 11 every 21 days
in combination with dexamethasone 20 mg on the day of and day after bortezomib
(Velcade
®
) treatment, and either perifosine 50 mg
daily or placebo. We expect a patient recruitment period of approximately 16-18
months, with study completion expected within approximately 20-22 months from
today. Approximately 265 events (defined as disease progression or death) will
trigger the un-blinding of the data.
In September 2009,
our partner Keryx announced that it had received orphan-drug designation for
perifosine from the FDA for the treatment of multiple myeloma. Orphan-drug
designation is granted by the FDA Office of Orphan Drug Products to novel drugs
or biologics that treat a rare disease or condition affecting fewer than
200,000 patients in the U.S. The designation provides the drug developer with a
seven-year period of U.S. marketing exclusivity if the drug is the first of its
type approved for the specified indication or if it demonstrates superior
safety, efficacy or a major contribution to patient care versus another drug of
its type previously granted the designation for the same indication.
On December 2, 2009,
we announced that the FDA had granted Fast Track designation for perifosine for
the treatment of relapsed/refractory multiple myeloma. The Fast Track program
of the FDA is designed to facilitate the development and expedite the review of
new drugs that are intended to treat serious or life-threatening conditions and
that demonstrate the potential to address unmet medical needs. Fast Track
designated drugs ordinarily qualify for priority review, thereby expediting the
FDA review process.
In March 2010, we
announced that we had received a positive opinion for orphan medicinal product
designation for perifosine from the Committee for Orphan Medicinal Products of
the European Medicines Agency, for the treatment of multiple myeloma. Orphan
medicinal product designation is granted by the European Commission, following
a positive opinion from the COMP, to a medicinal product that is intended for
the diagnosis, prevention or treatment of a life-threatening or a chronically
debilitating condition affecting not more than five in 10,000 persons in the
European Community when the application for designation is submitted.
Orphan medicinal product
designation provides the sponsor with access to the Centralized Procedure for
the application for marketing authorization, protocol assistance, up to a 100%
reduction in fees related to a marketing authorization application,
pre-authorization inspection and post-authorization activities, and could
provide ten years of market exclusivity in EU, once approved for the treatment
of multiple myeloma.
Competitors for Perifosine in
Multiple Myeloma Indication
Products on the market:
Major products available on the market for the treatment of multiple
myeloma are the following:
Velcade
®
(bortezomib
manufactured by Millenium: The Takeda Oncology Company), a proteasome inhibitor
approved in combination with melphalan (Alkeran
®
- manufactured by Celgene) and prednisone as a
1
st
-line treatment and as a monotherapy for 2
nd
-line
treatment in both U.S. and E.U. Millennium reported more than $1 billion in
global Velcade
®
sales in 2008.
[Velcade
®
is co-developed
by Millennium Pharmaceuticals, Inc. and Johnson & Johnson
Pharmaceutical Research & Development, L.L.C. Millennium is
responsible for commercialization of VELCADE in the U.S., Janssen-Cilag is
responsible for commercialization in Europe and the rest of the world. Janssen
Pharmaceutical K.K. is responsible for commercialization in Japan.]
Caelyx
®
/Doxil
®
(pegylated liposomal doxorubicin
manufactured by Schering Plough), a topoisomerase II inhibitor and DNA
intercalating agent, is approved as a 2
nd
-line
treatment in combination with Velcade
®
in patients with advanced multiple myeloma.
25
Table of
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Thalomid
®
(thalidomide manufactured by Celgene), an
antiangiogenic compound has been approved by the FDA for use in combination
with dexamethasone for the treatment of patients with newly diagnosed multiple
myeloma. The Australian Therapeutic Goods Administration, or TGA, approved a
supplemental filing granting Thalomid
®
marketing approval for use in combination with
melphalan and prednisone for patients with untreated multiple myeloma or
ineligible for high-dose chemotherapy, and also granted Thalomid
®
marketing approval in combination with
dexamethasone for induction therapy prior to high-dose chemotherapy with
autologous stem cell rescue, for the treatment of patients with untreated
multiple myeloma. In addition, Thalomid
®
was granted full marketing authorization by
the European Commission, or EC, for use in combination with melphalan and
prednisone as a treatment for patients with newly diagnosed multiple myeloma.
Internationally, Thalomid
®
is also distributed under mandatory
risk-management distribution programs tailored to meet local competent
authorities specifications to help ensure the safe and appropriate
distribution and use of Thalomid
®
. According to
Celgenes 2009 Annual Report, Thalomid
®
sales were down 13.4% to approximately $436.9
million in 2009.
Revlimid
®
(lenalidomide manufactured by Celgene):
Revlimid
®
is an oral immunomodulatory drug approved by
the FDA and a number of other regulatory agencies in Europe, Latin America,
Middle East and Asia/Pacific for treatment in combination with dexamethasone for
multiple myeloma patients who have received at least one prior therapy and in
Australia and New Zealand in combination with dexamethasone for the treatment
of patients whose disease has progressed after one therapy. Revlimid
®
is distributed internationally under mandatory
risk-management distribution programs tailored to meet local competent
authorities specifications to help ensure the safe and appropriate
distribution and use of Revlimid
®
.
Revlimid
®
continues to be evaluated in numerous clinical
trials worldwide either alone or in combination with one or more other
therapies in the treatment of a broad range of hematological malignancies,
including multiple myeloma, MDS, non-Hodgkins lymphoma, or NHL, chronic
lymphocytic leukemia, or CLL, other cancers and other diseases. According to
Celgenes 2009 Annual Report, Revlimid
®
sales were up 28.8% to approximately $1.7
billion in 2009.
Products in Phase 3 development:
Panobinostat (LBH5893) Novartis: Panobinostat is a highly potent
pan-deacetlyase inhibitor (pan-DACi) developed by Novartis. Panobistats
mechanism of action involves disrupting aggresome function, promoting
accumulation of cytotoxic misfolded protein aggregates and triggering of myloma
cell death. Combination of pan-DAC and protease inhibition by co-treatment with
panobinostat and bortezomib as demonstreated synergistic cytotoxicity
in vitro
and
in vivo
in
preclinical experiments. Clinical experience in advanced multiple myeloma
patients treated by oral panobinostat and i.v. bortezomib +/- dexamethasone
showed efficacy and manageable toxicity profile. Panobinostat is currently in
Phase 3 trial in patients with relapsed multiple myeloma in combination with
Bortezomib.
Idamycin (Idarubicin) Pfizer: Idarubicin is an oral anthracyclines and
an analogue of daunorubicin (but 5 to 6 times more potent than daunorubicin)
developed by Pfizer. The mechanism of action of anthracyclines is poorly
understood and cytotoxicity is generally attributed to intercalation of the
drug into DNA and inhibition of DNA topoisomerase II activity resulting in
double and single strand DNA breaks. Idarubicin is already approved in Canada
for Acute lymphocytic leukemia in adults and children as a second-line
treatment and in Acute non-lyphocytic leukemia in adults as a front-line
treatment or for refractory/relapsed disease. Idarubicin is currently in Phase
3 clinical trial for patients with Stage I or Stage II multiple myeloma in
combination with dexamethasone.
Zolinza (vorinostat MK0683) Merck: Zolanza is an oral histone
deacetylase (HDAC) inhibitor developed by Merck. Zolinza works by inhibiting
the enzymatic activity of HDAC1, HDAC2, HDAC3 (Class 1) and HDAC6 (Class II).
Inhibition of HDAC may result in anti-cancer effects since HDAC inhibitors,
like zolinza, have the ability to induce antiproliferative effects including
cyto-differentiation, cell cycle growth arrest or apoptosis in various cancer
cell lines. The exact mechanism of the anticancer effect of Zolinza has not
been fully characterized. Phase 1 results showed early anti-tumor activity in
patients with releaspsed and/or refractory multiple myeloma when zolenza was
administered in combination with bortezomib, including in patients previously
treated with and no longer responding to bortezomib. A Phase 3 randomized,
double-blind, placebo-controlled trial of zolinza in combination with
bortezomib in patients with relapsed and/or refractory multiple myeloma is
currently enrolling patinents. Pulmonary embolism and deep vein thrombosis have
been reported as adverse reactions following treatment with zolenza.
Carfilzomib Onyx Pharmaceuticals:
Carfilzomib is the first in a new class of selective,
irreversible proteasome inhibitors being developed by Proteolix
(now part of Onyx Pharmaceuticals)
for the treatment of hematologic malignancies and solid
tumors. Carfilzomib produces specific and sustained inhibition of the
proteasome, leading to apoptosis in cancer cells with minimal off-target
effects. In Phase 1 and Phase 2 clinical trials, carfilzomib has demonstrated
single-agent activity in hematologic malignancies and solid tumors, including
multiple myeloma, Waldenstroms macroglobulinemia, mantle cell lymphoma and
renal cell carcinoma. Carfilzomib was generally well tolerated and toxicities
were manageable. A Phase 3 international randomized trial evaluating the
efficacy of carfilzomib in combination with lenalidomide and dexamethasone
26
Table of
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versus lenalidomide and dexamethasone as a
potential treatment option for patients with relapsed multiple myeloma is
expected to begin in April 2010.
Orphan Drug designation was granted by EMA in June 2008 for the
treatment of multiple myeloma.
Multiple myeloma is the second most-common
hematologic cancer, representing 1% of all cancer diagnoses and 2% of all
cancer deaths.
According to the International Myeloma Foundation,
more than 85,000 men and women in Europe underwent treatment for multiple
myeloma in 2007 and 25,000 people were expected to die from multiple myeloma in
2007. According to the American Cancer Society, an estimated 20,580 new cases
of multiple myeloma were diagnosed in the United States and 10,500 people were
expected to die from multiple myeloma in the United States in 2009.
Perifosine
Colon Cancer
In June 2009, our partner Keryx presented
results of a randomized Phase 2 study of perifosine in combination with
capecitabine versus capecitabine alone in patients with second- or third-line
metastatic colon cancer.
This randomized, double-blind,
placebo-controlled study was conducted at 11 centers across the United States.
Patients with 2nd or 3rd line metastatic colon cancer were randomized to
receive capecitabine (Xeloda
®
), an approved drug for metastatic colon cancer, at a
dose of 825 mg/m
2
BID (total daily dose of 1650 mg/m
2
) on
days 1 - 14 every 21 days, plus either perifosine or placebo at 50 mg daily.
Treatment was continued until progression. The study enrolled a total of 38
patients, 34 of which were third-line or greater. Of the 38 patients enrolled,
35 were evaluable for response (20 patients on the capecitabine + perifosine
arm and 15 patients on the capecitabine + placebo arm). The three patients not
evaluable for response were all in the capecitabine + placebo arm; 2 patients
were inevaluable due to toxicity (days 14, 46) and 1 patient was inevaluable
due to a new malignancy on day 6. All patients in the perifosine + capecitabine
arm were evaluable for response.
The patients in the study were heavily
pre-treated, with the arms well-balanced in terms of prior treatment regimens.
The median number of prior treatment regimens for all 38 patients was two, with
prior treatment regimens as follows: 91% of the patients received prior FOLFIRI
(Irinotecan + 5FU + Leucovorin); 74% prior FOLFOX (Oxaliplatin + 5FU +
Leucovorin); 63% were previously treated with both FOLFIRI and FOLFOX; 77% received
prior Avastin; and 43% prior Erbitux
®
. Prior treatment with single
agent capecitabine was excluded.
The primary endpoints of this study were to
measure 1) Time to Progression (TTP); 2) Overall Response Rate (ORR), defined
as the percentage of patients achieving a Complete Response (CR) or Partial
Response (PR) by RECIST, and 3) Clinical Benefit Rate (CBR) defined as the
percentage of patients on treatment for greater than three months with at least
stable disease. Safety of perifosine + capecitabine vs. capecitabine + placebo
in this patient population was evaluated as a secondary endpoint. Perifosine in
combination with capecitabine was well tolerated with hand/foot syndrome (14%)
and anemia (11%) as the highest reported grade 3/4 adverse events.
Best response and median time to progression of
capecitabine + perifosine vs. capecitabine + placebo were as follows:
Group
|
|
N
|
|
CR
N(%)
|
|
PR
N(%)
|
|
ORR
N(%)
|
|
SD
> 12
wks N(%)
|
|
CBR
N(%)
|
|
Median
TTP
(wks)
|
|
Capecitabine +
Perifosine
|
|
20
|
|
1
(5%)
|
|
3
(15%)
|
|
4
(20%)
|
|
11
(55%)
|
|
15
(75%)
|
|
28.9
weeks
{95% CI (13, 48.1)}
|
|
Capecitabine + Placebo
|
|
15
|
|
0
|
|
1
(7
%)
|
|
1
(7%)
|
|
5
(33%)
|
|
6
(40%)
|
|
11
weeks
{95% CI
(9, 15.9)}
|
|
Perifosine + capecitabine more than doubled time
to progression vs. capecitabine + placebo with a statistically significant
p-value = 0.0006. In addition, perifosine + capecitabine more than doubled the
ORR and almost doubled the Clinical Benefit Rate vs. capecitabine + placebo.
27
Table of
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Although not a primary endpoint in the study,
overall survival was analyzed with results as follows:
Group
|
|
Median
Overall Survival*(months)
|
|
%
change
|
Capecitabine + Perifosine
|
|
22 {95% CI (12.1, NR)}
|
|
26% Increase**
|
Capecitabine + Placebo
|
|
16.3 {95% CI (5.3, 17.1)}
|
|
|
*
Survival calculated from date of randomization until
date of death from any cause, whether or not additional therapies were received
after removal from treatment.
**
As of May 2009, median overall survival in the
perifosine + capecitabine patient group is ongoing with 10 of the 20 patients
in this arm still alive.
Updated
results of this Phase 2 study were presented in January 2010 by our
partner Keryx during the ASCO Gastrointestinal Cancers symposium. The primary
endpoint of this study was to measure TTP. ORR, defined as CR+PR by RECIST, and
overall survival (OS) was measured as a secondary endpoint. Updated results
demonstrated
a
statistically significant advantage in the combination arm of perifosine +
capecitabine for TTP and OS, as well as for the percentage of patients
achieving Stable Disease (SD) lasting 12 or more weeks or better, as compared
to the capecitabine arm. The perifosine + capecitabine arm demonstrated a
greater than 60% improvement in OS, a more than doubling of median TTP, and
almost a doubling of the percentage of patients achieving SD or better. In
addition, the ORR was 20% (including one CR, and durable responses) in the
perifosine + capecitabine arm vs 7% in the capecitabine arm. The updated
efficacy results for all evaluable patients are as follows:
Group
|
|
N
|
|
ORR %
CR / PR
(Duration of Response)
|
|
> SD (min 12 wks)
N (%)
p=0.036
|
|
Median TTP
Weeks
p=0.0012
|
|
Median OS*
Months
p=0.0136
|
Perifosine + Capecitabine
|
|
20
|
|
20%
1 CR (34 mos - ongoing)
3 PR (21, 19, 11 mos)
|
|
15 (75%)
|
|
28 [95% CI (12-48)]
|
|
18 [95% CI (10.8-25.7)]
|
Capecitabine
|
|
15
|
|
7%
1 PR (7 mos)
|
|
6 (40%)
|
|
11 [95% CI (9-15.9)]
|
|
11 [95% CI (5.3-16.9)]
|
Of notable interest, and
for the first time presented, were data showing a highly statistically
significant benefit in median OS (more than doubling) and TTP for the subset of
patients who were refractory to a 5-FU (Fluorouracil) chemotherapy-based
treatment regimen. 5-FU is a core component of the standard of care FOLFIRI and
FOLFOX regimens, and capecitabine is a 5-FU pro-drug. These results are shown
below:
Group
|
|
5-FU Ref
N (%)
|
|
> SD (min 12 wks)
N (%)
p=0.066
|
|
Median TTP
Weeks
p=0.0004
|
|
Median OS
Months
p=0.0088
|
Perifosine + Capecitabine
|
|
14 (70
%)
|
|
1 PR / 8 SD (64
%)
|
|
18 [95% CI (12-36)]
|
|
15.3 [95% CI (8.4-26
)]
|
Capecitabine
|
|
11 (73%)
|
|
0 PR / 3 SD (27%)
|
|
10 [95% CI (6.6-11)]
|
|
6.8 [95% CI (4.8-11.7)]
|
All 38
patients were evaluable for safety. The perifosine + capecitabine combination
was well-tolerated with Grade 3 and Grade 4 adverse events of > 10%
incidence for perifosine + capecitabine arm versus capecitabine arm as follows:
anemia (15% vs. 0%), fatigue (0% vs. 11%), abdominal pain (5% vs. 11%) and
hand-foot syndrome (30% vs. 0%). Of note, incidence of Grade 1 and Grade 2
hand-foot syndrome was similar in both the perifosine + capecitabine and
capecitabine arms (25% vs. 22%, respectively). Hand-foot syndrome is a reported
adverse event with capecitabine monotherapy. Patients who remained on treatment
longer in the Phase 2 study had a greater chance to develop hand-foot syndrome
as illustrated by a median time to onset of Grade 3 and Grade 4 hand-foot
syndrome in the perifosine + capecitabine arm of 19 weeks.
On February 3, 2010,
our partner Keryx announced that it had
reached an agreement with the FDA regarding a SPA on the design of a Phase 3
trial for perifosine in patients with refractory metastatic colorectal cancer.
The Phase 3 X-PECT (Xeloda
®
+ Perifosine Evaluation in Colorectal cancer
Treatment) trial will be a randomized (1:1), double-blind trial comparing the
efficacy and safety of perifosine + capecitabine (Xeloda
®
) vs. placebo + capecitabine in approximately 430
patients with refractory metastatic colorectal cancer. Patients must have
failed available therapy including 5-fluorouracil, oxaliplatin (Eloxatin
®
), irinotecan, bevacizumab (Avastin
®
) and, if K-Ras wild-type, failed therapy with prior
cetuximab (Erbitux
®
) or panitumumab (Vectibix
®
). For oxaliplatin-based therapy, failure of therapy
will also include patients who discontinued due to toxicity. The primary
endpoint is overall survival, with secondary endpoints including overall
response rate (complete
28
Table
of Contents
responses + partial
responses), progression-free survival and safety. Approximately 40 to 50 U.S. sites will
participate in the study. The study is expected to begin in 2Q 2010, and
enrollment is expected to take approximately 12 months, with study completion expected in 2H 2011. Dr. Johanna
Bendell, Director of GI Oncology Research for the Sarah Cannon Research
Institute, Nashville, Tennessee, will lead the Phase 3 investigational team.
Competitors for Perifosine in
colon cancer indication:
Products on the market:
Standard 1
st
-line therapies for treatment
of colon cancer are usually the FOLFOX (5-fluorouracil; leucovorin;
oxaliplatin) or the FOLFIRI (5-fluorouracil; leucovorin; irinotecan)
combination.
The current therapies also include:
Xeloda
®
(Capecitabine manufacture by Roche) is an
oral fluoropyrimidine which generates fluorouracil preferentially in tumor
tissues by enzymatic cascade and is used in 1
st
or 2
nd
-line
setting for treatment of metastatic colorectal or colon cancer in monotherapy
and also in combination with any chemotherapy in all lines with or without
Avastin. According to Roches 2009 Annual Report, sales of Xeloda for
colorectal, stomach and breast cancer increased 7% to 1.3 billion Swiss francs
in 2009.
Avastin
®
(Bevacizumab, a humanized monoclonal antibody
targeting vascular endothelial growth factor manufactured by Genentech/Roche)
is also used in 1
st
or 2
nd
line treatment of metastatic colorectal
cancer combined with available Standard therapy FOLFOX. According to Roches
2009 Annual Report, sales of Avastin
®
for advanced colorectal, breast, lung and
kidney cancer, and for relapsed glioblastoma (a type of brain tumour), rose
21% to
6.2 billion Swiss francs in 2009.
Erbitux
®
(Cetuximab) is a
chimeric
monoclonal
antibody
that specifically blocks the epidermal growth factor
receptor (EGFR). Cetuximab is indicated for the treatment of patients with
EGFR-expressing, KRAS wild-type metastatic colorectal cancer in combination
with Standard chemotherapy FOLFIRI, and in patients who have failed
oxaliplatin- and irinotecan-based therapy. Erbitux
®
is manufactured and distributed in North
America by ImClone and Bristol-Myers Squibb, while in the rest of the world
distribution is by Merck KGaA.
Vectibix
®
(Panitumumab)
is a recombinant, human
IgG2 kappa monoclonal antibody manufactured by Amgen that binds specifically to
the human epidermal growth factor receptor (EGFR). Vectibix
®
is indicated as a single agent for the
treatment of EGFR-expressing, metastatic colorectal carcinoma with disease
progression on or following fluoropyrimidine-, oxaliplatin-, and
irinotecan-containing chemotherapy regimens. There are 2 boxed warnings for
Vectibix
®
: dermatologic toxicity and
infusion reactions.
Product in Phase 3 development:
Aflibercept Sanofi + Regeneron: Aflibercept is an anti-angiogenesis
inhibitor with a unique mechanism of action being developed by Sanofi and
Regeneron. This fusion protein binds all forms of Vascular Endothelial Growth
Factor-A (VEGF-A), as well as VEGF-B and placental growth factor (PIGF),
additional angiogenic growth factors that appear to play a role in tumor
angiogenesis and inflammation. Aflibercept has been shown to bind VEGF-A, VEGF-B,
and PlGF with higher affinity than their natural receptors. Three Phase 3
studies are actually ongoing, each of which is currently over 70 percent
enrolled:
·
VELOUR
study: 2nd-line metastatic colorectal cancer in combination with fluorouracil,
leucovorin, and irinotecan (FOLFIRI);
·
VITAL
study: 2nd-line non-small cell lung cancer in combination with docetaxel;
·
VENICE
study: 1st-line hormone-refractory metastatic prostate cancer in combination
with docetaxel and prednisone.
Aptocine Light Sciences Oncology: Aptocine is a water-soluble drug
targeted by a single-use, disposable drug activator included with the drug.
Aptocine has three mechanisms of action: direct tumor cytotoxicity, apoptosis
caused by vascular shutdown and potential anti-tumor immune stimulation.
Enrollment of a Phase 3 trial for aptocine in metastatic colorectal cancer is
nearly completed. This Phase 3 trial is a 450-patient trial, conducted
primarily at sites in Europe and India, to assess the progression-free survival
and overall survival of patients treated with Aptocine plus chemotherapy versus
chemotherapy alone.
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Table of
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Brivanib Bristol-Myers Squibb: Brivanib, developed by Bristol-Myers
Squibb, is an oral prodrug of BMS-540215, a dual tyrosine kinase inhibitor of
VEGFR and FGFR signaling. Brivanib strongly binds to and inhibits VEGFR2, a
tyrosine kinase receptor expressed almost exclusively on vascular endothelial
cells. The inhibition of VEGFR2 may result in inhibition of tumor angiogenesis,
inhibition of tumor cell growth, and tumor regression. Brivanib is currently in
Phase 3 randomized trial investigating Brivanib Alaninate in combination with
cetuximab (Erbitux
®
) vs. placebo in combination
with cetuximab (Erbitux
®
) in patients with
K-RAS tumors previously treated with combination chemotherapy for metastatic
colorectal carcinoma.
It is not yet known whether giving brivanib
together with cetuximab is more effective than cetuximab alone in treating
patients with metastatic colorectal cancer.
OncoVax Vaccinogen: OncoVax is an autologous tumour cell vaccine and
prepared
for each patient using the patients own surgically removed tumor. The active
specific immunotherapy falls within the classification of Advanced Therapeutic
Medicinal Product (ATMP). The patient received the first of four vaccinations
several weeks after surgery. The vaccine consists of a portion of the tumor
cells that has been thawed and combined with a proprietary formulation of BCG
that serves as an immunogenic enhancer. This formulation is also used for the 2
nd
inoculation. The 3
rd
and the final booster incolucations are
prepared the same way but without the addition of BCG. Phase 3a results
demonstrated efficacy of Oncovax
®
in Stage II colon cancer patients with a
statistical significant increased 5-year overall survival rate and increased
recurrence-free survival by log-rank analysis. OncoVAX
®
currently has a marketing authorization from
Swissmedic, Switzerlands medical authority, in the category of procedes
therapeutiques. A pre-submission meeting to request Scientific Advice from the
EMA for submission of a Conditional Marketing Autorization was done in December 2009.
According
to the American Cancer Society, colorectal cancer is the third most common form
of cancer diagnosed in the United States. It is estimated that over 146,000
people were diagnosed with some form of colorectal cancer with over 49,000
patients dying from colorectal cancer in 2009. Surgery is often the main
treatment for early stage colorectal cancer. When colorectal cancer
metastasizes (spreads to other parts of the body such as the liver),
chemotherapy is commonly used. Treatment of patients with recurrent or advanced
colorectal cancer depends on the location of the disease. Chemotherapy regimens
(i.e. FOLFOX or FOLFIRI either with or without bevacizumab) have been shown to
increase survival rates in patients with metastatic/advanced colorectal cancer.
Currently, there are seven approved drugs for patients with metastatic
colorectal cancer: 5-fluorouracil (5-FU), capecitabine (Xeloda
®
), irinotecan
(Camptosar
®
), oxaliplatin (Eloxatin
®
), bevacizumab (Avastin
®
), cetuximab
(Erbitux
®
), and panitumumab (Vectibix
®
). Depending on the stage
of the cancer, two or more of these types of treatment may be combined at the
same time or used after one another. For example, FOLFOX combines 5-FU,
leucovorin and oxaliplatin, and FOLFIRI combines 5-FU, leucovorin and
irinotecan. Bevacizumab, a VEGF monoclonal antibody, is commonly administered
with chemotherapy. Typically, patients who fail 5-FU, oxaliplatin, irinotecan,
and bevacizumab-containing therapies, and who have wild-type KRAS status
receive EGFR monoclonal antibody therapy with either cetuximab or panitumumab.
Once patients progress on these agents, there are no further standard treatment
options.
Perifosine
Waldenstroms Macroglubulinemia
Results of a Phase 2 study
on perifosine in patients with Waldenstroms Macroglubulinemia (WM) were
presented by Keryx in June 2008 at ASCO and in December 2008 during
the ASH meeting. Perifosine showed clinical activity as a single agent in
patients with relapsed/refractory WM, with an ORR (partial response [PR] +
minimal response [MR]) of 36%. PR occurred in 2 patients (6%), with a median
duration of response of 9+ and 18+ months, MR occurred in 11 patients (30%),
with a median duration of response of 7 months (2-21+ months). Stable disease
[SD] occurred in 21 patients (58%) and progressive disease [PD] in 2 patients
(6%) at 2 and 4 months. The most common adverse events were GI toxicities
(nausea, vomiting and diarrhea) with grade 1 and 2 in 36% of the patients.
Grade 3 and 4 events included anemia (9%) and leucopenia (9%). Grade 3
arthritis occurred in 9% of the patients; was considered likely related to
therapy, (especially in rapidly responding patients), and reversed with symptomatic
treatment as well as dose reduction. Dose reductions to 100 mg occurred in a
total of 36% of the patients and were otherwise due to GI toxicity or
cytopenias. Perifosine monotherapy induces a prolonged time to progression in
relapsed or refractory WM, with a promising response rate of 36%, stabilization
of disease in 58% of patients, and manageable toxicity, as well as the
convenience of oral administration. Future clinical trials in combination with
rituximab are planned.
In January 2010,
we announced that an article entitled
Clinical
and Translational Studies of a Phase II Trial of the Novel Oral Akt Inhibitor
Perifosine in Relapsed or Relapsed/Refractory Waldenstroms Macroglobulinemia,
reporting Phase 2 data demonstrating the single agent activity of perifosine
for the treatment of advanced Waldenstroms Macroglobulinemia, appeared in the February 1,
2010 issue of the Journal of Clinical Cancer Research. Dr. Irene Ghobrial, Assistant Professor
of Medicine, Bing Center for Waldenstroms Macroglobulinemia at Dana-Farber
Cancer Institute, led the Phase 2 study, in which 37 patients were treated with
perifosine 150 mg daily for 6 cycles. In this study, 41% of the patients had 3
or more lines of prior therapy and 78% had 2 or more prior lines of therapy.
Such prior therapies include nucleoside analogues,
30
Table of Contents
bortezomib,
alkylating agents and rituximab, which are not approved for, but are often used
in the treatment of Waldenstroms. Stable or responding patients were allowed
to continue therapy until progression. Of the 37 patients, 4 achieved a partial
response (11%), 9 achieved a minimal response (24%), and 20 showed stable
disease (54%). Overall, 89% (33/37) of patients treated with single agent
perifosine were reported to have stable disease or better, while 11% (4
patients) demonstrated progression. The median progression-free survival in the
study was 12.6 months (90% C.I. (10.2, 22.7)), with a median overall survival
of 26 months (90% C.I. (26 upper limit not reached)). Perifosine was
generally well tolerated with gastrointestinal symptoms and fatigue reported as
the most common adverse events related to therapy.
Perifosine
Renal Cell Carcinoma
In
June 2006, we announced positive data of perifosine in patients with
advanced renal cell carcinoma (RCC). Keryx disclosed results from an interim
analysis performed at the end of the first year of accrual, from a Phase 2,
multi-center trial of perifosine that included multiple types of tumor and the
results of the RCC group met protocol requirements for expansion of this
cohort. Of the 13 patients with RCC, seven were evaluable for response. Three
of them (43%) had a partial response and an additional two patients (29%)
achieved long-term stable disease. Two patients (29%) had progressive disease.
Results of a Phase 1 multicenter trial of perifosine in combination with
sorafenib or in combination with sunitinib for patients with advanced cancers
including RCC were disclosed by Keryx in June 2007 during the ASCO meeting
and in November 2007. The trial was designed to accrue 3-6 patients
in each of four cohorts. Response by RECIST criteria was a secondary endpoint.
Perifosine was escalated from 50 mg once per day to 50 mg three times per day;
sorafenib dose was escalated from 400 mg once per day to 400 mg twice per day;
and sunitinib dose was escalated from 25 mg to 50 mg once per day for 4 weeks
of treatment out of 6. Dose limiting toxicity (DLT) was defined as grade (G) 3
non-hematologic or G4 hematologic toxicity. Maximal tolerated dose (MTD) was
the dose below that at which 2 out of 6 patients experienced a DLT.
For
the combination perifosine + sorafenib, 20 patients were enrolled (12 males / 8
females, median age 64 (range 44-87)) with a median number of 2 prior therapies
(range 1-4). Three patients were inevaluable due to rapid disease progression.
Diagnosis was as follows; RCC (11 pts), sarcoma (5), colorectal (2),
hepatocellular (1) and neuroendocrine (1). 17 patients were evaluable for
toxicity: no drug related Grade 4 adverse events (AE) were seen. Suspected DLT
of hand-foot syndrome was seen in cohort 4 and additional patients were
enrolled. There was no increase in hand-foot syndrome compared to sorafenib
alone. Of interest, 6/9 evaluable RCC patients (67%) had stable disease (SD)
>12 weeks (median 26 weeks, range 12-62+). One hepatocellular patient had SD
for 36 weeks. The combination of perifosine + sorafenib was well tolerated with
no increased hand-foot syndrome compared to sorafenib alone. Six out of 9 RCC
patients (67%) achieved SD up to 62+ weeks. Future studies are currently in
development.
For
the combination perifosine + sunitinib, 14 patients (8 males / 6 females; media
range 62 years old, range 28-81) were enrolled. Disease type was as follows:
RCC (3), Sarcoma (3), Other (8). Six patients were evaluable for
response. After 2 treatment cycles, one patient had a partial response (PR), 3 patients
showed a SD and 2 patients had disease progression (PD). In the sub-group RCC,
three out of three patients were evaluable for response: one patient had a PR,
1 patient showed a SD and 1 patient had a PD. Results indicated that patients
to date have tolerated well the treatment combination of perifosine + sunitinib
with no unexpected toxicities and clinical activity has been noted within the
first 3 cohorts with 4 of 6 (67%) evaluable patients with advanced cancer
achieving at least SD for more than 6 months.
Results
from a Phase II trial of perifosine in patients with advanced RCC who have
failed tyrosine kinase inhibitors (TKI) were also presented at the ASCO meeting
in June 2009 by our partner Keryx. The goal of this multi-center Phase II
trial was to determine the safety and efficacy of perifosine in patients with
advanced RCC refractory to VEGFR TKI.
The study enrolled a total of 50 patients, of
which 46 patients were evaluable for response. Evaluable patients were defined
as those who had greater than 7 days of treatment. The primary endpoint of this
study was clinical benefit, defined as response rate (RECIST), and
progression-free survival (PFS) in RCC patients who failed a prior VEGF
receptor inhibitor (sunitinib or sorafenib). Safety of perifosine in this
patient population was evaluated as a secondary endpoint. The best response to
single-agent perifosine was as follows:
Group
|
|
N
|
|
PR
N (%)
|
|
SD
> 12 wks
N (%)
|
|
CBR*
N (%)
|
|
Median
PFS
(SD or >)
|
All Pts
|
|
46
|
|
5 (11
%)
|
|
16 (35
%)
|
|
21 (46
%)
|
|
33 weeks
[95% CI (24, 60)]
|
*
CBR: Clinical Benefit Rate
defined as patients with Stable Disease or Partial Response
31
Table of Contents
The median PFS for all 46 patients was 12.5
weeks [95% CI (11.9, 19)]. The median overall survival has not been reached
with 33 of 46 patients (72%) still alive.
Also of interest was the patient subgroup who
had failed both a VEGF receptor inhibitor (sunitinib or sorafenib) and an mTOR
inhibitor (either everolimus or temsirolimus). For this group, the best
response and median PFS to single agent perifosine was as follows:
Group
|
|
N
|
|
PR
N (%)
|
|
SD
> 12 wks
N (%)
|
|
CBR
N (%)
|
|
Median
PFS
|
VEGF + mTOR
|
|
16
|
|
1 (6
%)
|
|
7 (44
%)
|
|
8 (50
%)
|
|
16 weeks
[95% CI (11.7, 33.6)]
|
Three patients out of the group of patients
previously treated with and failed both a VEGF and an mTOR inhibitor remain on
active treatment, now out 5, 9 and 17 months.
Updated
clinical
results
of this Phase II study of perifosine
as a single-agent treatment for advanced metastatic
RCC
were presented in September 2009
by our partner Keryx at the 8
th
International
Kidney Cancer Symposium. Those updated data included results from a subgroup of
patients who failed both a VEGF receptor inhibitor (sunitinib or sorafenib) and
an mTOR inhibitor (temsirolimus or everolimus). Evaluable patients (n=16) were
defined as those who had greater than 7 days of treatment (2 additional
patients withdrew consent within 7 days). Patients received 100 mg of
perifosine daily until progression or unacceptable toxicity. The primary
endpoint of this study was clinical benefit, defined as response rate (CR / PR
by RECIST) or percent of patients progression-free for at least 3 months.
Median progression-free survival (PFS) and overall survival were also analyzed
for efficacy. Safety was a secondary endpoint. Perifosine was well-tolerated
with the most common adverse events being gastrointestinal discomfort and
fatigue. Best response to single agent perifosine was as follows:
N
|
|
PR
N (%)
|
|
SD
> 12 wks
N (%)
|
|
PD
< 12 wks
N (%)
|
|
Median
PFS
|
|
Overall
Survival
|
16
|
|
1 (6
%)
|
|
7 (44
%)
|
|
8 (50
%)
|
|
16 wks [95% CI (11.7, 28)]
|
|
Not Reached (14/16 alive)
|
|
|
Median PFS for patients SD
or >
|
|
33 wks [95% CI (19, NR)]
|
|
at 22+ months
|
Perifosine
Sarcoma
In June 2007, our
partner Keryx presented results of Phase 1 and 2 studies for the treatment of
patients with advanced sarcoma at the ASCO meeting. The dose schedules in the
Phase 1 trials were weekly 100-800mg or loading dose 300-1800mg on Day 1
followed by 50-150 mg daily for Days 2-21 every 28 days or loading dose 400-900
mg and daily 50-100 mg continuously. In the Phase 2 trial, doses were loading
dose 900 mg on Day 1 and 150mg daily for days 2-21 every 28 days; loading dose
900 mg and 100 mg daily continuously; 50 mg daily continuously without a
loading dose; and 900-1,500 mg weekly. 145 patients with sarcoma were entered
into studies and were assessed for clinical benefit rate (CBR). Partial
responses were seen, in one patient each, with chondrosarcoma, extra-skeletal
myxoid chondrosarcoma, leiomyosarcoma and a desmoid tumor. At lower doses with
52 patients fully evaluable for CBR, the CBR was 52% with four partial
responses and 23 stable diseases at
>
4 months. At higher doses with
30 patients fully evaluable for CBR, CBR was 53% with 16 stable diseases at
>
4 months. Toxicities were mainly gastrointestinal and/or fatigue. The
percentage of patients with grade 0 nausea, vomiting, diarrhea and fatigue for
lower dose perifosine (76 patients) was 46%, 49%, 38% and 55%, respectively,
compared to 26%, 32%, 20%, and 58% for higher dose perifosine (69 patients).
The proportion of patients with grade 2+ nausea, vomiting, diarrhea and fatigue
was 20%, 13%, 15%, and 21% for lower dose perifosine and 49%, 35%, 42%, and 25%
for higher dose perifosine.
In
November 2007, Keryx announced positive preliminary Phase 2 data of
perifosine in patients with chemo-insensitive sarcoma. Data demonstrated the tolerability
and clinical activity of perifosine as a single agent with an overall clinical
benefit of 40% (stable disease > 3 months) in patients with refractory rare
sarcomas. Perifosine was well tolerated with the most common grade 1 &
2 adverse events reported as nausea, vomiting, diarrhea and fatigue.
Perifosine
Gliomas
In
November 2007, Keryx announced early results of a Phase 2 trial of
perifosine as a single agent for the treatment of recurrent malignant gliomas
(malignant glioblastoma and malignant anaplastic gliomas). Twenty-five patients
with advanced malignant gliomas were treated with a loading dose of 600 mg (150
mg x4) followed by a 100 mg daily dose of perifosine.
32
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The
median progression free survival and overall survival in the anaplastic glioma
group was nine weeks (range 2-50 weeks) and 49 weeks, respectively. Toxicity
was minimal with the following reported events: one grade 1 nausea, one grade 1
diarrhea, one grade 2 pain, and one grade 4 gout exacerbation. The study was
designed to enroll at least 12 evaluable malignant glioblastoma patients and at
least 10 evaluable malignant anaplastic gliomas patients. If at least one
patient achieves six month progression free survival, the study would continue
to enroll an additional subset of patients. Therefore, the malignant
glioblastoma arm has been halted and the malignant anaplastic gliomas arm will
continue to enroll.
Perifosine
Other indications
On
March 2, 2006, our North American partner, Keryx, announced the initiation
of a corporate-sponsored Phase 2 trial, multi-cancer, clinical program to
evaluate perifosine as a treatment for leukemia. Dr. Frank Giles,
Professor, Department of Leukemia, at the MD Anderson Cancer Center in Houston,
TX, is the principal investigator. This Phase 2 trial will assess the objective
response rate and evaluate the pharmacokinetics and safety and tolerability of
perifosine as a single agent in relapsed or refractory acute myeloid leukemia,
acute lymphocytic leukemia, chronic lymphocytic leukemia, high-risk
myelodysplastic syndrome and chronic myeloid leukemia in the blastic phase.
In
November 2006, Keryx presented intermediary results of the Phase 2 study
of imatinib plus perifosine in patients with imatinib-resistant
gastrointestinal stromal tumor (GIST). The primary endpoint of this study is
to evaluate the efficacy and toxicity of the combination imatinib and perifosine
in patients with imatinib-resistant GIST. To date, 16 patients have been
enrolled in the current study. Of the 12 patients with evaluable disease, there
were two partial responses by Choi criteria (17% objective response rate (ORR))
and one partial response by RECIST criteria (8% objective response rate). Grade
3 and 4 adverse events were rare and included fatigue, myalgias, ocular
toxicity and nausea/emesis. The early data from the current study suggest that
the addition of perifosine to imatinib is well-tolerated and may have efficacy
in the treatment of patients with imatinib-resistant GIST.
Updated
results of this trial were presented in June 2009 by our partner Keryx,
during the ASCO meeting.
Patients with Kit (+) advanced GIST who have progressed
on imatinib were eligible. Patients continued their current dose of imatinib
and were randomized to one of two dosing schedules of perifosine (Arm A: 100 mg
p.o. qd x 28 + imatinib or Arm B: 900 mg [300 mg p.o. tid] qweekly + qd
imatinib). A Bayesian approach was utilized to assess a target response rate of
20% with an unacceptable toxicity rate of 15% or less. Response was measured
every 8 weeks by RECIST and Choi criteria. The primary endpoint was to
determine the efficacy of perifosine with imatinib in patients with advanced
GIST who progressed while receiving imatinib. 41 patients were enrolled from August 2005
to July 2008. After 1 patient exclusion and 2 cross-overs, 22 patients
were in Arm A and 18 patients in Arm B. Median age was 58 (range, 32-82), 51%
were male, and median ECOG performance status was 1. The most common primary
site of disease and metastasis was the stomach (29%) and liver (66%),
respectively. KIT genotype was available for 22 patients (54%); 5(12%) WT,
13(32%) exon 11 mutations, and 4(10%) exon 9 mutations. The median number of
cycles was 2 (range, 1-24). By Choi and RECIST, 30 patients (73%) and 36
patients (87%) were available for response, respectively. No complete response
(CR) was identified but the partial response (PR) rate was 4/36 (11%) by Choi
(4 PR, 9 stable disease (SD)) and 0/36 (0%) by RECIST (16 SD). 4/5 (80%) of
patients with WT KIT appeared to benefit (Choi: 1 PR, 3 SD; RECIST: 4 SD).
Median PFS and OS for 40 patients were 2.2 months and 18.3 months. No difference
in PFS was noted for the 2 schedules. Toxicity was assessed in 39 patients; 46
grade 3 events and 4 grade 4 events (ALT elevation, blurred vision, fatigue,
and mood alteration) were noted. The most common grade 3 event was fatigue
(20%). Three patients (7%) were removed from the study for toxicity (Arm A:1
patient, Arm B:2 patients).
On July 14, 2009, our partner Keryx announced the
initiation of a Phase 1 clinical study to evaluate perifosine as a single agent
treatment for recurrent solid tumors in pediatric patients. This single-center
open-label study, fully funded by an external grant provided by a private
organization, will be conducted at Memorial Sloan-Kettering Cancer Center in
New York City. Oren Becher, MD, Instructor, Department of Pediatrics, in
coordination with Eric Holland, MD, PhD, Director of the Brain Tumor group
at Memorial Sloan-Kettering Cancer Center, will act as the studys Principal
Investigator. P
erifosine is being
evaluated as a single-agent in pediatric patients with any solid tumor that has
failed standard therapy. Patients up to 18 years of age with a performance
status of greater than 40% are eligible for this study. The study has been
designed as a dose escalation study to determine the maximum tolerated dose
(MTD) of perifosine alone in recurrent/progressive pediatric tumors. A standard
3+3 dose escalation design will be employed with 3 to 6 patients at each dose
level. All patients will receive perifosine at a loading dose on the first day,
followed by a maintenance dose to start on day two until progression of
disease. A minimum of 4 and a maximum of 24 patients will be required to
complete the study.
On October 8, 2009, Keryx announced the
initiation of a Phase 2 clinical study to evaluate perifosine as a single agent
treatment for relapsed or refractory Chronic Lymphocytic Leukemia (CLL) and
Small Lymphocytic Lymphoma (SLL). This externally funded Phase 2 study was
designed by Daphne Friedman, MD, Instructor and Principal Investigator, in
coordination with J. Brice Weinberg, Professor, and Mark Lanasa, Assistant
Professor, Divisions of Medical Oncology and
33
Table
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Hematology, Duke University Medical Center, and is
open for enrollment at Duke University.
The single-center, open-label, study entitled, Phase 2 Trial of Perifosine
in Patients with Relapsed or Refractory Chronic Lymphocytic Leukemia/Small
Lymphocytic Lymphoma, will enroll approximately 30 patients. Perifosine will
be given orally at a dose of 50 mg twice daily, for a total of six 28-day
cycles. The patients will be formally restaged upon completion of the trial.
Overall Response Rate is the primary endpoint with overall survival,
progression-free survival and safety as secondary endpoints. Correlative
studies will also be conducted and evaluated as a secondary endpoint.
Perifosine Radio-enhancer
A
proof-of-concept Phase 1 study of perifosine in combination with radiotherapy
conducted by the National Cancer Institute of the Netherlands was completed in
2004. Results from this trial were presented at ASCO 2004. A total of 21
radiotherapy-naïve patients, of whom 17 had advanced non-small cell lung cancer
(NSCLC) and 14 had become refractory to prior chemotherapy, received oral
perifosine doses ranging from 50 mg to 200 mg/day concurrently with standard
doses of radiotherapy. The trial data demonstrated an acceptable safety and
tolerability profile, with 150 mg/day established as the dose recommended for
use in subsequent clinical trials. Also demonstrated was preliminary evidence
of anti-tumor activity at all dosage levels, including complete or partial
responses (complete disappearance and decreased tumor size, respectively), or
stable disease, with a median follow-up for responders of eight months.
Importantly, in the cohort of 10 patients who were treated with 150 mg/day, the
established dose recommended for use in subsequent clinical trials, there were
three complete responses, three partial responses and four patients with stable
disease.
On
September 22, 2005, we announced the initiation of a multi-center Phase 2
randomized, double-blind, placebo-controlled trial with perifosine in
combination with radiotherapy for NSCLC. Patients received perifosine 150
mg daily for five to six weeks and are followed for at least 12 months. The
primary endpoint of this trial is the extent and duration of local control,
i.e., the absence of tumor recurrence or progression in the area that has been
irradiated. The trial is being conducted in collaboration with the Netherlands
Cancer Institute. The lead investigator is Marcel Verheij, M.D., Ph.D., of the
Department of Radiation Oncology / Division of Cellular Biochemistry, at the
Netherlands Cancer Institute in Amsterdam. We announced completion of
recruitment of 160 patients with inoperable Stage III NSCLC on November 14,
2007.
We
disclosed preliminary
results for this European multi-center Phase 2 trial in NSCLC in June 2009.
Starting one week before the onset of a 4-week course of radiotherapy (51 Gy in
17 fractions), 177 patients with non-metastatic but inoperable NSCLC, mainly
Stage III, received a 5-week course of 150 mg perifosine daily or placebo.
After end of radiotherapy, patients were followed up to determine the time to
tumor recurrence or progression in the area that had been irradiated, the so
called local control. The primary endpoint of this trial was the extent and
duration of local control, specifically the proportion of patients with absence
of recurrence or progression 12 months after the end of treatment. The study
was planned under the basic assumption that radiotherapy alone would result in
a 35% local control rate, one year after end of therapy in the placebo group. It
was hypothesized that the addition of perifosine would sensitize tumor cells to
the tumor-killing effect of the radiotherapy, leading to a 15% higher rate of
local control. Secondary efficacy parameters included the times to
loco-regional or distant/systemic failure, the tumor response rate, and overall
survival. Safety investigations included the monitoring of clinical laboratory,
electrocardiograms, lung function, and adverse events.
In all, 22 study sites in
The Netherlands, Bulgaria, Romania, Macedonia, and Belarus participated in this
trial. A total of 177 patients were randomized and treated, of whom only 26
reached the milestone of one year post-treatment follow-up without disease
relapse or progression, 14 of 95 patients (14.7%) in the perifosine and 12 of
82 patients (14.6%) in the placebo control group. No difference between
treatment groups could be shown for local, loco-regional and overall disease
control. Also, the tumor response rate, as assessed after the end of the
radiotherapy, was not different between the groups.
In contrast to the lack
of an observed local effect, patients in the perifosine group, particularly the
subgroup of patients who entered the study without prior chemotherapy, showed a
trend towards longer survival than patients of the placebo control group
despite the short duration of treatment (5-week course of 150 mg perifosine
daily).
There were no safety
signals that would lead to an amendment of the current safety data or risk
benefit assessments of perifosine. The type and severity of side effects were
in the expected range. Following these
neutral results and an unchanged safety profile, we announced that we will
concentrate our efforts for perifosine on the disease targets of both multiple
myeloma and metastatic colon cancer.
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Table of
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Partners for perifosine
A
Cooperative Research and Development Agreement (CRADA) was put in place with
the National Institute of Health/the National Cancer Institute in May 2000.
A cooperation and license agreement was signed in September 2002 with
Access Oncology, Inc. (AOI), for the use of perifosine as an anti-cancer
agent covering the United States, Canada and Mexico. In January 2004, AOI
was acquired by Keryx, which is pursuing the clinical development of perifosine
under the same conditions as AOI. The agreement, in particular, provides us
free access to all data from Keryx and its partners studies, as well as
milestone payments and scale-up royalties to be paid to us on future net sales
of perifosine in the United States, Canada and Mexico. In April 2009 we
entered into an agreement to out-license the rights of perifosine to Handok in
South Korea. We own rest of the world rights to perifosine.
AEZS-127 erucylphosphocholine
On
January 6, 2005, we announced the initiation of preclinical development of
erucylphosphocholine (AEZS-127), an analog of perifosine which is suitable for
i.v.
administration.
Like perifosine, AEZS-127 belongs to a new class of compounds based on
alkylphosphocholines. AEZS-127 possesses distinctive reduced haemolytic
activity thus allowing for
i.v.
injection.
On
January 6, 2005, we also licensed to Keryx certain rights to develop and
market AEZS-127 in North America, South Africa, Israel, Australia and New
Zealand while keeping rights for the rest of the world. According to the
agreement with Keryx, the preclinical development costs of AEZS-127 are shared
between Keryx (50%) and us (50%). In Q4 2008, we repatriated all rights for
AEZS-127 from Keryx.
In 2006, studies for acute
toxicity and dose range finding of erucylphosphocholine were actively pursued.
The 4-week toxicity studies in rats and dogs as well as the safety pharmacology
package was completed in 2007. These preclinical data are a prerequisite for
the performance of a Phase 1 clinical study.
Erk/PI3K inhibitors and dual kinase inhibitors
In
addition to our activities with alkylphosphocholines, we are screening small
molecules for activity as agonists and antagonists to lipid-protein signaling
interactions, which are seen as new and potentially important therapeutic
targets.
We
are focusing our efforts on single and dual inhibitors of Ras-Raf-Mek-Erk and
PI3K-Akt pathways. The Ras-Raf-Mek-Erk and the PI3K-Akt pathways are
constitutively activated in many cancer types, and influence both tumor
development and progression.
Both
signaling pathways represent promising therapeutic targets for the treatment of
tumors. We have now identified a new compound class with inhibitory activity
against both the Erk and PI3K kinases. These small molecules inhibit the
kinases at nanomolar concentrations in a dose-dependent manner by competing
directly at the ATP binding site. In a broad kinase panel, the molecules are
very selective against other kinases. In cellular experiments the compounds
inhibit the activation of downstream targets Akt and Rsk1, and can stop the
proliferation of various human cancer cell lines. Moreover, a new generation of
aniline-substituted pyridopyrazine-urea derivative shows highly selective PI3K
inhibition. We are currently performing
in
vivo
studies with front-runner compounds in four mouse xenograft
models (HCT116, U87, A549 and PC3) as well as pharmacokinetic studies in
rodents using an oral pre-formulation. On the basis of these studies, AEZS-126
was selected as a preclinical development candidate for
in vivo
pharmacology and pharmacokinetic studies.
AEZS-126
The
first
in vitro
and
in vivo
data for AEZS-126 were presented in April 2009 at the AACR meeting. The
first poster, e
ntitled,
AEZS-126, a new orally bioavailable
PI3K inhibitor with antitumor effects, focuses on ADMET and safety
profiling of the compound, as well as
in
vivo
pharmacokinetic experiments and mouse xenograft antitumor
studies. Results indicated that AEZS-126 was identified as a potent inhibitor
of class I PI3Ks in biochemical and cellular assays and demonstrated favorable
properties in early
in vitro
ADMET screening including microsomal stability, plasma stability and screening
against a large safety profile composed of receptors, enzymes and cardiac
ion-channels. During the course of
in vivo
pharmacokinetic experiments and mouse xenograft antitumor studies, the oral
bioavailability in mice was determined to be about 60%, leading to micromolar
plasma levels which are well above the nanomolar IC50 values in
vitro
studies. Significant antitumor
activity was observed at 30mg/kg daily oral administration in Hct116 and A549
models. These data suggest that AEZS-126 is a promising compound for clinical
intervention of the PI3K/Akt pathway in human tumors.
35
Table of
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The 2
nd
poster,
entitled
In vitro
profiling of the potent and selective PI3K
inhibitor, AEZS-126, outlines the key
in vitro
characteristics of this compound that led to its selection
for
in vivo
development. AEZS 126
inhibits PI3Ka with an IC50 value of 10nM and proved to be a potent inhibitor
of Akt phosphorylation in cellular assays. Mode-of-action studies showed that
AEZS-126 acts as an ATP competitive compound. The
in vitro
antiproliferative activity against different human
tumor cell lines (MDA-MB 468, U87, Hct116, PC-3, A549 and others) was
determined, with EC50 values in the nanomolar range.
Based on those results
presenting a favorable
in vitro
pharmacologic
profile for AEZS-126, further
in vivo
profiling experiment will be performed.
AEZS-129
On April 21, 2009,
we presented two posters on AEZS-129, a promising compound for clinical
intervention of the PI3K/ Akt pathway in human tumors, at the American
Association for Cancer Research (AACR) Annual Meeting.
In vivo
and
in vitro
data showed significant
antitumor activity and a favorable
in vitro
pharmacologic profile which could lead to further
in vivo
profiling.
TUMOR
TARGETING CYTOTOXIC CONJUGATES AND CYTOTOXICS
Cytotoxic
conjugates
In
view of the non-specific toxicity of most chemotherapeutic agents against
normal cells, targeting such drugs to cancerous tissue offers a potential
benefit for patients with advanced or metastatic tumors. Targeted cytotoxic
peptide conjugates are hybrid molecules composed of a cytotoxic moiety linked
to a peptide carrier which binds to receptors on tumors. Cytotoxic conjugates
are designed to achieve differential delivery, or targeting, of the cytotoxic
agent to cancer vs. normal cells.
Our
cytotoxic conjugates represent a novel oncological strategy to control and
reduce toxicity and improve the effectiveness of cytotoxic drugs. The
development strategy was to create targeted conjugates with high cytotoxic
activity based on doxorubicin, an approved and commercialized product or
2-pyrrolino-doxorubicin which is 500 to 1,000 times more active than the parent
compound. We are exploring several candidates in which doxorubicin or
2-pyrrolino-doxorubicin are coupled to the peptide carriers targeting LHRH
(AEZS-108 & AN-207), somatostatin (AN-238 & AN-162) or
bombesin (AN-215) receptors. These conjugates are less toxic and more effective
in vivo
than the respective
radicals in inhibiting tumor growth in LHRH receptor positive models of human
ovarian, mammary or prostatic cancer.
In
AEZS-108, the most advanced of the cytotoxic conjugates, doxorubicin is
chemically linked to an LHRH agonist, a modified natural hormone with affinity
for the LHRH receptor. This design allows for the specific binding and
selective uptake of the cytotoxic conjugate by LHRH receptor positive tumors.
Potential benefits of this targeted approach include a more favorable safety
profile with lower incidence and severity of side effects, as normal tissues
are spared from toxic effects of doxorubicin. In addition, the targeted
approach may enable treatment of LHRH receptor positive cancers that have
become refractory to doxorubicin which has been administered in its
non-targeted form.
36
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In
preclinical studies conducted to date in several animal models of LHRH receptor
positive human cancer cell lines, AEZS-108 anti-tumor activity and tolerability
were shown to be superior to that of doxorubicin. As would be expected,
AEZS-108 was not active or was significantly less active than doxorubicin in
LHRH receptor negative cancer cell lines. On January 18, 2005, we
announced the initiation of a company-sponsored Phase 1 dose-ranging study with
the targeted anti-cancer agent AEZS-108.
In
June 2006, we announced positive Phase 1 results for AEZS-108 in patients
with gynaecological and breast cancers which showed that the compound has a
good safety profile and no dose-limiting toxicities. Eight patients received
AEZS-108 by
i.v.
infusion. Infusion was well
tolerated at all dosages, without supportive treatment. Pharmacokinetic
analyses showed dose-dependent plasma levels of AEZS-108 and only minor
(10-20%) release of doxorubicin. Stabilization of disease was observed in one
out of eight patients in the ongoing Phase 1 study.
On
November 27, 2006, we disclosed additional positive Phase 1 results
regarding AEZS-108 in patients with gynaecological and breast cancers. Further
data showed the compounds good safety profile and established the maximum
tolerated dose at 267 mg/m
2
, which is equimolar to a
doxorubicin dose of 77 mg/m
2
. This dose will be the
recommended dose for a Phase 2 trial. The Phase 1 open-label, multi-center,
dose-escalation, safety and pharmacokinetic study conducted in Europe included
17 patients suffering from breast, endometrial and ovarian cancers with proven
LHRH receptor status. Evidence of anti-tumor activity was found at 160 mg/m
2
and 267
mg/m
2
doses of AEZS-108, where 7 out of 13 patients showed signs of
tumor response, including 3 patients with complete or partial responses. The
Phase 2 trials will focus on advanced or recurrent ovarian and endometrial
cancers, two forms of cancer where LHRH receptors are highly expressed.
Recommended dose will be 267 mg/m
2
given once every
three weeks.
AEZS-108
Ovarian and Endometrium Cancer
In
2007, a Phase 2 open-label, non-comparative, multicenter two indication trial
stratified with two stages Simon Design was prepared. The enrollment of 82
patients is planned for this trial with up to 41 patients with either a
diagnosis of platinum-resistant ovarian cancer (stratum A) or disseminated
endometrial cancer (stratum B).
Under coordination by Prof. Günter Emons, MD, Chairman
of the Department of Obstetrics & Gynaecology at the University of
Göttingen, Germany, this open-label, multi-center and multi-national Phase 2
study AGO-GYN 5 is being conducted by the German AGO Study Group
(Arbeitsgemeinschaft Gynäkologische Onkologie / Gynaecological Oncology Working
Group), in cooperation with clinical sites in Europe.
P
atients with tumors expressing LHRH
receptors administered will be an
i.v.
infusion of 267 mg/m
2
of AEZS-108 over a period of 2 hours, every Day
1 of a 21-day (3-week) cycle. The proposed duration of the study treatment is
6, 3-week cycles. Study AGO GYN 5 will be performed with 14 centers of the
German Gynaecological Oncology Working Group, in cooperation with 3 clinical
sites in Europe. The primary efficacy endpoint at the end of stage 2 was
defined as 5 or more patients with partial or complete tumor responses
according to Response Evaluation Criteria in Solid Tumors (RECIST) and/or
Gynaecologic Cancer Intergroup (GCIG) guidelines. Secondary endpoints include
time to progression, survival, toxicity, as well as adverse effects.
On February 12,
2008, we reported that the treatment of first patients had commenced in this
Phase 2 trial. In October 2008, we announced that we have entered
the second stage of patient recruitment for the Phase 2 trial in
platinum-resistant ovarian cancer indication. This decision was taken following
the report of two partial responses among patients with a diagnosis of
platinum-resistant ovarian cancer. The second stage of patient
recruitment for the endometrial cancer indication was reached in November 2008
and was based on the report of one complete response and two partial responses
among 14 patients with a diagnosis of disseminated endometrial cancer.
In November 2009, we
announced positive efficacy data from this Phase 2 study in patients with
platinum-resistant and taxane-pretreated ovarian cancer. In a personalized
healthcare approach, the study selected patients with tumors expressing LHRH
receptors, the key element in the targeting mechanism of AEZS-108. All 43
patients with LHRH-receptor positive ovarian cancer who entered study AGO-GYN 5
have completed their study treatment. A preliminary evaluation shows that the
study met its primary efficacy endpoint of 5 or more responders in 41 evaluable
patients. Responders, as well as patients with stable disease after completion
of treatment with AEZS-108, will now be followed to assess the duration of
progression-free survival and, ultimately, overall survival.
We
announced positive
efficacy data from the Phase 2 study with the targeted cytotoxic peptide
conjugate, AEZS-108, in patients with advanced or recurrent endometrial cancer
on November 24, 2009. A preliminary evaluation has shown that the study
AGO-GYN 5 met its predefined primary efficacy endpoint of 5 or more responder
patients with endometrial cancer. The study is currently ongoing, and
responders, as well as patients with stable disease after completion of
treatment with AEZS-108, will be followed to assess the duration of
progression-free survival and, ultimately, overall survival.
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AEZS-108
Prostate Cancer
In May 2009, we
announced that results supporting the evaluation of AEZS-108, in prostate
cancer, will be presented as a poster at the ASCO 2009 meeting. Expression of LHRH receptors was determined
using immunohistochemistry and the intensity was graded on a scale from zero to
3. The expression was analyzed in three cohorts of patients: (1) 47 men
with localized prostate cancer treated with radical prostatectomy with no
hormone therapy, (2) 61 men with localized prostate cancer treated with
neoadjuvant LHRH agonists for varying duration prior to prostatectomy, and (3) 22
men with metastatic prostate cancer who received a palliative transurethral
resection of the prostate after clinical progression. In the final cohort, 15
men were treated with castration and 7 were treated with LHRH agonists. 45 of
47 hormone naïve samples (95.7%) demonstrated LHRH receptor expression.
Statistical analysis revealed a correlation between strong receptor expression
and higher pathologic tumor stage as well as shorter overall survival. 60 of 61
samples treated with neoadjuvant LHRH agonist therapy (98.4%) demonstrated LHRH
receptor expression. All 22 samples from patients with metastatic disease
demonstrated LHRH receptor expression. The majority of these samples
demonstrated moderate to strong intensity. LHRH receptors are expressed on
prostate cancers cells of hormone naïve and castrated patients. The expression
of these receptors appears to persist despite prolonged treatment with LHRH
agonists. The new results show continued expression of LHRH receptors in
prostate cancer specimens after prolonged use of LHRH agonists; these data
provide further support to the investigation of the drug in hormone-refractory
prostate cancer, a major genitourinary cancer indication in male patients.
AEZS-105 - Lobaplatin
Lobaplatin
is a platinum derivative that has demonstrated lower toxicity in preclinical
studies compared with cisplatinum, specifically renal toxicity, and incomplete
cross-resistance with other platinum derivatives suggesting potential
therapeutic use even in tumor indications not routinely treated with platinum
derivatives.
Clinically,
lobaplatin was well tolerated at recommended dosages. Treatment was not
associated with typical side effects often seen with cisplatinum, such as
nephrotoxocity (impairment of kidney function), otoxicity (loss of hearing
capacity), and neurotoxicity (effects on sensory function). In addition,
vomiting was less severe than published data from both cisplatinum and
carboplatinum. Characteristic toxicity of lobaplatin is a short-lasting,
spontaneously reversible drop in thrombocyte count (blood platelets).
In
a Phase 2 study conducted in China that included 284 patients with a broad
range of solid and non-solid tumors, safety and particularly good therapeutic
efficacy were demonstrated in patients with breast cancer, small cell lung
cancer (SCLC), and chronic myeloid leukemia (CML) (a cancer of the
hematopoietic system). The primary endpoint in solid tumor patients was the
remission rate according to WHO criteria, while response in CML was assessed
according to the disease-specific criteria of Talpaz. The favorable results of
this study were the basis for approval of lobaplatin by the Chinese health
authorities for the treatment of inoperable, advanced breast cancer, SCLC and
CML.
In
December 2002, we signed a contract with Hainan Chang An Pharmaceuticals
Ltd. for the marketing in China of lobaplatin. The contract includes the
worldwide manufacturing rights of lobaplatin by Hainan Chang An Pharmaceuticals.
The technology transfer agreement provided us with a first payment upon
signature and a later manufacturing-related payment.
In
2007, lobaplatin was licensed to Atani for the territory of Japan. The license
agreement was terminated in 2009.
TUBULIN INHIBITORS / VASCULAR TARGETING AGENTS
AEZS-112 - Development of a low molecular weight
tubulin inhibitor with anti-angiogenic properties
Tubulin
is a protein found in all cells that plays an important role during cell
division, in that it helps to transmit genetic information to the daughter
cells. Inhibition of this process leads to the death of the affected cell. The
anti-tumor agent taxol and vincristine, which are widely used in cancer
therapy, are based on this principle. Both compounds are expensive natural
substances and cause severe side effects when used in humans.
We
are currently identifying and developing novel tubulin inhibitors which,
compared with currently used products, exhibit in animal models improved
efficacy, have a more acceptable side effect profile, an incomplete or no
cross-resistance and are administered orally.
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AEZS-112
is a drug development candidate with an excellent tolerability profile showing
excellent
in vivo
activity in
various tumor models including mammary, colon, melanoma and leukemia cancers
after oral administration. This compound acts through three mechanisms of
action. Strong anti-cancer activity is combined with pro-apoptotic and
anti-angiogenic properties. AEZS-112 inhibits the polymerization of cancer
tubulin rather than bovine brain tubulin, it destroys the mitotic spindle of
the cancer cells and it inhibits topoisomerase II activity. AEZS-112 arrests
the cancer cells in the G2M phase at a nanomolar concentration and induced
apoptosis. AEZS-112 is not cross-resistant to cisplatin, vincristine and
doxorubicine in cell lines resistant to these drugs. Given orally once weekly,
AEZS-112 proved to be a potent inhibitor of
in vivo
tumor growth in melanoma, mammary, colon, lung, renal as
well as in leukemia cancers at acceptable and very well tolerated doses.
Furthermore AEZS-112 showed favorable safety and toxicity profiles. No findings
with respect to cardiotoxicity and neurotoxicology parameters could be observed
during the toxicological evaluation in mice, rats and dogs. With this profile
of activity, AEZS-112 is a promising candidate for further clinical
development.
On
January 8, 2007, we announced the initiation of a Phase 1 trial for
AEZS-112 in patients with solid tumors and lymphoma. This open-label,
dose-escalation, multi-center, intermittent treatment Phase 1 trial is being
conducted in the United States with Daniel D. Von Hoff, MD, Senior Investigator
at the Translational Genomics Research Institute in Phoenix, AZ, as the lead
investigator. The trial includes up to 50 patients
with advanced solid tumors and lymphoma
who have
either failed standard therapy or for whom no standard therapy exists.
Patients will receive a once-a-week oral
administration of AEZS-112 for three consecutive weeks, followed by a one-week
period without treatment. The cycles will be repeated every four weeks based on
tolerability and response, basically planned for up to four cycles, but
allowing for continuation in case of potential benefit for the patient. The
starting dose of AEZS-112 in this study is 13 mg/week, with doubling of doses
in subsequent cohorts in the absence of significant toxicity.
Primary
endpoint of the Phase 1 trial focuses on determining the safety and
tolerability of AEZS-112 as well as establishing the recommended Phase 2 dose
and regimen. Secondary endpoints are aimed at establishing the pharmacokinetics
and determining the efficacy based on standard response criteria.
Results of this Phase I study
were presented
in April 2009 at the AACR meeting.
In part I, 22 patients (12 men / 10
women) were studied on 7 dose levels ranging from 13 to 800 mg/week. In all, 62
treatment cycles were administered. In part II, the weekly dose was split into
3 doses taken 8 hours apart. Ultimately, 22 patients (12 men / 10 women) were
studied on 5 dose levels ranging from 120 to 600 (=200x3) mg/week. As of April 1,
2009, 62 treatment cycles were administered (mean 3.2/patient); treatment was
ongoing in 8 patients. Stable disease (SD) for more than 12 weeks was observed
in 16 patients; 4 more patients were ongoing at less than 12 weeks. Prolonged
courses of SD ranging from 20 to 39+ weeks were observed in 9 patients with the
following primary cancer types: trachea (39+), tongue (30+), thyroid (29+),
prostate and melanoma (28), non-small cell lung cancer (26+), pancreas and 2x
colorectal (20). Except for one patient
with a background of gastrointestinal problems (GI) who had dose-limiting GI
reactions and electrolyte loss at a dose of 200x3mg/week, no clinically
relevant drug-related adverse events or changes in laboratory parameters were
observed. AEZS-112 was shown to be metabolically stable in human plasma. As
predicted by pharmacokinetic modelling based on data from part I of the study,
the split-dose scheme leads to a higher Cmax and trough values after
administration of comparable doses. Those preliminary results showed that a
maximum tolerated dose for weekly dosing has not been defined so far. However,
prolonged courses of stable disease in both parts of the study are an
encouraging observation.
Completion
of this Phase 1 trial was
announced on September 21, 2009. Stable disease with time to
failure ranging from 20 to 60+ weeks was achieved in 12 patients with various
cancer types, including melanoma and cancers of the colon/rectum, lung,
pancreas, prostate, tongue, trachea and thyroid. In several of these patients,
the duration of stabilization exceeded the duration of disease control on
previous treatment regimens. Except for a dose-limiting gastrointestinal
reaction in a patient with pre-existing GI problems, no clinically relevant
drug-related adverse events or changes in laboratory safety parameters were
observed.
IMMUNOTHERAPY / VACCINES
Cellular
proteins expressed by oncogenes have been recognized as a major cause of tumor
development. One of the central oncoproteins involved in cancer formation are
the Raf proteins. Based on these proteins, new unique therapeutic strategies,
new predictive animal models and new development products have been generated
to efficiently combat cancer. These consist of virulence attenuated,
genetically modified bacteria expressing tumor antigens, including oncoproteins
or enzymes. Such bacteria are used for vaccination as well as tumor targeting
and delivery of antitumoral compounds towards the tumor tissues. Therefore,
this new vaccine approach exploits the ability of bacteria to induce potent
immune responses as well as direct these responses against malignancies. The
immunogenicity of the vaccine will be further enhanced by the capacity of
bacteria to colonize tumor tissues. This property will be used to transport
substances, e.g. proteins, into the tumor tissue, which are capable of
converting non-toxic pro-drugs into active drugs. The use of bacterial carriers
for therapeutic vaccination against tumors and the concept of bacterial tumor
targeting will be further developed with the Julius-
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Maximilians-University
of Würzburg, including the highly recognized researchers Prof. Dr. Ulf R.
Rapp, who is a member of our Scientific Advisory Board, and Prof. Dr. Werner
Goebel. Prof. Rapp is a known expert in the field of cell and tumor biology and
Prof. Goebel is a pioneer in the field of vaccines based on recombinant
bacteria.
The
preclinical proof of principle has already been shown in a transgenic animal
model and is supported by several patent applications that we have filed. The
most advanced products are bacterial tumor vaccines which are based on the
approved human vaccine strain
Salmonella
typhi
Ty21a. The principle of these recombinant vaccine strains is
the secretion of the tumor antigen using a so-called Type I secretion machinery
derived from
Escherichia coli
. To
date, two different vaccine strains have been generated up to GMP scale
production a melanoma vaccine encompassing a mutated form of the oncogene
B-Raf, which is present in more than 65% of melanomas, and a prostate cancer
vaccine strain expressing and secreting PSA. For both vaccines, the preclinical
proof of principle has been demonstrated in distinct animal models and the
immunogenicity could be further enhanced compared to our already published
strains (patent application filed in November 2006).
In
2007, the PSA vaccine (AEZS-120) was selected as the first preclinical
development candidate of an anti-tumor vaccine. In September, scientific advice
from the Paul Ehrlich Institute, the German health authority for vaccines, was
sought and the preclinical development program presented by us was in principle
accepted.
A
grant application was filed in Germany and was approved in 2008. In accordance
with this grant, 50% of our preclinical development costs and 100% of those of
our university partner will be reimbursed by the German Ministry of Science and
Education. The preclinical development and manufacture of material for clinical
trial was initiated in 2008.
ENDOCRINOLOGY
Growth hormone secretagogue
Ghrelin
ligand AEZS-130 (ghrelin agonist)
Growth
hormone secretagogues (GHS) represent a new class of pharmacological agents
that directly stimulate growth hormone (GH) secretion from the pituitary
gland without the involvement of growth hormone-releasing hormone (GH-RH) or
somatostatin. We believe that there is currently no GHS on the pharmaceutical
market. Since GH is a potent regulator of lipid, sugar and protein metabolism,
the potential clinical uses of GHS are numerous. They include growth
retardation in children and treatment of cachexia in AIDS patients, which are
currently the only approved uses of therapy of GH. The administration of GH,
which has to be injected every day, is cumbersome. Therefore, we believe that
there would be a demand for new orally active drugs like GHS.
As part of our university
collaboration, we accessed new peptidomimetic compounds with GH secretagogue
properties. The lead development candidate, AEZS-130, is a novel peptidomimetic
GHS with potent and selective GH-releasing activity in humans. AEZS-130
underwent limited clinical pharmacology tests that demonstrated a potent
stimulation of the GH secretion after oral administration in human volunteers.
This product has been licensed to Ardana Bioscience Ltd. (Ardana) (ARD-07),
which initiated an open, randomized, placebo-controlled Phase 1 dose-ranging
study in April 2004. Thirty-six healthy subjects were included in this
study to receive either the reference hormone GH RH by
i.v.
route or one
of the following dose levels of AEZS-130: 0.005, 0.05 or 0.5 mg/kg by oral
route. AEZS-130 at the dose of 0.5 mg/kg orally caused an increase in growth
hormone release equivalent to that induced by GH RH
i.v.
. The compound
was well tolerated and no other hormones showed a significant modification
after any dose of AEZS-130.
In
June 2006, Ardana presented results regarding AEZS-130 at the 2006 Endo
Convention. These results referred to the Phase 1 trial regarding the
stimulating effects of AEZS-130 on growth hormone following both oral and
intra-duodenal administration in healthy males. This study showed that AEZS-130
was well tolerated by the 36 volunteers enrolled and no adverse events were
reported. Administration of AEZS-130 either orally or via intra-duodenal
infusion results in increased levels of growth hormone in the blood. This
stimulation of growth hormone appears to be selective as no other
hormones/analytes that were measured (cortisol, ghrelin, prolactin, insulin,
glucose and ACTH (adrenocorticotropic hormone)) were affected in a
dose-dependent or statistically significant way by administration of AEZS-130
either orally or via intra-duodenal infusion.
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In
May 2007, Ardana gained orphan drug status for AEZS-130
(Solorel
TM
)
as a diagnostic for growth hormone deficiency in adults. The clinical
development and toxicology programs for this indication are ongoing and Ardana
announced the commencement in the United States of the planned pivotal
registration study and the enrolment of the first patient in August 2007.
In
June 2008, Ardana announced that the company stopped its operations and
entered into voluntary administration. Consequently, the clinical study of
AEZS-130
(Solorel
TM
)
as a diagnostic test for adult growth
hormone deficiency (AGHD) was suspended.
We
announced the recovery of worldwide rights from Ardana for the compound
AEZS-130 in the third quarter of 2008. Future development options are currently
being evaluated for the use of this compound in growth hormone deficiencies
therapy. In June 2009, we
reported that, after regaining from Ardana the
worldwide rights to the growth hormone secretagogue, AEZS-130, we had entered
into an agreement with the administrators of Ardana to acquire all Ardana
assets relating to AEZS-130 for $232,000. These assets include development
data, inventory of compound, regulatory authorizations, including IND and
orphan drug status as a diagnostic test granted in the United States, as well
as a patent application protecting the use of AEZS-130 (Solorel
TM
) for the diagnostic of growth hormone secretion
deficiency.
During the same month,
the first clinical data relating to the use of AEZS-130 (Solorel
TM
) as a simple diagnostic test for adult growth hormone
deficiency were presented at the ENDO 2009 meeting by the main investigators Dr
G. Merriam and Dr B.M.K. Biller. Data showed that in adult growth hormone
deficient patients, the responses to the orally administered AEZS-130 (Solorel
TM
) compound were comparable to currently validated
agents and clearly separated patients from normal control subjects.
In
October 2009, we
announced
that we have initiated activities intended to complete the clinical development
of AEZS-130 (Solorel
TM
) which could be the first oral
diagnostic test approved for growth hormone deficiency (GHD). Æterna Zentaris
has already assumed the sponsorship of the Investigational New Drug application
(IND) and is discussing with the FDA the best way to complete the ongoing Phase
3 clinical trial, and subsequently file a New Drug Application for approval of
AEZS-130 (Solorel
TM
) as a diagnostic test for GHD in adults.
The pivotal Phase 3 trial
(listed in clinicaltrials.gov, study # NCT00448747) is designed to investigate
the safety and efficacy of the oral administration of AEZS-130 (Solorel
TM
) as a growth
hormone stimulation diagnostic test compared to GHRH + L-arginine, administered
i.v.
Currently
available results from this study demonstrated no safety issues and better
discrimination between adult GHD patients and normal controls with AEZS-130
(Solorel
TM
)
oral solution, compared to the currently used test with GHRH-Arginine
i.v.
administration.
Oral administration of
AEZS-130 (Solorel
TM
) offers more convenience and simplicity
over the current GHD tests used, requiring either
i.v.
or
i.m.
administration. Additionally, AEZS-130
(Solorel
TM
) may demonstrate a more favorable safety
profile than existing diagnostic tests, some of which may be inappropriate for
certain patient populations e.g. diabetes mellitus or renal failure, and have
demonstrated a variety of side effects which AEZS-130 (Solorel
TM
) has not thus far. These factors may be limiting the
use of GHD testing and may enable AEZS-130 (Solorel
TM
)
to become the diagnostic test of choice for GHD. AEZS-130 (Solorel
TM
) has been granted Orphan Drug Designation for the
diagnosis of growth hormone deficiency by the FDA, and Æterna Zentaris is now
the sponsor of this orphan designation.
Competition for AEZS-130
Competitors for AEZS-130 (Solorel
TM
)
Competitors for AEZS-130 (Solorel
TM
) as a
diagnostic test for adult GHD are principally the diagnostic tests currently
performed by endocrinologists. Most commonly used diagnostics tests for GHD
are:
Measurement of blood levels of Insulin Growth Factor (IGF)-1, which is
often used as the first test when GHD is suspected. However, this test is not
used to definitively rule out GHD as many growth hormone deficient patient
show normal IGF-1 levels.
Insulin Tolerance Test (ITT), which is considered to be the gold
standard for GH secretion provocative tests but requires constant monitoring
and is contra-indicated in patients with seizure disorders, with cardiovascular
disease and in brain injured patients and elderly patients. ITT is administered
i.v.
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GHRH+Arginine test, which is an easier test to perform in an office
setting and has a very good safety profile but is considered to be costly to
administer compared to ITT and Glucagon. This test is contra-indicated in
patients with renal failure. GHRH +Arginine is approved in the EU and has been
proposed to be the best alternative to ITT, but it is not frequently used in
the U.S. This test is administered i.v.
Glucagon test, which is simple to perform and is considered very safe by
endocrinologists but is contraindicated in malnourished patients and patients
who have not eaten for more than 48 hours. Since there is a suspicion that this
test may cause hypoglycemia, it may not be appropriate in diabetic populations.
This test is administered i.m.
Ghrelin receptor ligands
Ghrelin
is a peptide predominantly produced by the stomach. Apart from a potent
GH-releasing action, ghrelin has other activities including stimulation of
lactotroph and corticotroph function, influence on the pituitary gonadal axis,
stimulation of appetite, control of energy balance, influence on sleep and
behavior, control of gastric motility and acid secretion, and influence on
pancreatic exocrine and endocrine function as well as on glucose metabolism.
The recent discovery of ghrelin and its receptors opens up new opportunities
for the development of drugs that will treat metabolic disorders. There is
indeed a possibility that ghrelin analogs, acting as either agonists or antagonists,
might have a clinical impact without affecting GH level. The use of
ghrelin antagonists as appetite suppressants or inhibitors of lipogenesis could
open up new opportunities for the treatment of obesity and associated diseases
(e.g. diabetes, cardiovascular diseases). The use of ghrelin agonists
could have therapeutic benefits which are expected to offer hope for cachexic
or anorexic patients.
In
2004, we established a research and license collaboration agreement with Le
Centre National de la Recherche Scientifique and University Montpellier I and
II, France, acting in their own names, as well as in the name and on behalf of
the Laboratoire des Aminoacides, Peptides et Protéines (LAPP) (UMR 5810),
directed by Dr. Jean Martinez, for the synthesis and characterization of
new chemical entities acting as ghrelin receptor ligands. According to the
agreement, we have the worldwide rights to develop and exploit the new
compounds for any indication. Compounds with the most potent affinity for the ghrelin
receptors will be investigated further through an international network of
academic investigators with expertise in the field of endocrinology in order to
identify clinical development candidates.
Additionally,
we also established a research contract with the Department of Experimental and
Environmental Medicine of the University of Milan, Italy, under the direction
of Prof. Vittorio Locatelli, for the pharmacological characterization of
potentially ghrelin receptor ligands.
In
August 2005, we filed a first patent application to protect a series of
new chemical entities characterized as ghrelin receptor ligands.
In
May 2006, we established a research project agreement with the University
of Montreal. This research project will focus on the characterization of
ghrelin receptor ligands on fat tissue. This project is led by Huy Ong,
Professor at the Faculty of Pharmacy, at the University of Montreal.
In
August 2006, we also initiated a research collaboration with the Centre de
recherche de lHôpital Laval (Québec) under the direction of Dr. Denis
Richard. This research collaboration will focus on the pharmacological
characterization of ghrelin receptor ligands
in
vivo
(e.g. the effects in diet-induced obesity models).
In
October 2006, we presented for the first time our
in vivo
data on the capacity of ghrelin
antagonists of selectively inhibiting food intake. This study, using a rat
model, outlined the capacity of ghrelin antagonists ability to inhibit
appetite without affecting growth hormone secretion and represents evidence
that ghrelin antagonist compounds can selectively inhibit food intake. It
further supports the hope that ghrelin antagonist compounds have the potential
to be useful for the treatment of obesity.
In
2007 and 2008, we presented at scientific meetings preclinical candidates
having the interesting property to decrease body weight gain and fat
accumulation in diet induced obesity models. The ongoing work will focus on the
improvement of oral bioavailability.
In
July 2009, new data supporting the use of AEZS-123 (JMV-2959), a ghrelin
receptor antagonist, for the treatment of alcohol dependence that involved
ghrelin were published. Data were published in the renowned American scientific
journal, Proceedings of the National Academy of Sciences (PNAS). D
ata show that mice treated with ghrelin
increase their alcohol consumption. When ghrelins actions are blocked by
administering ghrelin receptor antagonists such as AEZS-123, mice no longer
show preference for an alcohol-associated environment - in other words, alcohol
is no longer able to produce its
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addictive effects that
include reward searching behaviour (akin to craving in alcoholic patients). The
work, coordinated by Æterna Zentaris, emerged from an international
collaboration between the research groups of Prof. Suzanne Dickson and Prof.
Jörgen Engel who performed the pharmacology work at the Sahlgrenska Academy,
Gothenburg, Sweden, and the research group of Prof. Jean Martinez who
synthesized the tested compound AEZS-123 at the Institut des biomolécules Max Mousseron, Montpellier, France.
LHRH
ANTAGONISTS
Cetrorelix
Cetrorelix
is a peptide-based active substance which was developed in cooperation with
Nobel Laureate Professor Andrew Schally presently of the United States Veterans
Administration-Miami, University of Miami, and formerly of Tulane University in
New Orleans. This compound is a luteinising hormone releasing hormone (LHRH,
also known as GnRH) antagonist that blocks the pituitary LHRH receptors
resulting in a rapid decrease of sexual hormone levels. Moreover, Cetrorelix
allows the LHRH receptors on the pituitary gland to be blocked gradually.
Conversely, the side effects usually associated with the use of agonists and
resulting from total hormone withdrawal can be avoided in conditions that do
not require a castrating degree of hormone withdrawal. Therefore, in contrast
to treatment with agonists, LHRH antagonists permit dose-dependent hormone
suppression which is of critical importance for the tolerability of hormonal
therapy.
Cetrorelix in vitro fertilization (COS/ART)
Cetrotide
®
Cetrorelix
is the first LHRH antagonist which was approved for therapeutic use as part of
fertilization programs in Europe and was launched on the market under the trade
name Cetrotide
®
(cetrorelix acetate) in 1999. In women
who undergo controlled ovarian stimulation for recovery of ovocytes for
subsequent fertilization, Cetrotide
®
helps prevent
premature ovulation. LHRH is a naturally occurring hormone produced by the
brain to control the secretion of LH and, therefore, final egg maturation and
ovulation. Cetrotide
®
is designed to prevent LH production
by the pituitary gland and to delay the hormonal event, known as the LH surge
which could cause eggs to be released too early in the cycle, thereby reducing
the opportunity to retrieve the eggs for the assisted reproductive techniques
procedure.
In
comparison with LHRH agonists that require a much longer pre-treatment, the use
of our LHRH antagonist, Cetrotide
®
, permits the physician to
interfere in the hormone regulation of the women undergoing treatment much more
selectively and within a shorter time.
The
effectiveness of Cetrotide
®
has been examined in
five clinical trials (two Phase 2 and three Phase 3 trials). Two dose regimens
were investigated in these trials: either a single dose per treatment cycle or
multiple dosing. In the Phase 2 studies, a single dose of 3 mg was established
as the minimal effective dose for the inhibition of premature LH surges with a
protection period of at least four days. When Cetrotide
®
is
administered in a multi-dose regimen, 0.25 mg was established as the minimal
effective dose. The extent and duration of LH suppression was found to be
dose-dependent. In the Phase 3 program, efficacy of the single 3 mg dose
regimen and the multiple 0.25 mg dose regimen was established separately in two
controlled studies utilizing active comparators. A third non-comparative study
evaluated only the multiple 0.25 mg dose regimen of Cetrotide
®
. In the five
Phase 2 and Phase 3 trials, 184 pregnancies were reported out of a total of 732
patients (including 21 pregnancies following the replacement of frozen-thawed
embryos). In these studies, drug-related side effects were limited to a low
incidence of injected site reactions; however, none of them was serious such
as an allergic type of reaction or required withdrawal from treatment.
In addition, no drug-related allergic reactions were reported from these
clinical studies.
Cetrotide
®
is the
only LHRH antagonist that is available in two dosing regimens. With an
immediate onset of action, Cetrotide
®
permits precise
control a single dose (3 mg), which controls the LH surge for up to four
days, or a daily dose (0.25 mg) given over a short period of time (usually five
to seven days). The treatment with Cetrotide
®
can be accomplished
during a one-month cycle with a simplified, more convenient and shorter
treatment requiring fewer injections than LHRH agonists.
Cetrotide
®
is
marketed in a 3 mg and a 0.25 mg subcutaneous injection as Cetrorelix acetate
by Merck Serono in the United States and Europe. Approval for Cetrotide
®
in Japan
was gained in April 2006. In September 2006, we announced the launch
of Cetrotide
®
in Japan for
in vitro
fertilization. Cetrotide
®
is marketed in Japan by our partner
Shionogi. We receive revenue from the supply of Cetrotide
®
to our
Japanese partners. The market competitor is ganirelix (Antagon/Orgalutran
®
) from
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Schering-Plough
(Organon) indicated for the inhibition of premature LH surges in women
undergoing controlled ovarian hyperstimulation.
Partners for Cetrotide
®
In
August 2000, we entered into a commercialization agreement with Merck
Serono for Cetrotide
®
. Under the terms of this agreement, we
granted an exclusive license to Merck Serono to commercialize Cetrotide
®
for
IVF/COS/ART worldwide ex-Japan and we are entitled to receive fixed and sales
royalties from Merck Serono. The Japanese rights for this indication are held
by Shionogi whereby, according to a commercialization agreement, we received
transfer pricing from Shionogi.
In
December 2008, we sold our rights to royalties on future sales of
Cetrotide
®
covered by our license agreement with Merck Serono for $52.5
million to
Cowen
Healthcare Royalty Partners (
CHRP) less transaction
costs of $1.0 million, resulting in initial net proceeds to us of $51.5
million. In addition, contingent on 2010 net sales of Cetrotide
®
reaching
a specified level, we may receive an additional payment of $2.5 million from
CHRP. Under the terms of the agreement, we agreed to make a one-time cash
payment to CHRP in an amount ranging from $5 million up to a maximum of $15
million in the event Cetrorelix is approved for sale by the European regulatory
authorities in an indication other than
in
vitro
fertilization. The amount which would be due to CHRP will be
higher the earlier the product receives European regulatory approval.
Clinical development overview of Cetrorelix
in benign prostatic hyperplasia (BPH), endometriosis and uterine myoma
Cetrorelix in BPH
BPH
is a hormone-driven enlargement of the male prostate gland. The prostate is
located directly at the vesicle outlet in the male surrounding the first part
of the urethra. The enlargement puts pressure on the urethra, causing
difficulty in urinating. BPH is classified into three stages according to
symptoms: 1) the irritant phase, where the patient suffers dysuria (pain when
urinating) and nocturia (the urge to urinate during the night); 2) residual
urine occurring in the bladder thus increasing problems during urinating; and
3) overflow of the bladder. These can result in formation of bladder stones,
congestion of urine and engorged kidneys which can in turn lead to
life-threatening kidney damage.
BPH
clinical trials
On August 17, 2009, we
reported Phase 3 results for our North American efficacy trial Z-033 (including
certain sites in Europe) and safety trial Z-041 in BPH, with cetrorelix. The
study Z-033 failed to achieve its primary endpoint, being an improvement in
International Prostate Symptom Score (IPSS) as compared to placebo, and it
demonstrated no clear differences in overall efficacy with all 3 groups showing
an improvement in IPSS of approximately 4 points that was maintained throughout
the 52 weeks. There was a slight advantage in favor of the main active
treatment arm (Arm A) up to Week 46 of the follow-up, which was no longer
demonstrated at Week 52. These differences did not achieve statistical
significance. Furthermore, a statistically significant effect on the IPSS, as compared
to placebo, was seen in a sub-group of patients with large prostate glands
(greater than 50 cm
3
) on entry to the
study. Tolerability of cetrorelix in study Z-033 was very good, as evidenced by
the absence of major differences to placebo with regard to both clinical
adverse events and changes in laboratory parameters.
On December 7, 2009, we reported the Phase
3 results for cetrorelix from the European efficacy trial Z-036, involving 420
patients. Study Z-036 did not reach its
primary endpoint. There were no clear differences in overall efficacy, with all
3 groups (including placebo) showing an improvement in IPSS of approximately 6
points that was maintained throughout the 52 weeks. There was observation of an
improvement in uroflow, both maximum and mean, and in residual volume in all
treatment groups. These favorable changes are reflected in an overall
improvement in Quality of Life measures. Furthermore, a favorable trend on the
IPSS, as compared to placebo, was seen in a sub-group of patients with large
prostate glands (greater than 50 cm
3
) on entry to the study.
Cetrorelix was well tolerated, there were no relevant differences to placebo
with regard to both clinical adverse events or changes in laboratory parameters
with the exception of the anticipated hormonal changes.
On December 18, 2009, following the unsuccessful results of our
Phase 3 program in BPH with cetrorelix, we
announced the termination of our agreement with sanofi dated March 5,
2009, for the development, commercialization and licensing of cetrorelix in BPH
for the U.S. market. Termination of the agreement took effect as of January 9,
2010.
Cetrorelix in endometriosis and uterine myoma
There
is no active program ongoing at present.
44
Table of
Contents
Partners for Cetrorelix
We
previously licensed Cetrorelix to Solvay worldwide (ex-Japan) for all
indications with the exception of IVF/COS/ART, which rights belong to Merck
Serono and Japanese rights are held by Shionogi. In the BPH indication, for
which we regained exclusive worldwide (ex-Japan) rights, Japanese rights are
held by Shionogi. On May 8, 2007, we and Solvay announced the termination
of the license and cooperation agreement for Cetrorelix for all remaining
indications, including endometriosis, effective on that date, as a result of
which we regained exclusive worldwide (ex-Japan) rights for Cetrorelix in all
indications without any financial compensation payable to Solvay.
On
March 22, 2007, we announced that Nippon Kayaku had terminated its
development agreement pertaining to Cetrorelix pamoate to focus solely in
oncology.
We
signed a license and cooperation agreement for the commercialization of Cetrorelix
(BPH indication) with Handok for the Korean market during the third quarter of
2008.
On
March 5, 2009, we entered into a development, commercialization and
license agreement with sanofi-aventis for the development, registration and
marketing of Cetrorelix in BPH for the US market. Under the terms of the
agreement, sanofi-aventis made an initial upfront payment to us of
$30.0 million. Following the announcement of the negative results for the
efficacy trial in North America (study Z-033) and in Europe (study Z-036), we
announced the termination of our
agreement with sanofi-aventis dated March 5, 2009 for the development,
commercialization and licensing of Cetrorelix in BPH for the U.S. market.
Termination of the agreement was effective January 9, 2010.
Following
the negative Phase 3 results for cetrorelix in BPH, our Japanese partner,
Shionogi, also agreed with the Company to cease the development of cetrorelix
in this indication.
Ozarelix
Ozarelix is a modified LHRH
antagonist which is a linear decapeptide sequence. Ozarelix is a
fourth-generation LHRH antagonist aiming at extended suppression of
testosterone levels that does not require a sophisticated depot formulation for
long-lasting activity.
On
August 12, 2004, we entered into a licensing and collaboration agreement
with Spectrum for Ozarelix and its potential to treat hormone-dependent cancers
as well as benign proliferative disorders, such as BPH and endometriosis. Under
the terms of the agreement, we granted an exclusive license to Spectrum to
develop and commercialize Ozarelix for all potential indications in North
America (including Canada and Mexico) and India while keeping the rights for
the rest of the world. In addition, Spectrum is entitled to receive 50% of
upfront and milestone payments and royalties received from our Japanese
partner, Nippon Kayaku,
that are
generated in the Japanese market for oncological indications.
During the third quarter of 2008, we entered into a commercialization
agreement with Handok for Ozarelix (BPH indication) for the Korean market.
BPH clinical trials
In
October 2006, we announced positive and highly statistically significant
Phase 2 results for Ozarelix in BPH. The primary efficacy endpoint of improving
clinical symptoms of BPH at week 12, as measured by significant changes in
IPSS, was achieved at all dosage regimens. Secondary efficacy parameters such
as uroflow, residual urinary volume, quality of life and circulating
testosterone levels were also measured and showed good results. The outcome of
the trial demonstrated an excellent safety profile with Ozarelix as patients
had no serious side effects. The erectile function was also not affected at any
dose regimens.
On
May 23, 2007 and September 5, 2007, Spectrum disclosed detailed Phase
2 results for Ozarelix in BPH at two medical conferences. Results indicate that
Ozarelix was well tolerated and demonstrated statistically significant as well
as clinically meaningful efficacy in the treatment of LUTS secondary to BPH.
On January 3, 2007,
Spectrum announced the FDAs acceptance of an IND for Ozarelix in BPH. Spectrum
initiated a Phase 2b study in January 2007. On April 22, 2008, our
partner Spectrum released the nine-month Phase 2b results for ozarelix.
Spectrum indicated that ozarelix demonstrated sufficient clinical activity to
justify its continued development in BPH. Based on these results, Spectrum
initiated in September 2008 the recruitment of 860 patients for a new BPH
study, as mentioned on the www.clinicaltrials.gov website.
In January 2010, Spectrum Pharmaceuticals
announced the discontinuation of Ozarelix development in BPH, stating that the
mixed results of their Phase 2b study and the recently announced negative
results of our Phase 3 registrational trial of Cetrorelix in BPH does not support
continued development of Ozarelix in this indication.
45
Table of
Contents
Prostate cancer clinical trials
In
August 2006, we announced positive Phase 2 results for Ozarelix in
hormone-dependent inoperable prostate cancer. This open-label,
randomized-controlled dose-finding trial enrolled 64 patients receiving
different IM dosage regimens of Ozarelix to assess its safety and efficacy. The
study achieved its primary endpoint of defining a tolerable dosage regimen of
Ozarelix that would ensure continuous suppression of testosterone at castration
level for a three-month test period. A secondary efficacy endpoint aimed at
assessing tumor response as determined by a 50% or greater reduction of serum
PSA level, compared to baseline, was also achieved. The best results regarding
the primary endpoint of continuous suppression were obtained with a dose of 130
mg per cycle where all patients remained suppressed to castration until at
least day 85. In patients with continuous testosterone suppression below
castration level, tumor response as measured by PSA levels was 97%. Following
these results, we, in collaboration with Spectrum, initiated an additional
Phase 2 study in European centers to verify and optimize the findings derived
from the cohort of patients having received 130 mg of Ozarelix per cycle.
On
August 3, 2006, we announced a licensing and collaboration agreement with
Nippon Kayaku for Ozarelix. Under the terms of the agreement, we granted Nippon
Kayaku an exclusive license to develop and market Ozarelix for all potential
oncological indications in Japan. In return, we received an upfront payment
upon signature and are eligible to receive payments upon achievement of certain
development and regulatory milestones, in addition to low double-digit
royalties on potential net sales. Spectrum is entitled to receive 50% of the
upfront, milestone payments and royalties received from Nippon Kayaku.
Non-peptide LHRH antagonists
As
outlined above, the LHRH receptor plays an important role in a number of benign
and malignant tumors. Our drug discovery unit searches for small, non-peptide
molecules which have the same effect on the receptor. Their advantage lies in
the potential for oral administration.
AEZS-115
is a new orally bioavailable LHRH antagonist with LHRH-receptor binding
affinity in the nanomolar range which is developed for hormone therapy of
endocrinological disorder and of benign and malignant tumors. The compound
demonstrates excellent selectivity to LHRH-receptor and has advanced to a
preclinical stage where the
in vivo
activity has been confirmed. Major advantages are the dose-dependent reduction
of sexual hormones without flare-up effect whereas no decrease down to
castration level is necessary and therefore side effects are reduced.
In
January 2006, we regained the exclusive worldwide rights to develop and
commercialize AEZS-115 from Solvay. Attractive
in
vivo
activity of this orally available peptidomimetic
LHRH-antagonist was demonstrated with a single, oral administration (20mg/kg)
in rats which led to efficient and revocable suppression of plasma testosterone
levels for up to 12 hours. Furthermore, a repeat of the dosing of AEZS-115
increased the suppression time without accumulation in the plasma.
In
2007, an oral formulation was selected and pharmacokinetic data were obtained.
First
preclinical results were presented at the 2008 San Antonio Breast Cancer
Symposium on December 12, 2008 and showed substantial anti-tumor activity
of AEZS-115 in human ovarian and breast cancer cell lines, as evidenced by
exposure of human cell lines SKOV3, Ovcar 3 (human ovarian cancer cell lines)
and MDA-MB 468 (human breast cancer cell line) to increasing concentrations of
AEZS-115, peptidic GnRH-antagonist Cetrorelix and GnRH-agonist Triptorelin (1,
10, and 100 µM) for 48 days. The number of viable cells was determined by
crystal violet staining as well as by ATP-dependent luminometric assays.
Results showed that both GnRH-antagonists dose-dependently inhibited growth of
all three cell lines,
while
GnRH-agonist Triptorelin showed marginal growth inhibition. Cell growth was
inhibited by 40-60% following exposure to a concentration of 10 µM of AEZS-115
and by 60-80% when cells were exposed to 100 µM. Inhibition with Cetrorelix at
100 µM ranged from 20-40%, while only minor effects on cell growth were seen at
10µM. Optimization is ongoing.
RAW MATERIALS
Raw materials and supplies are generally
available in quantities adequate to meet the needs of our business. We are
dependent on third-party manufacturers for the pharmaceutical products that we
market. An interruption in the availability of certain raw materials or
ingredients, or significant increases in the prices paid by us for them, could
have a material adverse effect on our business, financial condition, liquidity
and operating results.
46
Table of Contents
DISTRIBUTION
We currently have a lean sales and marketing staff. In
order to commercialize our product candidates successfully, we need to make
arrangements with third parties to perform some or all of these services in
certain territories.
We contract with third parties for the sales and
marketing of our products. We are
currently dependent on strategic partners and may enter into future
collaborations for the research, development and commercialization of our
product candidates. Our arrangements with these strategic partners may not
provide us with the benefits we expect and may expose us to a number of risks.
REGULATORY COMPLIANCE
Governmental authorities in
Canada, the United States, Europe and other countries extensively regulate the
preclinical and clinical testing, manufacturing, labeling, storage, record
keeping, advertising, promotion, export, marketing and distribution, among
other things, of our product candidates. In Canada, the Canadian Therapeutic
Products Directorate is the Canadian federal authority that regulates
pharmaceutical drugs and medical devices for human use. Prior to being given market authorization, a
manufacturer must present substantive scientific evidence of a products
safety, efficacy and quality as required by the Food and Drugs Act and other
regulations. In the United States, the FDA under the Federal Food, Drug, and
Cosmetic Act, the Public Health Service Act and other federal statutes and
regulations, subject pharmaceutical products to rigorous review. For more information about the regulatory
risks associated with the Companys business operations, see Item 3Key
InformationRisk Factors.
DRUG DISCOVERY
There
is an increasing demand on the world market for active substances. Our internal
drug discovery unit provides an important prerequisite for the provision of new
patented active substances, which can then be developed further or licensed to
third parties.
Our drug discovery unit
concentrates on the search for active substances for innovative targets which
open the door to the introduction of new therapeutic approaches. Further, this
unit searches for new active substances having improved properties for
clinically validated targets for which drugs are already being used in humans
and which produce inadequate effects, cause severe side effects, are not
economical or are not available in a patient-friendly form.
To
this end, we possess an original substance library for the discovery of active
compounds with a comprehensive range of promising natural substances which can
serve as models for the construction of synthetic molecules. The initial tests
involve 120,000 samples from our internal substance library in the form of high-throughput
screening. The hits, i.e. the first active compounds found in the library, are
tested further and built up specifically into potential lead structures. Based
on two to three lead structures, they are then optimized in a further step to
potential development candidates.
INTELLECTUAL PROPERTY PATENTS
We believe that we have a solid intellectual
property portfolio that covers compounds, manufacturing processes, compositions
and methods of medical use for our lead drugs and drug candidates. Our patent
portfolio consists of about 55 owned and in licensed patent families (issued,
granted or pending in the United States, Europe and other jurisdictions). Independent
from the original patent expiry date additional exclusivity is possible in the
United States, Europe and several other countries by data protection for new
chemical entities, by orphan drug designation, or by patent term extension
respective supplementary protection certificate.
Of the issued or granted patents, the
protective rights described below form the core of our patent portfolio with
regard to our lead drugs and drug candidates.
Perifosine:
·
U.S.
patent 6,172,050 provides protection in the United States for the compound
perifosine and other related alkyl phospholipid derivatives, pharmaceutical
compositions comprising the compounds as well as their medical use for the
treatment of tumors. This U.S. patent expires in July 2013. A patent term
extension of up to five years may be possible and will be requested upon
receiving marketing approval of perifosine.
47
Table of Contents
·
European
patent 0 579 939 provides protection in European countries for the compound
perifosine and other related alkyl phospholipid derivatives, pharmaceutical
compositions comprising the compounds as well as their medical use for the
treatment of tumors. This European patent expires in June 2013. A patent
term extension of up to five years by SPC may be possible and will be requested
upon receiving marketing approval of perifosine.
·
Japanese
patent 3 311 431 provides protection in Japan for the compound perifosine and
other related alkyl phospholipid derivatives. This Japanese patent expires in July 2013.
A patent term extension of up to five years may be possible and will be
requested upon receiving marketing approval of perifosine
AEZS-108:
·
U.S. patent
5,843,903 provides protection in the United States for the compound AN-152 and
other related targeted cytotoxic anthracycline analogs, pharmaceutical
compositions comprising the compounds as well as their medical use for the
treatment of tumors. This U.S. patent expires in November 2015. A
patent term extension of up to five years may be possible and will be requested
upon receiving marketing approval of AEZS-108.
AEZS-130:
·
U.S.
patent 6,861,409 protects the compound AEZS-130 and U.S. patent 7,297,681
protects other related growth hormone secretagogue compounds, pharmaceutical
compositions comprising the compounds as well as their medical use for
elevating the plasma level of growth hormone. This U.S. patent 6,861,409
expires in August 2022. A patent term extension of up to five years
may be possible and will be requested upon receiving marketing approval of
AEZS-130.
·
European
patent 1 289 951 protects the compound AEZS-130 and European patent 1 344 773
protects other related growth hormone secretagogue compounds, pharmaceutical
compositions comprising the compounds as well as their medical use for
elevating the plasma level of growth hormone. This European patent 1 289 951
expires in June 2021. A patent term extension of up to five years by
supplementary protection certificates (SPC) may be possible and will be
requested upon receiving marketing approval of AEZS-130.
·
Japanese
patent 3 522 265 protects the compound AEZS-130 and pharmaceutical compositions
comprising the compounds as well as their medical use for elevating the plasma
level of growth hormone. This Japanese patent expires in June 2021.
A patent term extension of up to five years may be possible and will be
requested upon receiving marketing approval of AEZS-130.
Cetrorelix:
·
U.S.
patent 5,198,533 provides protection in the United States for the compound
cetrorelix and other LHRH antagonists. This U.S. patent will expire in October 2010
pursuant to a granted request for patent term extension.
·
European
patent 0 299 402 provides protection in European countries for the compound
cetroelix and other LHRH antagonists. This patent will expire in July 2013
pursuant to granted requests for SPC.
·
U.S.
patent 6,828,415 protects a method for preparing sterile lyophilizate
formulations of cetrorelix. It specifically protects the lyophilization process
used to manufacture Cetrotide. This U.S. patent will expire in December 2021.
·
European
patent 0 611 572 protects a method for preparing sterile lyophilizate
formulations of cetrorelix. It specifically protects the lyophilization process
used to manufacture Cetrotide. This patent will expire in February 2014.
·
U.S.
patent 7,005,418 is a method-of-use patent covering the therapeutic management
of extrauterine proliferation of endometrial tissue (endometriosis), chronic
pelvic pain and/or fallopian tube obstruction by administering an LHRH
antagonist in the form of a short-term induction treatment for a period of
about 4 to 12 weeks. The U.S. patent will expire in August 2022.
48
Table of Contents
AEZS-112:
·
U.S.
patent 7,365,081 provides protection in the United States for the compound
AEZS-112 and other related indole derivatives, and medicaments comprising them.
This U.S. patent will expire in July 2021. A patent term extension of up
to five years may be possible and will be requested upon receiving marketing
approval of AEZS-112.
Ozarelix:
·
U.S.
patent 6,627,609 provides protection in the United States for the compound
ozarelix and related third-generation LHRH antagonists and pharmaceutical
compositions comprising them. This U.S. patent will expire in March 2020.
A patent term extension of up to five years may be possible and will be
requested upon marketing approval of ozarelix.
The table below lists
some of our issued or granted patents in the United States and Europe:
Patent
No.
|
|
Title
|
|
Country
|
|
Expiry Date*
|
|
|
|
|
|
|
|
Perifosine
|
|
|
|
|
|
|
U.S.
6,172,050
|
|
Phospholipid derivatives
|
|
United States
|
|
2013-07-07
*
|
|
|
|
|
|
|
|
AEZS-108
|
|
|
|
|
|
|
U.S.
5,843,903
|
|
Targeted cytotoxic anthracycline analogs
|
|
United States
|
|
2015-11-27
*
|
|
|
|
|
|
|
|
AEZS-130
|
|
|
|
|
|
|
U.S.
6,861,409
|
|
Growth hormone secretagogues
|
|
United States
|
|
2022-08-01
*
|
|
|
|
|
|
|
|
Cetrorelix
|
|
|
|
|
|
|
EP
0 299 402
|
|
LHRH antagonists
|
|
Germany, United Kingdom, France,
Switzerland
and
others
|
|
2013-07-10
|
U.S.
5,198,533
|
|
LHRH antagonists
|
|
United States
|
|
2010-10-24
|
EP
0 611 572
|
|
Process to prepare a cetrorelix lyophilised composition
|
|
Germany, United Kingdom, France, Switzerland and others
|
|
2014-0
2-04
*
|
U.S.
6,828,415
|
|
Oliogopeptide lyophilisate, their preparation and use
|
|
United States
|
|
2021-12-07
*
|
U.S.
6,716,817
|
|
Method of treatment of female infertility
|
|
United States
|
|
2014-02-22
*
|
U.S.
6,863,891
|
|
Oligopeptide lyophilisate, their preparation and use
|
|
United States
|
|
2014-02-22
*
|
U.S.
6,867,191
|
|
Preparation and use of oligopeptide lyophilisate for gonad protection
|
|
United States
|
|
2014-02-22
*
|
EP
1 309 607
|
|
Method for producing LHRH antagonists
|
|
Germany, United Kingdom, France, Switzerland and others
|
|
2021-08-09
*
|
U.S.
6,780,972
|
|
Method for the synthesis of peptide salts, their use and the
pharmaceutical preparations, containing peptide salts
|
|
United States
|
|
2021-08-24
*
|
U.S.
5,773,032
|
|
Long-acting injection suspensions and a process for their preparation
|
|
United States
|
|
2014-11-25
*
|
|
|
|
|
|
|
|
AEZS-112
|
|
|
|
|
|
|
U.S.
7,365,081
|
|
Indole derivatives and their use as medicaments
|
|
United States
|
|
2021-07-20
*
|
|
|
|
|
|
|
|
Ozarelix
|
|
|
|
|
|
|
U.S.
6,627,609
|
|
LHRH antagonists having improved solubility properties
|
|
United States
|
|
2020-03-14
*
|
*
excluding any Patent Term Extension
49
Table of Contents
C. Organizational structure
The following chart
presents our corporate structure, the jurisdiction of incorporation of our
direct and indirect subsidiaries and the percentage of shares that we held in
those subsidiaries as of December 31, 2009.
|
|
|
|
Æterna Zentaris Inc.
|
|
|
(Canada)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100%
|
|
|
100%
|
|
|
|
|
Æterna Zentaris GmbH
|
|
Æterna Zentaris, Inc
|
(Germany)
|
|
(Delaware)
|
|
|
|
|
|
|
|
|
100%
|
|
|
Zentaris IVF GmbH
(Germany)
|
|
|
D. Property, plants and equipment
Our corporate head office and facilities are located
in Quebec City, Province of Quebec, Canada. The following table sets forth
information with respect to our main facilities as of March 22, 2010.
Location
|
|
Use of space
|
|
Square
Footage
|
|
Type of
interest
|
|
|
|
|
|
|
|
|
|
1405 Parc Technologique Blvd.
Quebec City (Quebec), Canada
|
|
Fully
occupied for management, R&D and administration
|
|
4,400
|
|
Leased
|
|
|
|
|
|
|
|
|
|
20
Independence Blvd
Warren,
New Jersey, United States
|
|
Partially
occupied for management, R&D and business development
|
|
10,741
|
(1)
|
Leased
|
|
|
|
|
|
|
|
|
|
Weismüllerstr.
50
D-60314
Frankfurt-am-Main,
Germany
|
|
Fully
occupied for management, R&D, business development and administration
|
|
46,465
|
|
Leased
|
|
(1)
Æterna
Zentaris, Inc. sub-lets out to a sub-tenant approximately 7,500 square
feet of adjacent premises.
Item 4A. Unresolved Staff Comments
None.
50
Item 5. Operating and Financial Review and Prospects
Highlights
Perifosine
·
June 1,
2009: Positive Phase 2 data on perifosine in advanced metastatic colon
cancer and in advanced renal cell carcinoma were presented at the American
Society of Clinical Oncologys (ASCO) annual meeting. The data demonstrated
perifosines anti-cancer activity and efficacy both as a single agent and in
combination therapy. Data were generated by our North
American partner, Keryx
Biopharmaceuticals (Keryx).
·
August 3,
2009: An agreement was reached with the United States Food and Drug
Administration (FDA) regarding a Special Protocol Assessment (SPA) on the
design of a double-blind, placebo-controlled Phase 3 trial with perifosine in
relapsed or relapsed/refractory multiple myeloma patients previously treated
with bortezomib (Velcade
®
). The Phase 3
trial is to be conducted by Keryx.
·
September 16,
2009: Perifosine was granted Orphan Drug designation from the FDA for the
treatment of multiple myeloma.
·
December 2, 2009: Perifosine was granted Fast
Track designation by the FDA for the treatment of relapsed/refractory multiple
myeloma.
·
December 7, 2009: Updated positive Phase 2
efficacy and safety data, as well as new survival data for perifosine in combination
with bortezomib (Velcade
®
) (+/- dexamethasone) in patients with
relapsed/refractory multiple myeloma, were presented at the American Society of
Hematologys (ASH) annual meeting. Results showed that the overall response
rate was 41% and median overall survival was reported at 25 months for all
evaluable patients. The combination therapy maintained an acceptable safety
profile and no unexpected adverse events were reported. Data were presented by
Keryx.
·
December 16, 2009: The Phase 3 registration
clinical trial with perifosine in relapsed/refractory multiple myeloma was
initiated by Keryx.
AEZS-108
·
May 31,
2009: Presentation at the ASCOs Annual Meeting of results supporting the
evaluation of AEZS-108 in prostate cancer.
·
November 2, 2009: Disclosure of positive
preliminary results for the Phase 2 study with AEZS-108 in patients with
platinum-resistant and taxane-pretreated ovarian cancer.
·
November 24, 2009: Disclosure of positive
efficacy data from a Phase 2 study with AEZS-108 in patients with advanced or
recurrent endometrial cancer.
AEZS-112
·
September 21,
2009: Disclosure of results from a Phase 1 study with AEZS-112 in patients with
advanced solid tumors or lymphoma.
Results showed prolonged courses of stable disease,
excellent tolerability and potential for long-term use as a combination
treatment for cancer.
AEZS-130
·
June 11,
2009: Poster presentation on AEZS-130 (Solorel
TM
) at
the annual meeting of the Endocrine Society, reporting the first clinical data
relating to the use of AEZS-130 (Solorel
TM
) as a
simple diagnostic test for adult growth hormone deficiency.
51
Table of Contents
Cetrorelix
·
August 17,
2009: Disclosure of results from two
Phase 3 studies with cetrorelix
in BPH. The efficacy study Z-033 (mainly conducted in North America) did not
achieve its primary endpoint. Results from the safety study Z-041 were
positive and exhibited a similar level of efficacy as the previously disclosed
Phase 2 studies.
·
December 7, 2009: Disclosure of Phase 3 results
for our European efficacy trial Z-036 in BPH with cetrorelix. The study did not
reach its primary endpoint.
Corporate Developments
·
June 23,
2009: Completion of a registered direct offering of $10.0 million to certain
U.S. institutional investors.
·
October 23, 2009: Completion of a
$5.5 million registered direct offering with U.S. institutional investors.
·
December 9, 2009: Appointment of Pierre Lapalme
to our Board of Directors.
Cetrorelix Development,
Commercialization and License Agreement
·
March 4,
2009: Announcement of a development, commercialization and licensing agreement
with sanofi-aventis U.S. LLC (sanofi) for the development, registration and
marketing of cetrorelix in BPH for the U.S. market. The agreement provided us
with a $30.0 million gross upfront payment.
·
December 18, 2009: Announcement of the
termination of our agreement with sanofi for the development, commercialization
and licensing of cetrorelix in BPH for the U.S. market, subsequent to negative
Phase 3 results.
Subsequent to Year-End
January 22, 2010: Notification from NASDAQ indicating that we were
not in compliance with the minimum closing bid price rule.
January 25, 2010: Updated results of a Phase 2 study of perifosine
in the treatment of advanced metastatic colon cancer showing a statistically
significant benefit in survival, were reported by Keryx.
January 27, 2010: Our partner, Spectrum Pharmaceuticals, Inc.
(Spectrum) announced the discontinuation of its development program for
ozarelix in BPH.
January 29, 2010: A publication in the February 2010 issue of
the
Journal of Clinical Cancer Research
reported positive Phase 2 results for perifosine as a single agent for the
treatment of advanced Waldenstroms macroglobulinemia.
February 3, 2010: The FDA granted a SPA for the Phase 3 trial of
perifosine in combination with capecitabine (Xeloda
®
) in
refractory metastatic colorectal cancer. The trial is to be conducted by Keryx.
March 1, 2010: Disclosure that the Committee for Orphan Medicinal
Products of the European Medicines Agency issued a positive opinion for orphan
medicinal product designation for perifosine for the treatment of multiple myeloma.
March 12, 2010: We filed a Canadian short-form base shelf
prospectus, as well as a registration statement on Form F-3 with the
United States Securities and Exchange Commission (SEC), which were declared
effective by both the Canadian authorities and the SEC, and which would permit
us to issue up to $60.0 million of freely tradeable common shares and
warrants to purchase common shares.
52
Table of
Contents
Introduction
The following Managements
Discussion and Analysis (MD&A) provides a review of the results of
operations, financial condition and cash flows of Æterna Zentaris Inc. for the
year ended December 31, 2009. In
this MD&A, the Company, we, us, and our mean Æterna Zentaris Inc.
and its subsidiaries. This discussion should be read in conjunction with
the information contained in the Companys consolidated financial statements
and related notes as at and for the years ended December 31, 2009, 2008
and 2007. Our consolidated
financial statements, reported in United States dollars (US dollars), except
where otherwise noted, have been prepared in accordance with Canadian Generally
Accepted Accounting Principles (Canadian GAAP) for financial information,
which differ in certain respects from United States Generally Accepted
Accounting Principles (US GAAP)
.
The recognition, measurement and disclosure
differences as they relate to the Company are described in note 26 to our
2009 consolidated financial statements included elsewhere in this annual
report.
About
Forward-Looking Statements
This document contains forward-looking statements, which reflect our
current expectations regarding future events. Forward-looking statements may
include words such as anticipate, believe, could, expect, goal, guidance,
intend, may, objective, outlook, plan, seek, should, strive, target and will.
Forward-looking statements involve risks and uncertainties, many of
which are discussed in this MD&A. Results or performance may differ
significantly from expectations. For example, the results of current clinical
trials cannot be foreseen, nor can changes in policy or actions taken by such
regulatory authorities as the FDA, the Therapeutic Products Directorate of
Health Canada or any other organization responsible for enforcing regulations
in the pharmaceutical industry.
Given these uncertainties and risk factors, readers are cautioned not to
place undue reliance on any forward-looking statements. We disclaim any
obligation to update any such factors or to publicly announce any revisions to
any of the forward-looking statements contained herein to reflect future
results, events or developments, unless required to do so by a governmental authority
or by applicable law.
About
Material Information
This MD&A includes the information we believe to be material to
investors after considering all circumstances, including potential market
sensitivity. We consider information and disclosures to be material if they
result in, or would reasonably be expected to result in, a significant change
in the market price or value of our shares, or where it is quite likely that a
reasonable investor would consider the information and disclosures to be
important in making an investment decision.
The Company is a reporting
issuer under the securities legislation of all of the provinces of Canada and
its securities are registered with the United States Securities and Exchange
Commission and is therefore required to file or furnish continuous disclosure
documents such as interim and annual financial statements, an MD&A, a Proxy
Circular, an Annual Report on Form 20-F, material change reports and press
releases with the appropriate securities regulatory authorities. Copies of
these documents may be obtained free of charge on request from the office of
the Secretary of the Company or on the Internet at the following addresses:
www.aezsinc.com, www.sedar.com and www.sec.gov.
Company Overview
Æterna Zentaris Inc. (TSX: AEZ, Nasdaq: AEZS)
is a late-stage drug development company specialized in oncology and endocrine
therapy.
Our pipeline encompasses compounds at all stages of development, from
drug discovery through marketed products. The highest priorities in oncology are
our Phase 3 program with perifosine in multiple myeloma and our
Phase 2 program in multiple cancers, including metastatic colon cancer, as
well as our Phase 2 program with AEZS-108 in advanced endometrial and
advanced ovarian cancer combined with potential developments in other cancer
indications. In endocrinology, our lead program is the reactivation of a Phase
3 trial with AEZS-130 (Solorel
TM
) as a growth
hormone (GH) stimulation test for the diagnosis of GH deficiency in adults
(AGHD).
53
Table of
Contents
Key Developments for the
Year Ended December 31, 2009
Drug Development
Status of our drug pipeline as at December 31,
2009
Discovery
|
|
Preclinical
|
|
Phase 1
|
|
Phase 2
|
|
Phase 3
|
|
Commercial
|
120,000
compound library
|
|
AEZS-120
Prostate cancer vaccine
(oncology)
AEZS-129
Erk & PI3K Inhibitors (oncology)
AEZS-127
ErPC (oncology)
AEZS-123
Ghrelin receptor antagonist (endocrinology)
AEZS-115
Non-peptide LHRH antagonists
(endometriosis & urology)
|
|
AEZS-112
(oncology)
AEZS-130 Therapeutic in tumor induced cachexia
(endocrinology)
|
|
Perifosine
·
Metastatic colon
cancer
·
Kidney cancer
AEZS-108
·
Ovarian cancer
·
Endometrial cancer
|
|
Perifosine
·
Multiple myeloma
AEZS-130 (Solorel
TM
)
·
Diagnostic in
adult growth hormone deficiency (endocrinology)
|
|
Cetrotide
®
(
in vitro
fertilization)
|
Partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perifosine:
Keryx
North America
Handok
Korea (oncology)
|
|
Perifosine:
Keryx
North America
Handok
Korea (oncology)
|
|
Cetrotide
®
:
Merck Serono
(World ex-Japan)
Nippon Kayaku / Shionogi
Japan
|
ONCOLOGY
Perifosine
Perifosine
is the first orally active Akt inhibitor in a Phase 3 trial for multiple
myeloma, as well as in multiple Phase 2 trials for other types of cancer. The
compound modulates several key signal transduction pathways, including Akt,
MAPK, and JNK that have been shown to be critical for the survival of cancer
cells. Perifosine has demonstrated single agent antitumor activity in Phase 1
and Phase 2 studies and is currently being studied as a single agent and in
combination with several forms of anti-cancer treatments for various forms of
cancer.
In June 2009, our partner Keryx reported
positive Phase 2 results in metastatic colon cancer and advanced renal
cell carcinoma, which demonstrated perifosines anti-cancer activity and
efficacy both as a single agent and in combination therapy.
54
Table of Contents
On July 14, 2009, our partner Keryx announced the
initiation of a Phase 1 clinical study to evaluate perifosine as a single
agent treatment for recurrent solid tumors in pediatric patients. This
single-center open-label study, fully funded by an external grant provided by a
private organization, will be conducted at Memorial Sloan-Kettering Cancer
Center in New York City. Oren Becher, MD, Instructor, Department of Pediatrics,
in coordination with Eric Holland, MD, Ph.D., Director of the Brain Tumor group
at Memorial Sloan-Kettering Cancer Center, will act as the studys Principal
Investigator. P
erifosine is being
evaluated as a single-agent in pediatric patients with any solid tumor that has
failed standard therapy. Patients up to 18 years of age with a performance
status of greater than 40% are eligible for this study. The study has been
designed as a dose escalation study to determine the maximum tolerated dose
(MTD) of perifosine alone in recurrent/progressive pediatric tumors. A standard
3+3 dose escalation design will be employed with 3 to 6 patients at each dose
level. All patients will receive perifosine at a loading dose on the first day,
followed by a maintenance dose to start on day two until progression of
disease. A minimum of 4 and a maximum of 24 patients will be required to
complete the study.
On August 3,
2009, we announced that Keryx had reached an agreement with the FDA regarding a
SPA on the design of a Phase 3 registration trial for perifosine, in relapsed
or relapsed/refractory multiple myeloma patients previously treated with
bortezomib (Velcade
®
). Under the SPA, it is agreed with the FDA that the
Phase 3 study design adequately addresses objectives in support of a regulatory
submission. The study, entitled
A Phase 3 Randomized Study
to Assess the Efficacy and Safety of Perifosine Added to the Combination of
Bortezomib and Dexamethasone in Multiple Myeloma Patients Previously Treated
with Bortezomib
and powered at 90%, is a randomized (1:1),
double-blind trial comparing the efficacy and safety of perifosine to placebo
when combined with bortezomib and dexamethasone in approximately 400 patients
with relapsed or relapsed/refractory multiple myeloma. The primary endpoint is
progression-free survival and secondary endpoints include overall response
rate, overall survival and safety.
In
addition, in September 2009, perifosine received Orphan Drug designation
from the FDA for the treatment of multiple myeloma, which provides a seven-year
period of U.S. marketing exclusivity for perifosine if the drug is the first of
its type approved for the specified indication or if it demonstrates superior
safety, efficacy, or a major contribution to patient care versus another drug
of its type previously granted the designation for the same indication.
On September 29,
2009, we also reported updated clinical results from the Phase 2 study of
perifosine from renal cell cancer patients who failed both a VEGF receptor
inhibitor [sunitinib (Sutent
®
) or sorafenib (Nexavar
®
)] and an mTOR inhibitor
[temsirolimus (Torisel
®
) or everolimus (Afinitor
®
)]. Evaluable patients
(n=16) were defined as those who had greater than 7 days of treatment (2
additional patients withdrew consent within 7 days). Patients received 100 mg
of perifosine daily until progression or unacceptable toxicity. The primary
endpoint of this study was clinical benefit, defined as response rate
(complete/partial by RECIST) or percentage of patients progression-free for at
least 3 months. Median progression-free survival (PFS) and overall survival
were also analyzed for efficacy. Safety was a secondary endpoint. Perifosine
was well tolerated with the most common adverse events being gastrointestinal
discomfort and fatigue. Fifty percent (50%) of evaluable patients had a partial
response or a stable disease with a progression for survival of 16 weeks.
On October 8,
2009, Keryx also announced the initiation of a Phase 2 single-center,
open-label, clinical study entitled
Phase 2 Trial of Perifosine
in Patients with Relapsed or Refractory Chronic Lymphocytic Leukemia/Small
Lymphocytic Lymphoma
to evaluate perifosine as a single agent
treatment for relapsed or refractory Chronic Lymphocytic Leukemia (CLL) and
Small Lymphocytic Lymphoma (SLL). This Phase 2 study was designed by
Daphne Friedman, MD, Instructor and Principal Investigator, in coordination
with J. Brice Weinberg, Professor, and Mark Lanasa, Assistant Professor,
Divisions of Medical Oncology and Hematology, Duke University Medical Center,
and is currently open for enrollment at Duke University. In this study, which
will enroll approximately 30 patients, perifosine will be given orally at a
dose of 50 mg twice daily, for a total of six 28-day cycles. The patients
will be formally restaged upon completion of the trial. Overall Response Rate
is the primary endpoint with overall survival, progression-free survival and
safety as secondary endpoints. Correlative studies will also be conducted and
evaluated as a secondary endpoint.
On November 9, 2009, we announced the
publication of a scientific article in the renowned Journal of Urology,
supporting the development of perifosine for the treatment of cancer. The
article outlines the pivotal role of PI3K and Akt signalling pathways in renal
cell carcinoma pathogenesis thus, representing an ideal target for therapeutic
intervention. Perifosine is described as the most advanced PI3K/Akt pathway
inhibitor, which has already proved to be clinically active, as well as an
ideal compound to combine with other anticancer agents.
On December 2, 2009, we announced that
the U.S. Food and Drug Administration (FDA) had granted Fast Track designation
for perifosine for the treatment of relapsed/refractory multiple myeloma. The
Fast Track program is designed to facilitate the development and expedite the
review of new drugs that are intended to treat serious or life-threatening
conditions and that demonstrate the potential to address unmet medical needs.
Fast Track designated drugs ordinarily qualify for priority review, thereby
expediting the FDA review process.
55
Table of
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On December 7, 2009, we announced that
Keryx had reported updated Phase 2 efficacy and safety data as well as new
survival data on the clinical activity of perifosine in combination with
bortezomib (Velcade®) (+/- dexamethasone) in patients with relapsed/refractory
multiple myeloma at the 51
st
annual
meeting of the American Society of Hematology. Reported for the first time for
all 73 evaluable patients, was median progression-free survival (6.4 months/95%
CI (5.3, 7.1) and overall survival (25 months/95% CI (15.5, not reached).
Of particular interest was the comparison of evaluable patients who were
previously refractory and the patients who were relapsed to a bortezomib-based
regimen. Median progression-free survival (PFS) and overall survival (OS)
for bortezomib relapsed vs. refractory were as follows:
Bortezomib Relapsed vs.
Refractory
|
|
Median
PFS*
|
|
Median
OS**
|
Bortezomib Relapsed
(n=20)
|
|
8.8 months
95% CI (6.3, 11.2)
|
|
Not Reached at 38+ months
95% CI (25, NR)
|
Bortezomib
Refractory (n=53)
|
|
5.7 months
95% CI (4.3, 6.4)
|
|
22.5 months
95% CI (12.3, NR)
|
* Median PFS and median TTP were identical, as no patient deaths
occurred prior to progression.
** Kaplan Meier methodology was used to determine overall survival
figures.
On December 16, 2009, we announced the
initiation, by Keryx, of the Phase 3 registration clinical trial with
perifosine in relapsed/refractory multiple myeloma which will involve
approximately 400 patients. It is a double-blind, placebo-controlled trial
comparing the efficacy and safety of perifosine vs. placebo when combined with
bortezomib (Velcade
®
) and dexamethasone. The primary endpoint is
progression-free survival and secondary endpoints include overall
response-rate, overall survival and safety. The trial is being conducted
pursuant to a SPA granted by the FDA.
On January 25, 2010, we announced that Keryx reported a
statistically significant benefit in survival from updated results of a Phase 2
study of perifosine in the treatment of advanced metastatic colon cancer.
Results showed improvement in both time
to tumor progression and overall survival in the perifosine + capecitabine arm
versus placebo + capecitabine arm. Of notable interest, and for the first time
presented, were data showing a statistically significant benefit in median
overall survival (15.3 months vs. 6.8 months p
=0.0088
) and time to progression (18 weeks vs. 10 weeks p
=0.0004
) for the subset of patients who were refractory to
a 5-FU (Fluorouracil) chemotherapy-based treatment regimen.
On January 29, 2010, we announced the publication of positive
Phase 2 results for perifosine as a single agent for the treatment of
advanced Waldenstroms macroglobulinemia in the February 2010 issue of the
Journal of Clinical Cancer Research. Data
demonstrated a 35% overall response rate with a median progression-free
survival of 12.6 months in patients with relapsed or relapsed/refractory
Waldenstroms macroglobulinemia.
On February 3, 2010, we announced that Keryx had reached another
SPA with the FDA for the Phase 3 trial of perifosine in refractory metastatic
colorectal cancer.
March 1, 2010: Disclosure that the Committee for Orphan Medicinal
Products of the European Medicines Agency issued a positive opinion for orphan
medicinal product designation for perifosine for the treatment of multiple
myeloma.
AEZS-108
AEZS-108 represents a new targeting concept in oncology using a
cytotoxic peptide conjugate which is a hybrid molecule composed of a synthetic
peptide carrier and a well-known cytotoxic agent, doxorubicin. The design of
this product allows for the specific binding and selective uptake of the
cytotoxic conjugate by LHRH-receptor-positive tumors. Phase 2 studies with
AEZS-108, involving up to 82 patients with advanced endometrial cancer and
advanced ovarian cancer, are being conducted and final results are expected in
2010.
On May 31, 2009, we presented results supporting the evaluation of
AEZS-108 in prostate cancer at the American Society of Clinical Oncology
(ASCO) Annual Meeting, which was held in Orlando, Florida.
On November 2, 2009, we disclosed positive preliminary results for the ongoing Phase 2 study in
ovarian cancer. All 43 patients with LHRH-receptor positive ovarian cancer who
entered study AGO-GYN-5 finished their study treatment, and a preliminary
evaluation showed that the study met its primary efficacy endpoint of 5 or more
responders in 41 evaluable patients. Responders, as well as patients with
stable disease after completion of treatment with AEZS-108, are being followed
to assess the duration of progression-free survival and, ultimately, overall survival.
More detailed analyses, which will also
56
Table of Contents
include efficacy data from post-treatment
follow-up, are currently in preparation and will be presented at forthcoming
scientific conferences.
On November 24, 2009, we disclosed
positive efficacy data from a Phase 2 study with AEZS-108, in patients with
advanced or recurrent endometrial cancer. The study met its predefined primary
efficacy endpoint of 5 or more responder patients. This open-label,
multi-center and multi-national Phase 2 study AGO-GYN 5, is being conducted by
the German AGO Study Group (Arbeitsgemeinschaft Gynäkologische Onkologie
/Gynaecological Oncology Working Group; www.ago-ovar.de), in cooperation with
clinical sites in Europe.
AEZS-112
AEZS-112 is an anticancer drug
in development with three mechanisms of action involved, including tubulin and
topoisomerase II inhibition. AEZS-112 also expresses actions such as
pro-apoptotic and antiangiogenic properties.
On April 22, 2009, we presented a poster at the Annual Meeting of
the American Association of Cancer Research (AACR) which outlined
Phase 1 results for AEZS-112 in patients with advanced solid tumors or
lymphoma, which may potentially provide a new therapeutic approach for the
treatment of cancer.
On September 21, 2009, we
announced the completion of the Phase 1 study of AEZS-112. This
open-label, dose escalation, multi-center, intermittent treatment Phase 1
study included patients with advanced solid tumors and lymphoma who had either
failed standard therapy or for whom no standard therapy existed.
Patients received a
once-a-week oral administration of AEZS-112 for three consecutive weeks,
followed by a one-week period without treatment. The cycles were repeated every
four weeks based on tolerability and response, basically planned for up to four
cycles, but allowing for continuation in case of potential benefit for the
patient. The starting dose of AEZS-112 in this study was 13 mg/week, with
doubling of doses in subsequent cohorts in the absence of significant toxicity.
The study was performed in two parts and included 42 patients overall. In Part I,
22 patients were studied on doses ranging from 13 to 800 mg/week. In Part II,
the weekly dose was split into 3 doses taken 8 hours apart, and ultimately, 20
patients received doses from 120 to 600 mg/week. Stable disease with time to
failure ranging from 20 to 60+ weeks was achieved in 12 patients with various
cancer types, including melanoma and cancers of the colon/rectum, lung,
pancreas, prostate, tongue, trachea and thyroid. In several of these patients,
the duration of stabilization exceeded the duration of disease control on
previous treatment regimens. Except for a dose-limiting gastrointestinal (GI)
reaction in a patient with pre-existing GI problems, no clinically relevant
drug-related adverse events or changes in laboratory safety parameters were
observed.
AEZS-129
On April 21, 2009, we presented two posters on AEZS-129, a
promising compound for clinical intervention of the PI3K/ Akt pathway in human
tumors, at the American Association for Cancer Research (AACR) Annual
Meeting.
In vivo
and
in vitro
data showed significant antitumor activity and a favorable
in vitro
pharmacologic profile which could lead to further
in vivo
profiling.
ENDOCRINOLOGY
AEZS-130
AEZS-130, a growth hormone
secretagogue (GHS), is a novel synthetic small molecule, acting as a ghrelin
mimetic, that is orally active and stimulates the secretion of growth hormone
(GH).
A Phase 3 clinical trial of
AEZS-130 (Solorel
TM
, proposed trademark for
diagnostic use), to establish it as a diagnostic test for GHD in adults, was
initiated in the United States by our former licensee, Ardana; however, the
trial was suspended before completion because of Ardanas insolvency.
On June 5, 2009, we entered into an agreement with the
administrators of Ardana to acquire all of Ardanas assets relating to AEZS-130
for $0.2 million.
On June 11, 2009, we presented a poster on AEZS-130 (Solorel
TM
) at
the annual meeting of the Endocrine Society (ENDO), reporting the first
clinical data relating to the use of AEZS-130 (Solorel
TM
) as a
simple diagnostic test for adult growth hormone deficiency.
57
Table of Contents
On October 19, 2009, we
announced that we had initiated activities intended to complete the clinical
development of AEZS-130 (Solorel
TM
), which could be
the first oral diagnostic test approved for growth hormone deficiency (GHD).
We have already assumed the
sponsorship of the Investigational New Drug application and are discussing with
the FDA the best way to complete the ongoing Phase 3 clinical trial, and
subsequently file a New Drug Application (NDA) for approval of AEZS-130
(Solorel
TM
) as a diagnostic test for GHD
in adults.
The pivotal Phase 3 trial
(listed in www.clinicaltrials.gov study # NCT00448747) is designed to
investigate the safety and efficacy of the oral administration of AEZS-130
(Solorel
TM
) as a growth hormone
stimulation diagnostic test compared to GHRH + L-arginine, administered
intravenously. Currently available results from this study, previously reported
by G. Merriam
et al
. (Poster
P2-749, ENDO 09, June 2009), demonstrated no safety issues and better
discrimination between adult GHD patients and normal controls with AEZS-130
(Solorel
TM
) oral solution, compared to
the currently used test with GHRH-Arginine intravenous administration.
Oral administration of
AEZS-130 (Solorel
TM)
offers more convenience and simplicity over
the current GHD tests used, requiring either intravenous or intramuscular
administration. Additionally, AEZS-130 (Solorel
TM
) may
demonstrate a more favorable safety profile than existing diagnostic tests, some
of which may be inappropriate for certain patient populations
e.g. diabetes mellitus or renal failure, and have demonstrated a variety
of side effects which AEZS-130 (Solorel
TM
) has
not thus far. These factors may be limiting the use of GHD testing and may
enable AEZS-130 (Solorel
TM
) to become the
diagnostic test of choice for GHD.
AEZS-130 (Solorel
TM
) has
been granted Orphan Drug designation for the diagnosis of growth hormone
deficiency by the FDA, and we are now the sponsor of this orphan designation.
Orphan Drug Designation confers a number of advantages to the further
development of the drug, such as additional exclusivity for the molecule and
the potential of waiving User fees at the time an NDA is filed.
Cetrorelix
Cetrorelix is a peptide with unique modes of action in BPH, which was
the object of Phase 3 clinical trials applying an intermittent treatment
schedule for treating symptoms associated with BPH, encompassing one safety
trial (Z-041) and two efficacy trials (Z-033, Z-036) involving more than 1,600
patients in North America and Europe. Furthermore, the program also included
another safety study (Z-043) TQT to assess the impact of cetrorelix on cardiac
QT interval.
On August 17, 2009, we
reported Phase 3 results for our North American efficacy trial Z-033 (including
certain sites in Europe) and safety trial Z-041 in BPH, with cetrorelix.
The study Z-033 failed to
achieve its primary endpoint, being an improvement in International Prostate
Symptom Score (IPSS) as compared to placebo, and it demonstrated no clear
differences in overall efficacy with all 3 groups showing an improvement in
IPSS of approximately 4 points that was maintained throughout the 52 weeks.
There was a slight advantage in favor of the main active treatment arm (Arm A) up
to Week 46 of the follow-up, which was no longer demonstrated at Week 52. These
differences did not achieve statistical significance. Furthermore, a
statistically significant effect on the IPSS, as compared to placebo, was seen
in a sub-group of patients with large prostate glands (greater than
50 cm(3)) on entry to the study. Tolerability of cetrorelix in study Z-033
was very good, as evidenced by the absence of major differences to placebo with
regard to both clinical adverse events and changes in laboratory parameters.
The multi-center safety study
Z-041 was an open-label, single-armed study involving 528 patients in North
America. Cetrorelix was generally well tolerated. Adverse events were mostly
mild and transient in intensity. Serious adverse events occurred in 12
patients, but none of these was assessed as possibly drug-related. The most
frequently reported adverse experiences included hot flushes, nasopharyngitis,
injection site pain, and headache. Hot flushes were reported by 49 patients and
were mild and of short duration in the majority of patients. Only one patient
experienced a severe episode.
Furthermore, in study Z-041,
efficacy was assessed using the IPSS which showed an improvement from a mean
score of 21.2 at baseline to 15.6 at Week 26. In 63% of the patients, the
improvement was by at least 3 points. Notably, the 46% of patients who had
received previous treatment for BPH showed a mean improvement of 5 points,
which is only slightly less than the 6 point improvement seen in treatment-naïve
patients. Maximum uroflow improved by 25%, from 10.3 to 12.5 ml/sec, and also
the mean uroflow showed a similar improvement.
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Table of Contents
On September 30, 2009, we
reported the results of our safety TQT study on cetrorelix. Results showed that
the study met its primary endpoint and cetrorelix did not increase heart
rate-corrected QT interval (QTc) at either the time of observed maximal
concentration of cetrorelix (Cetro
max
) or at the time of
minimum level of serum testosterone (Test
min
).
On December 7, 2009, we reported the Phase
3 results for cetrorelix from the European efficacy trial Z-036, involving 420
patients. Study Z-036 did not reach its
primary endpoint. There were no clear differences in overall efficacy, with all
3 groups (including placebo) showing an improvement in IPSS of approximately 6
points that was maintained throughout the 52 weeks. There was observation of an
improvement in uroflow, both maximum and mean, and in residual volume in all
treatment groups. These favorable changes are reflected in an overall
improvement in Quality of Life measures. Furthermore, a favorable trend on the
IPSS, as compared to placebo, was seen in a sub-group of patients with large
prostate glands (greater than 50 cm(3)) on entry to the study. Cetrorelix
was well tolerated, there were no relevant differences to placebo with regard
to both clinical adverse events or changes in laboratory parameters with the
exception of the anticipated hormonal changes.
On December 18, 2009, following the unsuccessful results of our
Phase 3 program in BPH with cetrorelix, we
announced the termination of our agreement with sanofi dated March 5, 2009,
for the development, commercialization and licensing of cetrorelix in BPH for
the U.S. market. Termination of the agreement took effect as of January 9,
2010.
Ozarelix
Ozarelix is a luteinizing hormone-releasing
hormone agonist. Mechanistically, LHRH antagonists exert rapid inhibition of
luteinizing hormone and follicle stimulating hormone with an accompanying rapid
decrease in sex hormones and would therefore be expected to be effective in a
variety of hormonally dependent disease states including ovarian cancer,
prostate cancer, BPH, infertility, uterine myoma and endometriosis.
On January 27, 2010, our partner, Spectrum Pharmaceuticals,
announced the decision to discontinue the development of ozarelix in BPH.
Spectrum reported that the mixed results of an earlier Phase 2b study and the
recently announced failure of a large Phase 3 registrational trial of
cetrorelix (another LHRH antagonist) in this indication do not support
continued development in BPH.
AEZS-123
AEZS-123 is a ghrelin receptor antagonist. Since its discovery, ghrelin
has emerged as one of the most promising targets in the field of obesity and
other potential indications.
On July 7, 2009, we announced the publication in the renowned
American scientific journal,
Proceedings of the National
Academy of Sciences
, of new data supporting the use of our ghrelin
receptor antagonist compound, AEZS-123, for the treatment of alcohol dependence
that involves ghrelin.
Corporate Developments
Registered Direct Offerings
On June 23, 2009, we completed a registered direct offering of
5,319,149 units, with each unit consisting of one common share and a
warrant to purchase 0.35 of a common share at a price of $1.88 per unit
(the First Offering). The related warrants represent the right to acquire an
aggregate of 1,861,702 common shares, as discussed below. We also granted
warrants to the sole placement agent engaged in connection with the First
Offering, as discussed below.
Total proceeds raised through the First Offering amounted to
$10.0 million, less cash transaction costs of approximately
$0.8 million and non-cash transaction costs of approximately
$0.7 million, which represent previously deferred charges incurred in
connection with the filing of a shelf prospectus. The purchasers in the offering
were comprised of US institutional investors, and the securities described
above were offered pursuant to a shelf prospectus dated September 27, 2007
and a prospectus supplement dated June 18, 2009.
We granted a total of 5,319,149 warrants (the First Investor
Warrants) to the institutional investors who participated in the First
Offering. Each First Investor Warrant entitles the holder to purchase 0.35 of a
common share at an exercise price of $2.06 per share. The First Investor
Warrants are exercisable between September 23, 2009 and December 23,
2011, and, upon complete exercise, would result in the issuance of an aggregate
of 1,861,702 of our common shares.
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We estimated the fair value attributable to the First Investor Warrants
of approximately $1.6 million as of the date of grant by applying the
Black-Scholes pricing model, to which the following additional assumptions were
applied: a risk-free annual interest rate of 1.74%, expected volatility of
90.6%, an expected term of 2.5 years, dividend yield of 0.0% and an
issue-date market share price of $1.75. Transaction costs allocated to the
First Investor Warrants amounted to approximately $0.2 million.
The First Investor Warrants may be exercised, at the option of the
holder, by cash payment of the exercise price or, upon the existence of certain
conditions, by cashless exercise, which means that in lieu of paying the
aggregate exercise price for the shares being purchased upon exercise of the
warrants in cash, the holder would receive the number of shares underlying the
warrants equal to the quotient obtained by applying a formula, as defined by
the terms of each First Investor warrant. We will not receive additional
proceeds to the extent that warrants are exercised by cashless exercise.
The exercise price
and number of common shares issuable on exercise of the First Investor Warrants
may be adjusted in certain circumstances, including stock dividends or splits,
subsequent rights offerings, pro-rata distributions and pursuant to
transactions involving the merger or consolidation of the Company with another
entity or other Fundamental Transaction, as defined in the warrant.
Additionally, and
notwithstanding anything to the contrary, in the event of any type of
Fundamental Transaction, as defined in the warrant, the Company or any
successor entity shall, at our option, have the right to require the holders
thereof to exercise the First Investor Warrants, or, at the holders option,
purchase the First Investor Warrants from the holders by paying the holders an
amount of cash equivalent to the Black-Scholes value, as defined, of the
remaining unexercised portion of the First Investor Warrant on the date of the
consummation of an aforementioned Fundamental Transaction.
We granted a total of 820,668 warrants (the First
Compensation Warrants) to the sole placement agent and its designated
representatives engaged in connection with the First Offering. Each First
Compensation Warrant entitles the holder to purchase 0.35 of a common share at
an exercise price of $2.35 per share. The First Compensation Warrants are
exercisable between December 23, 2009 and December 23, 2011, and,
upon complete exercise, would result in the issuance of 287,234 of our common
shares.
We estimated the fair value attributable to the First
Compensation Warrants of approximately $0.2 million as of the date of grant by
applying the Black-Scholes pricing model, to which the following additional
assumptions were applied: a risk-free annual interest rate of 1.74%, expected
volatility of 90.6%, an expected term of 2.5 years, dividend yield of 0.0%
and an issue-date market share price of $1.75. The initial fair value of the
First Compensation Warrants has been accounted for as additional transaction
costs, since the instruments were granted to the sole placement agent as part
of the terms of the underlying engagement and in recognition of the efforts made
in connection with the First Offering.
The terms of the First Compensation Warrants, with the
exception of the exercise price and period of exercise, are substantially the
same as those contained in the First Investor Warrants discussed above.
On October 23, 2009, we completed a second registered direct
offering of 4,583,335 units, with each unit consisting of one common share
and a warrant to purchase 0.40 of a common share, at a price of $1.20 per
unit (the Second Offering). The related warrants represent the right to
acquire an aggregate of 1,833,334 common shares, as discussed below. We also granted warrants to the sole
placement agent engaged in connection with the Second Offering, as discussed
below.
Total proceeds raised through the Second Offering amounted to $5.5
million, less cash transaction costs of approximately $0.4 million. The
purchasers in this offering were new and existing institutional investors, and
the securities described above were offered by the Company pursuant to a shelf prospectus
dated September 27, 2007 and a prospectus supplement dated October 19,
2009.
We granted a total of 4,583,335 warrants (the Second Investor
Warrants) to the institutional investors who participated in the Second
Offering. Each Second Investor Warrant
entitles the holder to purchase 0.40 of a common share at an exercise price of
$1.25 per share. The Second Investor Warrants are exercisable between October 23,
2009 and October 23, 2014, and, upon complete exercise, would result in
the issuance of an aggregate of 1,833,334 common shares.
We estimated the fair value attributable to the Second Investor Warrants
of approximately $1.3 million as of the date of grant by applying the
Black-Scholes pricing model, to which the following additional assumptions were
applied: a risk-free annual interest rate of 2.46%, expected volatility of
84.3%, an expected term of 5 years, dividend yield of 0.0% and an
issue-date market share price of $1.09. Transaction costs allocated to the
Second Investor Warrants amounted to approximately $0.1 million.
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Table of
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The Second Investor Warrants may be exercised, at the option of the
holder, by cash payment of the exercise price or, upon the existence of certain
conditions, by cashless exercise, as defined and discussed above. We will not
receive additional proceeds to the extent that warrants are exercised by
cashless exercise.
The exercise price and number of common shares issuable on exercise of
the Second Investor Warrants may be adjusted in certain circumstances,
including stock dividends or splits, subsequent rights offerings, pro-rata
distributions and pursuant to transactions involving the merger or
consolidation of the Company with another entity or other Fundamental
Transaction, as defined in the warrant.
Additionally, and notwithstanding anything to the contrary, in the event
of any type of Fundamental Transaction, as defined in the warrant, the Company
or any successor entity shall, at our option, have the right to require the
holders thereof to exercise the Second Investor Warrants, or, at the holders
option, purchase the Second Investor Warrants from the holders by paying the
holders an amount of cash equivalent to the Black-Scholes value, as defined, of
the remaining unexercised portion of the Second Investor Warrant on the date of
the consummation of an aforementioned Fundamental Transaction.
We granted a total of 320,832 warrants (the Second Compensation
Warrants) to the sole placement agent engaged in connection with the Second
Offering. Each Second Compensation
Warrant entitles the holder to purchase 0.40 of a common share at an exercise
price of $1.50 per share. The Second Compensation Warrants are exercisable
between April 23, 2010 and October 23, 2012, and, upon complete
exercise, would result in the issuance of 128,333 common shares.
We estimated the fair value attributable to the Second Compensation
Warrant of approximately $0.1 million as of the date of grant by applying the
Black-Scholes pricing model, to which the following additional assumptions were
applied: a risk-free annual interest
rate of 1.57%, expected volatility of 103.4%, an expected term of 3 years,
dividend yield of 0.0% and an issue-date market share price of $1.09. The
initial fair value of the Second Compensation Warrants has been accounted for
as additional transaction costs, since the instruments were granted to the sole
placement agent as part of the terms of the underlying engagement and in
recognition of the efforts made in connection with the Second Offering.
The terms of the Second Compensation Warrants, with the exception of the
exercise price and period of exercise, are substantially the same as those
contained in the Second Investor warrants discussed above.
Cetrorelix Development, Commercialization and
License Agreement
On March 4, 2009, we entered into a development,
commercialization and license agreement with sanofi for the development,
registration and marketing of cetrorelix in BPH for the U.S. market. Under the
terms of the agreement, sanofi made an upfront nonrefundable license fee
payment to us of $30.0 million. Also per the agreement, we would have been
entitled to receive certain payments upon achieving certain pre-established
regulatory and commercial milestones as well as escalating double-digit
royalties on future net sales of cetrorelix for BPH in the United States.
On December 18, 2009, and following the announcement that our
Phase 3 study with cetrorelix in BPH did not reach its primary endpoint,
we disclosed that we had received notice from sanofi to terminate the
underlying agreement, as discussed above. As a result, we fully recognized the
aforementioned upfront payment, as the culmination of the earnings process was
deemed to be complete.
As a result of entering into the agreement with sanofi, we paid a
royalty to the Tulane Educational Fund (Tulane) pursuant to a license
agreement whereby we obtained licenses to use Tulanes patents to develop,
manufacture, market and distribute various compounds, including cetrorelix.
This royalty, amounting to $3.0 million, was charged in full to selling
expenses during 2009 as a result of sanofis decision to terminate the related
agreement.
Finally, as a result of both the aforementioned negative results and
sanofis decision to terminate the related agreement, we determined that
certain intangible assets and certain items of property, plant and equipment
were no longer recoverable, and therefore impaired, as discussed below.
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Table of
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Consolidated Results of Operations
Quarterly Consolidated Results
of Operations Information
(in thousands, except for per share data)
(unaudited)
|
|
Quarters ended
|
|
|
|
December 31, 2009
|
|
September 30,
2009
|
|
June 30,
2009
|
|
March 31,
2009
|
|
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
40,182
|
|
8,565
|
|
8,379
|
|
6,111
|
|
Earnings
(loss) from operations
|
|
11,511
|
|
(9,789
|
)
|
(12,238
|
)
|
(13,442
|
)
|
Net
earnings (loss)
|
|
12,032
|
|
(11,288
|
)
|
(13,080
|
)
|
(12,388
|
)
|
Net
earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
0.19
|
|
(0.19
|
)
|
(0.24
|
)
|
(0.23
|
)
|
|
|
Quarters ended
|
|
|
|
December 31, 2008
|
|
September 30,
2008
|
|
June 30,
2008
|
|
March 31,
2008
|
|
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
7,244
|
|
11,029
|
|
10,457
|
|
9,748
|
|
Loss
from operations
|
|
(16,315
|
)
|
(12,386
|
)
|
(19,525
|
)
|
(14,158
|
)
|
Net
loss
|
|
(14,493
|
)
|
(13,879
|
)
|
(20,579
|
)
|
(10,866
|
)
|
Net
loss per share
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
(0.27
|
)
|
(0.26
|
)
|
(0.39
|
)
|
(0.20
|
)
|
Net earnings (loss) per share are (is) based on each reporting periods
weighted average number of shares outstanding, which may differ on a
quarter-to-quarter basis. As such, the sum of the quarterly net earnings (loss)
per share amounts may not equal year-to-date net loss per share.
Fourth Quarter 2009 Results
Revenues
were
$40.2 million for the quarter ended December 31, 2009, compared to
$7.2 million for the same quarter in 2008. The significant increase in
revenues is due primarily to our having recognized the remaining unamortized
portion, or approximately $30.4 million, of the upfront payment received
from sanofi. Additionally, the increase is attributable to the recognition of
remaining deferred revenues, amounting to approximately $1.8 million,
associated with agreements related to the use of ozarelix, as intangible assets
that, like cetrorelix, we deemed to be fully impaired in December 2009, as
discussed in greater detail below.
Selling,
general and administrative (SG&A) expenses
were
$6.2 million for the quarter ended December 31, 2009, compared to
$3.0 million for the same quarter in 2008. The increase in SG&A
expenses is predominantly related to the expensing of the remaining unamortized
portion, or approximately $3.0 million, of the royalty paid to Tulane in
connection with the agreement entered into with, and subsequently terminated
by, sanofi, as discussed above.
Net
research and development (R&D) expenses
were
$10.6 million for the quarter ended December 31, 2009, compared to
$12.2 million for the same quarter in 2008. The decrease in R&D
expenses primarily relates to lower costs having been incurred in connection
with our Phase 3 program for cetrorelix in BPH, given the progressive completion
through the end of 2009 of efficacy and safety studies associated with that
compound.
Depreciation and amortization
expenses
for the
quarter ended December 31, 2009 amounted to $8.1 million, compared to
$3.4 million for the same quarter in 2008. The comparative increase is
attributable to the fact that, in December 2009, and following our
announcements that our second Phase 3 study with cetrorelix in BPH had not
reached its primary endpoint and
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Table of
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that sanofi had decided to terminate the related development,
commercialization and license agreement (discussed above), we recognized an
impairment charge equivalent to the remaining carrying value of cetrorelix, or
approximately $3.9 million, as part of amortization expense. Also in December 2009,
we determined that certain items of property, plant and equipment, utilized
exclusively in the development activities related to cetrorelix, were also no
longer recoverable. As a result, we recorded an impairment charge, as part of
depreciation expense, of approximately $1.9 million. Lastly, in December 2009,
we determined that ozarelixanother luteinizing hormone-releasing antagonist
that, despite its different formulation, works on the same mechanism of action
as cetrorelixalso was no longer recoverable. Further, in January 2010 and
as noted above, Spectrum, to whom we had granted an exclusive license to
develop and commercialize ozarelix for all potential indications in North
America and India, announced that it had terminated its development program
with ozarelix in BPH. Consequently, we recognized an impairment charge of
approximately $1.4 million as part of amortization expense.
The aforementioned quarter-over-quarter increases were offset in large
proportion by an impairment charge in the fourth quarter of 2008, amounting to
approximately $2.4 million, related to teverelix, an intangible asset that
had been determined to be impaired in December 2008.
Net
earnings
were $12.0 million, or $0.19 per basic and
diluted share, for the quarter ended December 31, 2009, compared to a net
loss of $14.5 million, or $0.27 per basic and diluted share, for the same
quarter in 2008. The significant increase in net earnings is largely
attributable to the significant increase in license fee revenues, combined with
lower comparative R&D expenses, as discussed above, partly offset by
increased SG&A expenses and depreciation and amortization charges, as
discussed above.
We expect that the net loss for the first quarter of 2010, excluding any
impact of foreign exchange gains or losses, will return to a level that is more
aligned with pre-fourth quarter 2009 operational results.
63
Table of
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Consolidated
Statements of Operations
|
|
Years
ended December 31,
|
|
(in thousands, except per share
data)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
Revenues
|
|
|
|
|
|
|
|
License fees
|
|
42,221
|
|
8,504
|
|
12,843
|
|
Sales and royalties
|
|
20,957
|
|
29,462
|
|
28,825
|
|
Other
|
|
59
|
|
512
|
|
400
|
|
|
|
63,237
|
|
38,478
|
|
42,068
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and
amortization
|
|
16,501
|
|
19,278
|
|
12,930
|
|
Research and development costs
|
|
44,217
|
|
57,448
|
|
39,248
|
|
R&D tax credits and grants
|
|
(403
|
)
|
(343
|
)
|
(2,060
|
)
|
Selling, general and administrative expenses
|
|
16,040
|
|
17,325
|
|
20,403
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
3,285
|
|
1,515
|
|
1,562
|
|
Intangible assets
|
|
7,555
|
|
5,639
|
|
4,004
|
|
Impairment of
long-lived assets held for sale
|
|
|
|
|
|
735
|
|
|
|
87,195
|
|
100,862
|
|
76,822
|
|
Loss from
operations
|
|
(23,958
|
)
|
(62,384
|
)
|
(34,754
|
)
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
Interest income
|
|
349
|
|
868
|
|
1,904
|
|
Interest expense
|
|
(5
|
)
|
(118
|
)
|
(85
|
)
|
Foreign exchange gain (loss)
|
|
(1,110
|
)
|
3,071
|
|
(1,035
|
)
|
Other
|
|
|
|
(79
|
)
|
(28
|
)
|
|
|
(766
|
)
|
3,742
|
|
756
|
|
|
|
|
|
|
|
|
|
Loss before
income taxes from continuing operations
|
|
(24,724
|
)
|
(58,642
|
)
|
(33,998
|
)
|
Income tax
(expense) recovery
|
|
|
|
(1,175
|
)
|
1,961
|
|
Net loss
from continuing operations
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,037
|
)
|
Net loss
from discontinued operations
|
|
|
|
|
|
(259
|
)
|
Net loss
for the year
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,296
|
)
|
|
|
|
|
|
|
|
|
Net loss
per share from continuing operations
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
(0.43
|
)
|
(1.12
|
)
|
(0.61
|
)
|
Net loss
per share from discontinued operations
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
|
|
|
|
|
Net loss
per share
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
(0.43
|
)
|
(1.12
|
)
|
(0.61
|
)
|
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Table of
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Revenues
are
derived primarily from license fees, as well as from sales and royalties. Sales
are derived from the manufacturing of Cetrotide
®
(cetrorelix acetate solution for injection),
marketed for reproductive health assistance for
in vitro
fertilization and, prior to March 2008, from Impavido
®
(miltefosine), marketed for the treatment of
leishmaniasis, as well as from active pharmaceutical ingredients. Royalties are
derived from Cetrotide
®
and, prior to the fourth quarter of 2008, were
payable by our partner, ARES Trading S.A. (Merck Serono). Beginning on October 1,
2008, royalty revenues derived from Merck Seronos net sales of Cetrotide
®
are recognized via the periodic amortization,
under the units-of-revenue method, of proceeds received in connection with the
sale in December 2008 of the underlying future royalty stream to Cowen
Healthcare Royalty Partners L.P. (Cowen).
License fees are derived from non-periodic milestone payments, R&D
contract fees and upfront payments (and related amortization thereof) received
from our licensing partners.
License fee revenues increased to $42.2 million for the year ended December 31,
2009, compared to $8.5 million and $12.8 million for each of the
years ended December 31, 2008 and 2007, respectively. The significant
increase from 2008 to 2009 is almost exclusively attributable to the upfront
payment received from sanofi, as well as from the full recognition of other
previously deferred revenues associated with ozarelix, as discussed above.
The decrease in license fee revenues from 2007 to 2008 is mainly
attributable to non-recurring milestone payments received in 2007 from Ardana
and from Keryx. Also, the decrease is related to the termination of our
licensing agreement with Solvay Pharmaceuticals BV (Solvay) in 2007. We
regained the worldwide ex-Japan rights for endometriosis from Solvay during
2007.
License fee revenues are expected to decrease substantially in 2010, due
to the known absence of future amortization of deferred revenues related to
upfront payments already received.
Sales and royalties decreased to $21.0 million for the year ended December 31,
2009, compared to $29.5 million and $28.8 million for each of the
years ended December 31, 2008 and 2007, respectively. The decrease from
2008 to 2009 is mainly related to lower royalty revenues having been recognized
in 2009 in connection with our agreement with Merck Serono. Amortization of the
proceeds received from Cowen for the year ended December 31, 2009 was
lower than the royalty revenues generated and payable directly by Merck Serono
during 2008. Additionally, sales volumes of Cetrotide
®
were slightly lower during the year ended December 31,
2009, as compared to 2008.
The increase in sales and royalties from 2007 to 2008 is mainly
attributable to a large increase in sales of Cetrotide
®
,
partly offset by lower sales of Impavido
®
.
Excluding the impact of foreign exchange rate fluctuations,sales and
royalties are expected to decrease slightly in 2010.
Operating
Expenses
Cost
of sales
decreased to $16.5 million for the year ended December 31,
2009 from $19.3 million and $12.9 million for each of the years ended
December 31, 2008 and 2007, respectively. The decrease from 2008 to 2009
is largely attributable to the absence of Impavido
®
sales during the
first three months of 2009, compared to the same period in 2008, while th
e
increase in cost of sales from 2007 to 2008 is directly related to an overall
increase in sales and royalties, as discussed above.
Cost of sales as a percentage of sales and royalties increased to 79% in
2009 from 65% in 2008, and from 45% in 2007. The increase in cost of sales as a
percentage of sales and royalties from 2008 to 2009 is largely attributable to
the comparative decrease in royalty revenues, as discussed above, while the
higher percentage of cost of sales in 2008 compared to 2007 is largely related
to the product mix, which includes a high concentration of sales related to
Cetrotide
®
, a product that is more
expensive to produce. In addition, we wrote down certain elements of our
inventory to their net realizable value at the end of 2008, which contributed
approximately $0.7 million to the increase in cost of sales compared to
2007.
We expect cost of sales as a percentage of sales and royalties to
decrease to approximately 75% in 2010 due to a slight increase in our sales
pricing, coupled with an overall reduction in production costs due to an
expected favourable change in product mix that will result in additional
third-party cost savings.
65
Table of Contents
R&D
costs
were $44.2 million for
the year ended December 31, 2009, compared to $57.4 million and
$39.2 million for each of the years ended December 31, 2008 and 2007,
respectively. The decrease in R&D costs from 2008 to 2009 is largely
attributable to a lower volume of expenses having been incurred in 2009 related
to the continued advancement during the first nine months of 2009, followed by
the winding down of our development activities linked to cetrorelix in BPH
subsequent to our announcements that our related Phase 3 studies did not
reach their primary endpoints.
The increase in R&D costs for the year
2008 compared to 2007 is mainly attributable to the advancement of our
Phase 3 program with cetrorelix in BPH.
The following table summarizes primary third-party R&D costs, by
product, incurred by the Company during the years ended December 31, 2009
and 2008.
(in thousands, except
percentages)
(unaudited)
Product
|
|
Status
|
|
Indication
|
|
Year
ended
December 31,
2009
|
|
Year
ended
December 31,
2008
|
|
|
|
|
|
|
|
$
|
|
%
|
|
$
|
|
%
|
|
Cetrorelix
|
|
Phase 3*
|
|
BPH*
|
|
23,812
|
|
82.3
|
|
25,697
|
|
71.1
|
|
AEZS-130 (Solorel
TM
)
|
|
Phase 3
|
|
Endocrinology (diagnostic)
|
|
592
|
|
2.0
|
|
|
|
|
|
Perifosine
|
|
Phases 2 and 3
|
|
Oncology
|
|
304
|
|
1.1
|
|
2,425
|
|
6.7
|
|
Ozarelix
|
|
Phase 2*
|
|
BPH*
|
|
366
|
|
1.3
|
|
253
|
|
0.7
|
|
AEZS-108
|
|
Phase 2
|
|
Oncology
|
|
409
|
|
1.4
|
|
1,259
|
|
3.5
|
|
AEZS-112
|
|
Phase 1
|
|
Cancer
|
|
430
|
|
1.5
|
|
981
|
|
2.7
|
|
AEZS-129 / Erk PI3K
|
|
Preclinical
|
|
Cancer
|
|
1,151
|
|
4.0
|
|
1,609
|
|
4.5
|
|
AEZS-123 / Ghrelin receptor
|
|
Preclinical
|
|
Endocrinology and oncology
|
|
530
|
|
1.8
|
|
1,154
|
|
3.2
|
|
AEZS-115 / LHRH antagonist
|
|
Preclinical
|
|
Endocrinology and oncology
|
|
235
|
|
0.8
|
|
843
|
|
2.3
|
|
Other
|
|
Preclinical
|
|
Multiple
|
|
1,096
|
|
3.8
|
|
1,913
|
|
5.3
|
|
|
|
|
|
|
|
28,925
|
|
100.0
|
|
36,134
|
|
100.0
|
|
* Development activities terminated in the last quarter of 2009 and
beginning of 2010.
We expect our overall R&D investments to decrease significantly
during 2010, largely due to the expected minimum costs associated with the
winding down of our program with cetrorelix in BPH.
R&D
tax credits and grants
were $0.4 million for the year ended December 31, 2009, compared to
$0.3 million and $2.1 million for each of the years ended December 31,
2008 and 2007, respectively. The decrease in R&D tax credits and grants in
2008 compared to 2007 is attributable to our having utilized only Quebec
provincial tax credits in 2008, while in 2007, we also reduced our income tax
payable by more than $1.6 million, following the elimination of income
taxes related to the distribution made to our shareholders in connection with
our disposal of Atrium Biotechnologies Inc., now Atrium Innovations Inc.
(Atrium).
SG&A
expenses
de
creased to $16.0 million for the year ended December 31,
2009, compared to $17.3 million and $20.4 million for each of the
years ended December 31, 2008 and 2007, respectively. The decrease from
2008 to 2009 is related to comparative Euro-to-US dollar exchange rate
fluctuations and to the absence in 2009 of certain non-recurring corporate
expenses due to cost-saving measures that were implemented beginning in the second
quarter of 2008, despite the additional selling expenses charged during 2009 as
pertaining to the royalty paid to Tulane, as discussed above.
The decrease in SG&A
expenses in 2008 compared to 2007 is primarily related to the organizational
changes and cost-saving measures that were implemented beginning in the second
quarter of 2008.
We expect our SG&A
expenses to decrease in 2010 by approximately $5.0 million
,
compared to 2009, given the absence of future amortization of the royalty paid
to Tulane of $3.0 million related to our agreement with sanofi and given
additional cost-saving measures, including workforce reduction and associated
savings due to the expected overall decrease in development activities.
66
Table of Contents
Depreciation
and amortization expenses
increased
to a combined $10.8 million for the year ended December 31, 2009,
compared to $7.2 million and $5.6 million for each of the years ended
December 31, 2008 and 2007, respectively.
The increase in depreciation and amortization expenses from 2008 to 2009
is attributable to the impairment charges related to cetrorelix, ozarelix and
certain items of property, plant and equipment utilized exclusively in the
development activities related to cetrorelix, as discussed above. This
year-over-year increase was offset in large proportion by the impairment charge
of $2.4 million recorded in 2008 related to teverelix, as discussed below.
The increase from 2007 to 2008 was primarily
related to an impairment charge of approximately $2.4 million, recorded as
amortization expense, taken in the fourth quarter of 2008 and related to
teverelix, which had been determined to be impaired following Ardanas entering
into voluntary administration. Ardana is party to an assignment agreement upon
which the cash recoverability of teverelix depends, and, as such, this
customers entering into voluntary administration has triggered the likelihood
that no future cash flows will be received by the Company in connection with
the aforementioned license agreement. This increase in amortization expense was
partially offset by reductions in depreciation and amortization expenses
related to long-lived assets held for sale, including the Quebec City building
and land, and Impavido
®
, on which depreciation and amortization ceased
during the final months of 2007. The underlying assets were sold in 2008, as
discussed above.
Impairment
of long-lived assets held for sale
amounted to $0.7
million for the year ended December 31, 2007. This impairment was related
to the building and land held for sale for which the estimated fair value had
been based on offers received by third parties.
Loss
from operations
amounted to $24.0 million
for the year ended December 31, 2009, compared to $62.4 million and
$34.8 million for each of the years ended December 31, 2008 and 2007,
respectively.
The significant decrease in loss from
operations is due to the significant year-over-year increase in license fee
revenues, associated mainly with agreements for cetrorelix and ozarelix,
combined with lower comparative R&D and SG&A expenses, partly offset by
increased depreciation and amortization expenses and by a lower comparative
manufacturer margin, as discussed above.
The increase in loss from operations in 2008
as compared to 2007 is largely attributable to a combination of lower license
fee revenues, lower manufacturing margins, higher depreciation and amortization
and higher R&D costs, partly offset by lower SG&A expenses.
We foresee our loss from operations to increase in 2010, as compared to
2009, mainly as a result of the expected non-recurrence of license fee
amortization of previously deferred revenues associated with cetrorelix and
ozarelix, as discussed above, partly offset by an anticipated reduction in
R&D and SG&A costs.
Other
income (expenses)
Interest
income
amounted to $0.3 million for the year ended December 31,
2009, compared to $0.9 million and $1.9 million for each of the years
ended December 31, 2008 and 2007, respectively. Interest income is derived
from our cash, cash equivalents and short-term investments, which, excluding
restricted balances, totalled $38.1 million as at December 31, 2009,
$49.7 million as at December 31, 2008 and $41.4 million as at December 31,
2007.
The decrease in interest income from 2007 to 2008 is due to the fact
that less cash had been invested during 2008, with the exception of a large
portion of the proceeds received in connection with our sale of rights to
future royalties to Cowen, though only in December 2008.
Foreign
exchange loss
amounted to $1.1 million for the year
ended December 31, 2009, compared to a gain of $3.1 million and a
loss of $1.0 million for each of the years ended December 31, 2008
and 2007, respectively. The increased foreign exchange loss reported for the
year ended December 31, 2009 is attributable to the comparative weakening
of the US dollar vis-à-vis both the Canadian dollar and the euro since December 31,
2008, as presented below.
The increase in foreign exchange gains in 2008 is mainly attributable to
advances to our German subsidiary, denominated in euros, and with our US-based
subsidiary, denominated in US dollars, and the corresponding strengthening of
the euro and the US dollar compared to the Canadian dollar. Since January 1,
2009, all foreign currency exposure risk on intra-group transactions has been
eliminated, since the Company and all of its subsidiaries now use the euro as
their functional currency
67
Table of
Contents
due to a change in economic facts and circumstances. This change did not
result in any significant impact on our consolidated financial statements.
The year-end conversion rates from the euro and Canadian dollar to the
US dollar can be summarized as follows:
|
|
As at
December 31,
|
|
1 US dollar equivalent to:
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
Euro
|
|
0.7007
|
|
0.7145
|
|
0.6870
|
|
Canadian dollar
|
|
1.0510
|
|
1.2180
|
|
0.9913
|
|
I
ncome tax (expense) recovery
was
$nil for the year ended December 31, 2009, compared to ($1.2 million) and
$2.0 million for each of the years ended December 31, 2008 and 2007,
respectively.
The increase in income tax expense from 2007 to 2008 is largely
attributable to a minimum tax payable in Germany due to the tax accounting
ramifications of the sale of future royalties to Cowen, referred to above, and
to the utilization, in 2007, of some of our future income tax assets following
the non-recurring taxable capital gain realized in connection with our disposal
of Atrium.
In 2010, we do not expect to record any
significant income tax recovery or expense in our foreign or domestic entities.
Net
loss from continuing operations
was
$24.7 million for the year ended December 31, 2009, compared to $59.8
million and $32.0 million for each of the years ended December 31, 2008
and 2007, respectively. The significant decrease in net loss from continuing
operations is due to the significant year-over-year increase in license fee
revenues, associated mainly with agreements for cetrorelix and ozarelix,
combined with lower comparative R&D, SG&A and income tax expenses,
partly offset by lower comparative sales and royalties and increased
depreciation and amortization expenses and foreign exchange losses, as
discussed above.
The increase in net loss from continuing operations from 2007 to 2008 is
largely attributable to a combination of lower license fee revenues, an
increase in R&D costs related to the advancement of our Phase 3 program
with cetrorelix in BPH, lower manufacturing margins, higher depreciation and
amortization and higher income tax expense in 2008, partly offset by lower
SG&A expenses and higher net foreign exchange gains.
Net
loss from discontinued operations
represents the
results of operations related to Echelon Biosciences, Inc. (Echelon),
which we disposed of in November 2007 and whose results were included in
our consolidated statements of operations for the year ended December 31,
2007.
Net
loss
was $24.7 million, or $0.43 per basic and diluted
share for the year ended December 31, 2009, compared to
$59.8 million, or $1.12 per basic and diluted share and
$32.3 million, or $0.61 per basic and diluted share, for each of the years
ended December 31, 2008 and 2007, respectively.
The significant decrease in net loss is due to the significant
year-over-year increase in license fee revenues, associated mainly with
agreements for cetrorelix and ozarelix, combined with lower comparative
R&D, SG&A and income tax expenses, partly offset by lower comparative
sales and royalties and increased depreciation and amortization expenses and
foreign exchange losses, as discussed above.
The increase in net loss in 2008 as compared
to 2007 is attributable to a combination of lower license fee revenues, lower
manufacturing margins, higher depreciation and amortization, higher income tax
expense and higher R&D costs, partly offset by lower SG&A expenses and higher
net foreign exchange gains.
We expect that the net loss for the year 2010 will increase, together
with our expected loss from operations, as discussed above.
The weighted average number of shares outstanding used to calculate
basic net loss per share for the years ended December 31, 2009, 2008 and
2007 was 56.9 million shares, 53.2 million shares and 53.2 million
shares, respectively.
68
Table of
Contents
Consolidated Balance Sheet
Information
(Unaudited)
|
|
As at
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
38,100
|
|
49,226
|
|
10,272
|
|
Short-term investments
|
|
|
|
493
|
|
31,115
|
|
Accounts receivable and other current assets
|
|
10,913
|
|
12,005
|
|
18,193
|
|
Restricted cash
|
|
878
|
|
|
|
|
|
Property, plant and equipment, net
|
|
4,358
|
|
6,682
|
|
7,460
|
|
Other long-term assets
|
|
32,013
|
|
39,936
|
|
56,323
|
|
Total
assets
|
|
86,262
|
|
108,342
|
|
123,363
|
|
|
|
|
|
|
|
|
|
Accounts payable
and other current liabilities
|
|
19,211
|
|
22,121
|
|
21,480
|
|
Current portion of long-term debt and payable
|
|
57
|
|
49
|
|
775
|
|
Long-term payable
|
|
143
|
|
172
|
|
|
|
Non-financial long-term liabilities*
|
|
57,625
|
|
64,525
|
|
12,517
|
|
Total
liabilities
|
|
77,036
|
|
86,867
|
|
34,772
|
|
Shareholders
equity
|
|
9,226
|
|
21,475
|
|
88,591
|
|
Total
liabilities and shareholders equity
|
|
86,262
|
|
108,342
|
|
123,363
|
|
* Comprised mainly of deferred revenues and employee future benefits.
2009 compared to 2008
The decrease in cash and cash equivalents as at December 31, 2009,
compared to December 31, 2008 is due primarily to recurring cash flows
used in operating activities and by the reduction of currently available cash
due to a transfer of funds to a restricted account, as discussed below, largely
offset by the receipt of proceeds from sanofi and to the receipt of net
proceeds in connection with the two registered direct offerings, as discussed
above.
The decrease in property, plant and equipment as at December 31,
2009, compared to December 31, 2008 is due largely to the impairment
charge that was take
n
against certain items utilized exclusively in the development activities
related to cetrorelix, as discussed above.
The decrease in other long-term assets primarily includes the reduction
to intangible assets, which in turn was attributable to the impairment charges
taken on cetrorelix and ozarelix, as discussed above. Additionally, the
reduction is attributable to deferred charges amounting to approximately $0.7
million, which were deferred in 2007 and 2008, but which were included as a
reduction to share capital in connection with the First Offering, as discussed
above.
The reduction in non-financial long-term liabilities mainly is
attributable to deferred revenues, which in 2009 were lower following both the
ongoing amortization of the proceeds received from Cowen and the full
recognition of previously deferred amounts associated with license and
development agreements related to the use of ozarelix, as discussed above.
The decrease in shareholders equity from 2008 to 2009 is attributable
to the increase in consolidated deficit due to the current years net loss and
to the decrease in accumulated other comprehensive income, offset in large
proportion by the increase in share capital and warrants following the two
registered direct offerings discussed above.
2008 compared to 2007
The increase in cash and cash equivalents and
the decrease in short-term investments from 2007 to 2008 are discussed in more
detail below. The decrease in accounts receivable and other current assets from
2007 to 2008 is largely attributable to lower customer billings in December 2008
compared to the same period in 2007, lower grants receivable at the end of 2008
and the write-down to net realizable value of certain components of inventory
in December 2008, as discussed above.
The decrease in other long-term assets is
primarily due to the disposal, in 2008, of the long-lived assets which had been
reported as held for sale as at December 31, 2007, as discussed above and
the impairment charge that was taken relative to teverelix in the fourth
quarter of 2008, partially offset by a net increase in deferred charges, due
mainly to the capitalization of financial advisory, legal and other costs
incurred in connection with the sale of our rights to future royalties to
Cowen. The
69
Table of
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increase in non-financial long-term
liabilities is primarily attributable to the increase in deferred revenues
following the receipt of proceeds from Cowen, as well as an increase in
employee future benefits related mainly to employees in our German subsidiary.
The decrease in shareholders equity from 2007
to 2008 is almost entirely attributable to the increase in consolidated deficit
due to the 2008 net loss and the decrease in accumulated other comprehensive
income, which in turn is largely made up of cumulative translation adjustments.
Financial Liabilities, Obligations and Commitments
We have certain contractual obligations and commercial commitments.
Commercial commitments mainly include R&D services and manufacturing
agreements related to the production of Cetrotide
®
and to other R&D programs. The following
table summarizes future cash requirements with respect to these obligations.
|
|
Payments
due by period
|
|
(in thousands)
|
|
Carrying
amount
|
|
Less
than
1 year
|
|
1
to 3
years
|
|
4
to 5
years
|
|
After
5 years
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Long-term payable
|
|
200
|
|
57
|
|
114
|
|
29
|
|
|
|
Operating leases
|
|
12,721
|
|
2,008
|
|
4,038
|
|
3,894
|
|
2,781
|
|
Commercial commitments
|
|
6,801
|
|
5,256
|
|
1,545
|
|
|
|
|
|
Total
|
|
19,722
|
|
7,321
|
|
5,697
|
|
3,923
|
|
2,781
|
|
Outstanding Share Data
As at March 23, 2010, there were 63,089,954 common shares issued
and outstanding and there were 6,213,922 stock options outstanding. Warrants
outstanding as at March 23, 2010 represent a total of 4,110,603 equivalent
common shares.
Capital disclosures
Our objective in managing capital is to ensure
sufficient liquidity to fund our R&D activities, SG&A expenses, working
capital and capital expenditures.
We endeavour to manage our liquidity to minimize dilution to our
shareholders. Non-dilutive activities have included the sale of non-core assets
and rights to future royalties, collection of investment tax credits and
grants, interest income, licensing fees, service and royalties. More recently,
however, we raised additional capital via the registered direct offerings
discussed above.
During 2008, we fulfilled our obligation on the loan
from the federal and provincial governments with a nominal value of
CAN$800,000.
In connection with the sale of the Quebec City building
and land discussed above, we entered into a long-term lease agreement with the
principal tenant of the building. As part of the agreement, we agreed to pay
the principal tenant CAN$300,000 (approximately $285,000) as an incentive and
service fee. The resulting payable is non-interest bearing and is due in
bi-annual installments of CAN$30,000 (approximately $28,500) over the next five
years.
Our capital management objective remains the same as
that of previous years. The policy on dividends is to retain cash to keep funds
available to finance the activities required to advance our product development
pipeline.
We are not subject to any capital requirements imposed
by any regulators or any other external source.
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 on the availability
of funding from investors and prospective commercial partners.
70
Table of
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Liquidity, Cash Flows and Capital Resources
Our operations and capital expenditures have been financed mainly
through cash flows from operating activities, the selling of non-core assets
and other non-dilutive activities, except for the two registered direct
offerings completed during the year ended December 31, 2009, as discussed
above.
Our cash, cash equivalents and short-term investments amounted to
$38.1 million as at December 31, 2009, compared to $49.7 million
as at December 31, 2008. Possible additional operating losses and/or
possible investments in the acquisition of complementary businesses or products
may require additional financing. As at December 31, 2009, cash, cash
equivalents and short-term investments of the Company included
CAN$2.6 million and 6.3million.
Based on our assessment, which took into account the cash received in
connection with the 2008 sale of rights to future royalties to Cowen, the upfront
payment received from sanofi and the net proceeds received in connection with
the two registered direct offerings discussed above, as well as our strategic
plan and corresponding budgets for 2010 and projections for 2011 and 2012, and
despite the announcement of negative results associated with our Phase 3
studies with cetrorelix in BPH, we believe that the Company has sufficient
financial resources to fund planned expenditures and other working capital
needs for at least, but not limited to, the next 12-month period from the
balance sheet date.
We may endeavour to secure additional financing, as required, through
strategic alliance arrangements or through other non-dilutive activities, as
well as via the issuance of new share capital.
The variation of our liquidity by activity is explained below, not
considering any cash flows used in or provided by discontinued operations.
Operating Activities
Cash flows used in our continuing operating
activities amounted to $24.1 million for the year ended December 31,
2009, compared to $1.3 million and $25.7 million for each of the
years ended December 31, 2008 and 2007, respectively.
The significant increase in cash used in our continuing operating
activities from 2008 to 2009 is attributable to the receipt of cash proceeds of
$52.5 million in 2008 from Cowen, as discussed below, compared to the
lower cash proceeds of $30.0 million from sanofi in 2009, as discussed
above. Also, operating cash payments for prepaid expenses and accounts payable
were higher during 2009 as compared to 2008.
The significant decrease in cash used in
operating activities from 2007 to 2008 relates in large proportion to the net
cash proceeds received from Cowen, as discussed above, in addition to higher
upfront payments received from certain customers and higher cash collections of
trade accounts receivable. These cash inflows were partially offset by
increased cash expenditures that contributed to the increase in our net loss,
as well as by payments made, which were mainly related to financial advisory,
legal and other costs incurred in connection with the transaction with Cowen,
as well as to a higher volume of trade accounts payable settlements.
We expect net cash used in continuing operating activities to increase
significantly in 2010, as compared to 2009, largely given the comparative
absence of net proceeds associated with our agreement with sanofi, which has
been terminated, as discussed above.
Financing Activities
Net cash provided
by (used in) continuing financing activities was $14.2 million for the
year ended December 31, 2009, compared to ($1.2 million) and
($1.1 million) for each of the years ended December 31, 2008 and
2007, respectively. The significant increase in net cash provided by financing
activities in 2009 is attributable to the registered direct offerings discussed
above, while the funds in 2008 and 2007 were used mainly for the repayments of
our long-term debt and payable, as well as in connection with the filing of a
shelf prospectus.
Investing Activities
Cash (used in) provided by continuing investing activities (excluding
the changes in short-term investments) amounted to ($1.7 million) for the year
ended December 31, 2009, compared to $13.6 million and ($3.0 million) for
each of the years ended December 31, 2008 and 2007, respectively. These
fluctuations relate in large proportion to the disposals of the
71
Table of
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building and land in Quebec City and of Impavido
®
, both
of which had been reported as long-lived assets held for sale as at December 31,
2007 and sold in 2008.
Also, as discussed above, during 2009, we transferred approximately
$0.9 million to a restricted cash account. Changes to restricted cash
balances, including any interest earned thereon, are reported in the statement
of cash flows as investing activities.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in
accordance with Canadian GAAP. A summary of significant and pertinent
measurement and disclosure differences between Canadian and US GAAP is provided
in note 26 to our 2009 consolidated financial statements. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
years. Significant estimates are generally made in connection with the
calculation of revenues, research and development expenses, stock-based
compensation costs, as well as in determining the allowance for doubtful
accounts, future income tax assets and liabilities, the useful lives of
property, plant and equipment and intangible assets with finite lives, the
valuation of intangible assets and goodwill, the fair value of stock options
and warrants granted, employee future benefits and certain accrued liabilities.
We base our estimates on historical experience, where relevant, and on various
other assumptions that we believe to be reasonable under the circumstances.
Actual results could differ from those estimates.
The following summarizes our critical accounting
policies and other policies that require the most significant judgment and
estimates in the preparation of our consolidated financial statements.
Revenue Recognition and Deferred Revenues
We are currently in a phase in which potential
products are being further developed or marketed jointly with strategic
partners. Existing licensing agreements usually foresee one-time payments
(upfront payments), payments for research and development services in the form
of cost reimbursements, milestone payments and royalty receipts for licensing
and marketing product candidates. Revenues associated with those
multiple-element arrangements are allocated to the various elements based on
their relative fair value.
Agreements containing multiple elements are divided
into separate units of accounting if certain criteria are met, including
whether the delivered element has stand-alone value to the customer and whether
there is objective and reliable evidence of the fair value of the undelivered
obligation(s). The consideration received is allocated among the separate units
based on each units fair value and the applicable revenue recognition criteria
are applied to each of the separate units.
License fees representing non-refundable payments
received upon the execution of license agreements are recognized as revenue
upon execution of the license agreements when we have no significant future
performance obligations and when collectibility of the fees is assured. Upfront
payments received at the beginning of licensing agreements are not recorded as
revenue when received but are amortized based on the progress to the related
research and development work. This progress is based on estimates of total
expected time or duration to complete the work, which is compared to the period
of time incurred to date in order to arrive at an estimate of the percentage of
revenue earned to date.
Milestone payments, which are generally based on
developmental or regulatory events, are recognized as revenue when the
milestones are achieved, collectibility is assured, and when there are no
significant future performance obligations in connection with the milestones.
Royalty revenue, based on a percentage of sales of
certain declared products sold by third parties, is recorded when we have
fulfilled the terms in accordance with the contractual agreement and have no
future obligations, the amount of the royalty fee is determinable and
collection is reasonably assured.
Proceeds received in connection with the sale of
rights to future royalties are deferred and recognized over the life of the
license agreement pursuant to the units-of-revenue method, as discussed
above.
Revenues from sales of products are recognized, net
of estimated sales allowances and rebates, when title passes to customers,
which is at the time goods are shipped, when there are no future performance
obligations, when the purchase price is fixed and determinable, and collection
is reasonably assured.
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Impairment of Long-Lived Assets and Goodwill
Property,
plant and equipment and intangible assets with finite lives are reviewed for
impairment when events or circumstances indicate that carrying values may not
be recoverable. Impairment exists when the carrying value of the asset is
greater than the undiscounted future cash flows expected to be provided by the
asset. The amount of impairment loss, if any, is the excess of its carrying
value over its fair value, which in turn is determined based upon discounted
cash flows or appraised values, depending of the nature of assets.
Goodwill, which represents
the excess of the purchase price over the fair values of the net assets of
entities acquired at the respective dates of acquisition, is tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the carrying value of the reporting unit to which the goodwill is
assigned may exceed the fair value of the reporting unit.
In the event that the
carrying amount of a reporting unit, including goodwill, exceeds its fair
value, an impairment loss is recognized in an amount equal to the excess. Fair
value of goodwill is estimated in the same way as goodwill is determined at the
date of the acquisition in a business combination, that is, the excess of the
fair value of the reporting unit over the fair value of the identifiable net
assets of the reporting unit.
Income Taxes
We operate in multiple
jurisdictions, and our earnings are taxed pursuant to the tax laws of these
jurisdictions. Our effective tax rate may be affected by changes in, or
interpretations of, tax laws in any given jurisdiction, utilization of net
operating losses and tax credit carry-forwards, changes in geographical mix of
income and expense, and changes in managements assessment of matters, such as
the ability to realize future tax assets. As a result of these considerations,
we must estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our actual current tax exposure,
together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in
future tax assets and liabilities, which are included in our consolidated
balance sheet. We must then assess the likelihood that our future tax assets
will be recovered from future taxable income and establish a valuation
allowance if, based on available information, it is more likely than not that
some or all of the future income tax assets will not be realized.
Significant management
judgment is required in determining our provision for income taxes, our income
tax assets and liabilities, and any valuation allowance recorded against our
net income tax assets. The valuation allowance is based on our estimates of
taxable income by jurisdiction in which we operate and the period over which
our income tax assets will be recoverable. In the event that actual results
differ from these estimates or we adjust these estimates in future periods, we
may need to amend our valuation allowance, which could materially impact our
financial position and results of operations.
Stock-Based Compensation
Costs
We account for all forms of employee stock-based
compensation using the fair value-based method. This method requires that we
make estimates about the risk-free interest rate, the expected volatility of
our shares and the expected life of the awards.
New Accounting Standards
Impact of accounting standards
adopted in 2009
In February 2008, the Canadian Institute of Chartered Accountants
(CICA) issued Handbook Section 3064,
Goodwill
and Intangible Assets
. This standard provides guidance on the
recognition of intangible assets and the criteria for asset recognition,
clarifying the applications of the concept of matching revenues and expenses,
whether these assets are separately acquired or are developed internally. The
standard applies to our interim and annual financial statements for periods
beginning on January 1, 2009. Adoption of this standard has not had any
impact on our consolidated financial statements.
In January 2009, the CICA issued Handbook Section 1582,
Business Combinations
, which replaces the existing
standards. This section establishes the standards for accounting for business
combinations and states that all assets and liabilities of an acquired business
will be recorded at fair value. Obligations for contingent considerations and
contingencies will also be recorded at fair value at the acquisition date. The
standard also states that acquisition-related costs will be expensed as
incurred and that restructuring charges will be expensed in the periods after
the acquisition date. We have early adopted this standard effective January 1,
2009 and will apply the provisions thereof prospectively to future business
combinations.
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In January 2009, the CICA issued Handbook Section 1601,
Consolidated Financial Statements
, which replaces the
existing standards and establishes the standards for preparing consolidated
financial statements and is effective for 2011. We have early adopted this
standard effective January 1, 2009 and will apply the provisions thereof
prospectively, where applicable.
In January 2009, the CICA issued Handbook Section 1602,
Non-controlling Interests
, which establishes standards for
accounting for non-controlling interests of a subsidiary in the preparation of
consolidated financial statements subsequent to a business combination. We have
early adopted this standard effective January 1, 2009 and have applied the
provisions thereof retrospectively, without any impact on our consolidated
financial statements.
In January 2009, the CICAs Emerging Issue
Committee (EIC) issued Abstract EIC-173, Credit Risk and the Fair Value of Financial Assets and
Liabilities, which requires entities to take both counterparty credit
risk and their own credit risk into account when measuring the fair value of
financial assets and liabilities, including derivatives. We adopted EIC-173 on January 1,
2009, and such adoption did not have a material impact on our consolidated
financial statements.
In July 2009, the CICA amended Handbook Section 1506,
Accounting Changes
, to exclude from its
scope changes in accounting policies upon the complete replacement of an entitys
primary basis of accounting. The amendments apply to interim and annual
financial statements relating to years beginning on or after July 1, 2009.
We early adopted these amendments on July 1, 2009, and such adoption did
not have any impact on our consolidated financial statements.
In June 2009, the CICA amended Handbook Section 3862,
Financial InstrumentsDisclosures
, to
include additional disclosure requirements about fair value measurements of
financial instruments and to enhance liquidity risk disclosure requirements for
publicly accountable enterprises. The amendments apply to annual financial
statements for years ending after September 30, 2009. We have adopted
these amendments, and there has been no significant impact on our consolidated
financial statements. Additional required disclosures have been made where
applicable.
Accounting standards not yet adopted
In December 2009, the EIC issued abstract EIC-175, Multiple
Deliverable Revenue Arrangements (EIC-175), which requires a vendor to allocate
arrangement consideration at the inception of an arrangement to all
deliverables using the relative selling price method. EIC-175 also
changes the level of evidence of the standalone selling price required to
separate deliverables when more objective evidence of the selling price is not
available. Given the requirement to use the relative selling price method of
allocating arrangement consideration, EIC-175 prohibits the use of the residual
method. EIC-175 may be applied
prospectively and is applicable to revenue arrangements with multiple
deliverables entered into or materially modified in the first annual fiscal
period beginning on or after January 1, 2011, with early adoption
permitted. We are currently evaluating the impact that this guidance may have
on our consolidated financial statements.
International Financial
Reporting Standards (IFRS)
We are currently evaluating
the potential impact that could result from preparing our consolidated
financial statements in accordance with IFRS, given that the Canadian
Accounting Standards Board confirmed that IFRS will replace current Canadian
standards and interpretations as Canadian GAAP for publicly accountable
enterprises. The adoption of IFRS will have an impact on our consolidated
financial statements, as well as on certain operational and performance
measures, beginning on January 1, 2011.
As previously disclosed, we have developed a formal plan for IFRS
conversion and the related transition from current standards. To date, we have
completed a full diagnostic, in which all existing international standards were
examined in comparison with corresponding Canadian guidance, and significant
differences between IFRS and Canadian GAAP were documented in order to plan for
more detailed analysis, which is the focus of our conversion projects
solutions development phase, currently underway.
Solutions development activities include, but are not limited to, the
following key activities:
·
Performance
of a more detailed review of relevant IFRS standards in order to identify
differences as compared to our current accounting policies;
·
Performance
of quantitative and qualitative impact analyses pursuant to the application of
current international guidance to financial information;
·
Preparation
of mock financial statements and notes in accordance with IFRS in order to
establish a model for required presentation, format and disclosures;
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·
Selection
or modification of accounting policies, where required or appropriate,
including those available under IFRS 1,
First-time Adoption of
International Financial Reporting Standards
(IFRS 1), as discussed
below;
·
Identification
of any necessary changes relative to information-gathering activities and
processes, including systems;
·
Identification
of impact on other internal and external stakeholders; and
·
Providing
training to selected personnel.
Our solutions development activities completed to date have allowed us
to conclude that the adoption of certain international standards likely will
result in a significant change to current accounting policies, reported
financial statement amounts or disclosures. With the exception of IFRS 1,
selected areas of international guidance examined to date that are relevant to
our business, and the corresponding expected impact that likely will result
from the application thereof, are presented below.
Accounting topic
|
|
Accounting difference and
expected impact
|
Financial instruments contingent settlement provisions
|
|
IAS 32,
Financial Instruments:
Disclosure and Presentation
(IAS 32),
provides more precise guidance than Canadian GAAP with respect to the
classification of financial instruments, including share purchase warrants,
with contingent settlement provisions. Under Canadian GAAP, we have
classified all outstanding share purchase warrants as shareholders equity,
where the instruments are reported at their grant-date fair value. Under the
provisions of IAS 32, these warrants would be classified as liabilities and
marked to market at each reported balance sheet date, and any changes to fair
value would be recognized in the consolidated statement of operations. This
treatment is similar to current US GAAP requirements, which are discussed in
note 26 to our 2009 consolidated financial statements.
|
It should be noted that the differences shown above are not a complete
list of topics that are or could become pertinent to our business. As such, as
we advance our solutions development activities, we may identify other areas
that could result in significant quantitative or qualitative impacts upon IFRS
adoption or thereafter in comparison to currently applied Canadian GAAP.
As we continue to analyze any potential quantitative adjustments and
policy decisions that need to be made upon full conversion to IFRS, we have
reached some key preliminary conclusions related to the application of
IFRS 1.
IFRS 1 provides authoritative guidance for use in the conversion of a
set of financial statements (and interim financial reports for part of that
period) from another basis of accounting to IFRS. The basic concept of
IFRS 1 is that the adoption of IFRS should be applied retrospectively,
meaning that an entity should present its first financial statements using IFRS
as if IFRS had been applied and effective from the date of the entitys
inception. However, due to the fact that full retrospective application is
unlikely to be achievable in a cost-effective manner, IFRS 1 offers certain
optional exemptions to first-time preparers of IFRS financial statements. Any,
all or none of these exemptions may be taken.
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Presented below are our preliminary conclusions with respect to some key
IFRS 1 optional exemptions, as applicable to our business.
Accounting topic
|
|
IFRS 1 exemption
explained
|
|
Preliminary conclusion
|
Business combinations
|
|
IFRS 1 allows first-time adopters to elect not to restate business
combinations that have occurred prior to the date of transition
(January 1, 2010) in accordance with IFRS 3,
Business
Combinations
(IFRS 3).
|
|
We will elect to apply this exemption and apply IFRS 3 only to
any business combinations that may occur after the date of transition,
without restating any prior business combinations.
|
Valuation of property, plant and equipment
|
|
IFRS 1 permits first-time adopters to measure selected assets at fair
value and use that fair value as deemed cost of those assets in the
transition date balance sheet.
|
|
We will not utilize this optional exemption and continue to use the
cost model for property, plant and equipment as of the date of transition to
IFRS.
|
Foreign currency translation adjustments
|
|
IFRS 1 permits first-time adopters to eliminate the cumulative
translation adjustment (CTA) balance (a component of accumulated other
comprehensive income) at the date of transition.
|
|
We will eliminate our date of transition CTA balance by adjusting our
opening accumulated deficit.
|
Other IFRS 1 exemptions will be considered as we continue to make
progress in our conversion activities.
We will continue, on a quarterly basis, to provide information regarding
the timing, status and impact of the aforementioned activities and of other key
elements inherent in our IFRS conversion plan.
Outlook for 2010
Perifosine
We expect to continue the development of perifosine in North America
(US, Canada and Mexico) in collaboration with our partner, Keryx, and benefit
from this development in order to ultimately achieve registration in other
territories. The primary focus will be to advance the Phase 3 registration
studies in conformity with the SPA that Keryx recently received from the FDA in
multiple myeloma and refractory metastatic colon cancer. Keryx is responsible,
in accordance with the terms of our license agreement, for the North American
development and registration of perifosine. We have access to all corresponding
data at no additional cost. In parallel with the North American development
activities, we expect to seek scientific advice with the European Medicines
Agency (EMA) relative to a development and regulatory pathway so as to extend
the reach of perifosine to European territories. We also expect to establish a
strategy that will enable us to benefit from the Asian markets and from other
attractive territories. In the event that EMA requires additional trials or any
additional development work prior to confirming compliance with European
regulations, we will support the corresponding R&D investments as we seek
additional partnerships for the corresponding territories.
AEZS-108
We expect to perform, together with cooperative groups and clinical
investigators, additional studies in endometrial or ovarian cancer, as well as
in new indications such as prostate cancer and bladder cancer. Based on our
available financial resources and on the level of sponsorships that we
successfully obtain from different organizations, we will decide on our next
studies.
AEZS-130 (Solorel
TM
)
Upon satisfactory discussions and agreement with the FDA, we expect to
complete the Phase 3 program for AEZS-130 (Solorel
TM
) as a
diagnostic test for adult growth hormone deficiency and to submit a
corresponding NDA to the FDA.
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Revenue
expectations
License fee revenues are expected to decrease substantially in 2010, due
to the known absence of future amortization of deferred revenues related to
upfront payments already received.
Additionally, excluding the impact of foreign exchange rate
fluctuations, sales and royalties are expected to decrease slightly in 2010.
Cost reduction and
development focus
During 2010, we expect to focus on R&D efforts vis-à-vis our
later-stage compounds, including perifosine, AEZS-108 and Solorel
TM
.
Earlier-stage projects will be associated with grants, R&D credits or
collaboration agreements. We do not expect to pursue any development relating
to cetrorelix or ozarelix. With this focused strategy, we can expect a
reduction of our R&D expenses by nearly $20.0 million in 2010, as
compared to 2009.
With regard to our SG&A expenses, in light of the absence of future
amortization of the royalty paid to Tulane of $3.0 million related to our
agreement with sanofi and given additional cost-saving measures, we expect to
reduce our costs in 2010 by approximately $5.0 million, as compared to
2009.
We expect that our cash burn should therefore be in the range of
$32.0 million to $35.0 million, excluding any non-dilutive activities
relating to the licensing out of our advanced products.
On March 12, 2010, we filed a Canadian short-form base shelf
prospectus, as well as a registration statement on Form F-3 with the United
States Securities and Exchange Commission (SEC), which were declared
effective by both the Canadian authorities and the SEC, and which would permit
us to issue up to $60.0 million of freely tradeable common shares and
warrants to purchase common shares.
We continue to endeavour to become a specialty pharmaceutical focused on
oncology and endocrinology with our own marketing activities in selected
territories and seek commercial partners, in order to carry out our strategic
objectives.
Financial and Other Instruments
Foreign Currency Risk
Since we operate on an international scale, we are
exposed to currency risks as a result of potential exchange rate fluctuations.
For the year ended December 31, 2009, we were not a party to any
forward-exchange contracts, and no forward-exchange contracts were outstanding
as at March 23, 2010.
Credit Risk
Financial instruments that potentially subject the
Company to concentrations of credit risk consist primarily of cash and cash
equivalents, restricted cash, short-term investments and accounts receivable.
Cash and cash equivalents and restricted cash balances are maintained with
high-credit quality financial institutions. Short-term investments have
consisted of notes issued by high-credit quality corporations and institutions.
Also, any accounts receivable balances due as at December 31, 2009 are
insignificant, both individually and in the aggregate. Consequently, management
considers the risk of non-performance related to cash and cash equivalents,
restricted cash, short-term investments and accounts receivable to be minimal.
Generally, we do not require collateral or other
security from customers for trade accounts receivable; however, credit is
extended following an evaluation of creditworthiness. In addition, we perform
ongoing credit reviews of all our customers and establish an allowance for
doubtful accounts when accounts are determined to be uncollectible.
Related
Party Transactions and Off-Balance Sheet Arrangements
We did not enter into transactions with any related parties during the
year ended December 31, 2009.
As at December 31,
2009, we did not have any interests in variable interest entities or any other
off-balance sheet arrangements.
77
Item 6. Directors, Senior Management and Employees
A. Directors and senior management
The following table sets
forth information about our directors and corporate officers as of March 22,
2010.
Name
and Place of Residence
|
|
Position with Aeterna Zentaris
|
|
|
|
Aubut, Marcel
|
|
Director
|
Quebec, Canada
|
|
|
|
|
|
Blake, Paul
|
|
Senior Vice President
and Chief Medical Officer
|
Pennsylvania, United
States
|
|
|
|
|
|
Byorum, Martha
|
|
Director
|
New York, United States
|
|
|
|
|
|
Dorais, José P.
|
|
Director
|
Quebec, Canada
|
|
|
|
|
|
Engel Juergen
|
|
President and Chief
Executive Officer and Director
|
Alzenau
, Germany
|
|
|
|
|
|
Ernst, Juergen
|
|
Executive Chairman of
the Board and Director
|
Brussels, Belgium
|
|
|
|
|
|
Lapalme, Pierre
|
|
Director
|
Quebec, Canada
|
|
|
|
|
|
Laurin, Pierre
|
|
Director
|
Quebec, Canada
|
|
|
|
|
|
Limoges, Gérard
|
|
Director
|
Quebec, Canada
|
|
|
|
|
|
MacDonald, Pierre
|
|
Director
|
Quebec, Canada
|
|
|
|
|
|
Martin, Gerald J.
|
|
Director
|
California, United States
|
|
|
|
|
|
Métivier,
Amélie
|
|
Assistant
Secretary
|
Quebec,
Canada
|
|
|
|
|
|
Pelliccione, Nicholas
|
|
Senior Vice President,
Regulatory Affairs and Quality Assurance
|
New York, United States
|
|
|
|
|
|
Seeber, Matthias
|
|
Senior
Vice President, Administration and Legal Affairs
|
Frankfurt, Germany
|
|
|
|
|
|
Shapiro, Elliot
|
|
Corporate
Secretary
|
Quebec, Canada
|
|
|
|
|
|
Turpin, Dennis
|
|
Senior Vice President
and Chief Financial Officer
|
Quebec, Canada
|
|
|
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Table of Contents
The following is a brief biography of each of our
directors and senior officers.
Marcel
Aubut
has served as a director on our Board since 1996. A key figure in
Canadian business and an icon in the world of sports, Marcel Aubut, O.C., O.Q.,
Q.C. Ad. E., has been a corporate and litigation lawyer for more than thirty
years. A partner with Heenan Blaikie Aubut LLP, he is a member of the firms
National Management Committee and its Executive Committee. In 1983, Mr. Aubut
founded the firm of Aubut Chabot. He was President and Chief Executive Officer
of
Le Club de Hockey Les Nordiques de Québec
,
as well as founding president and chief executive officer of
Parc technologique du Québec métropolitain
.
Many companies have called on Mr. Aubut to be a director, including such
high-profile ones as Boralex Power Income Fund, Boralex Inc., Atomic Energy
Canada, Cinar, Hydro-Québec, The Laurentian Group, Investors Group of Mutual
Funds, Sodic Québec Inc., International Continental Insurers Ltd, the National
Hockey League Pension Society, Olybro Inc. (previously known as Olymel),
TransForce Inc., La Fondation Nordiques and Purolator.
Paul Blake
was appointed our Senior
Vice President and Chief Medical Officer in August 2007. Prior to joining
us, Dr. Blake was Chief Medical Officer of Avigenics, Inc. since January 2007.
In 2005, he was Senior Vice President, Clinical Research and Regulatory Affairs
at Cephalon, Inc. before being promoted to Executive Vice President,
Worldwide Medical & Regulatory Operations. From 1992 to 1998, he held
the position of Senior Vice President and Medical Director, Clinical Research
and Development at SmithKline Beecham Pharmaceuticals (now GSK). Dr. Blake
earned a medical degree from the London University, Royal Free Hospital. He was
elected Fellow of the American College of Clinical Pharmacology, Fellow of the
Faculty of Pharmaceutical Medicine, Royal College of Physicians in the UK, and
he is a Fellow of the Royal College of Physicians in the UK.
Martha Byorum
has served as a director
on our Board since 2001. Ms. Byorum is currently Senior Managing Director
of Stephens Cori Capital Advisors, a division of Stephens, Inc., a private
investment banking firm. From 2003 to 2004, Ms. Byorum served as Chief
Executive Officer of Cori Investment Advisors, LLC, which was spun off from
Violy, Byorum & Partners (VB&P) in 2003. VB&P was an
independent strategic advisory and investment banking firm specializing in
Latin America. Prior to co-founding VB&P in 1996, Ms. Byorum had a
24-year career at Citibank, where, among other things, she served as Chief of
Staff and Chief Financial Officer for Citibanks Latin American Banking Group
from 1986-1990, overseeing $15 billion of loans and coordinating activities in
22 countries. She later was appointed the head of Citibanks U.S. Corporate
Banking Business, and a member of the banks Operating Committee and Customer
Group with global responsibilities. Ms. Byorum is a director of the
following companies which file reports pursuant to the Exchange Act: Æterna
Zentaris Inc., Northwest Natural Gas Company, and M&F Worldwide Corp.
José P. Dorais
has served as a director on
our Board since 2006. Mr. Dorais is a partner of Miller Thomson Pouliot
LLP where he mainly practices administrative, corporate, business and
international trade law. Over his 35-year career, he has worked in both the
private and public sectors; in the latter he acted as Secretary to the Minister
of Justice and as Secretary of the consulting committee on the Free Trade
Agreement for the Quebec Provincial Government. Mr. Dorais has been a
member of numerous boards of directors, including the Société des Alcools du
Québec, Biochem Pharma and St-Luc Hospital in Montreal. He is now a member of
the Board of Alliance Films, the Société Générale de Financement and Chairman
of the Board of Recyc-Québec. He holds a law degree from the University of
Ottawa and is a member of the Quebec Bar.
Juergen Engel
was appointed President
and Chief Executive Officer, effective September 1, 2008, after having up
to such time served as our Executive Vice President and Chief Scientific
Officer. He became a director on our Board in 2003. Dr. Engel has
been Managing Director of AEZS Germany, the Companys principal subsidiary,
since the beginning of 2001. Before that, he was in charge of all research and
development activities of ASTA Medica AG. He is member of the Board of
Directors of Isotechnika Pharma Inc., and member of the Advisory Board of GIG,
Berlin and ElexoPharm, Saarbrücken.
Juergen Ernst
was appointed Executive
Chairman of the Board, effective September 1, 2008, after having served as
Chairman of the Board from August 13, 2007 until April 10, 2008 and
as Interim President and Chief Executive Officer from April 11, 2008 until
August 31, 2008. He has served as a director on our Board since 2005. A
seasoned executive with more than 20 years of pharmaceutical industry expertise
mainly in the field of corporate development and pharmaceutical product marketing,
Mr. Ernst was worldwide General Manager, Pharmaceutical Sector of Solvay
S.A., before retiring in 2004. He is now a member of the Board of Directors of
Solvay
Pharmaceuticals B.V. since January 1,
2005 and a director of Pharming Group N.V., Leiden, Netherlands since April 15,
2009.
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Table
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Pierre Lapalme
has served as a director on our Board since December 2009.
Mr. Lapalme has over the course of his career held numerous senior
management positions in various global life sciences companies. He is former
Senior Vice-President, Sales and Marketing for Ciba-Geigy (which subsequently
became Novartis) and former Chief Executive Officer and Chairman of the Board
of Rhone-Poulenc Pharmaceuticals Inc. in Canada and in North America, as well
as Executive Vice-President and Chief Executive Officer of Rhone-Poulenc-Rorer
Inc. North America (now sanofi-aventis), where he supervised the development,
manufacturing and sales of prescription products in North and Central America. Mr. Lapalme
served on the Board of the National Pharmaceutical Council USA and was a Board
member of the Pharmaceutical Manufacturers Association of Canada, where he
played a leading role in reinstituting patent protection for pharmaceuticals.
Until recently, he was Board member and Chairman of the Board of Sciele Pharma
Inc. which was acquired by Shionogi and Co. Ltd. Mr. Lapalme is currently
Chairman of the Board of Biomarin Inc.
Chairman of the Board of Pediapharm Inc.
Board member of Algorithme Pharma Inc. and Board member of Confab Inc.
He studied at the University of Western Ontario and at INSEAD, France.
Pierre Laurin
has served as a director on
our Board since 1998. Mr. Laurin has been Director of the Hautes Études
Commerciales Business School in Montreal (HEC Montréal) since January 1999. He
was elected Chairman of the Board of Directors of our former subsidiary,
Atrium, in February 2001. From 1969 to 1982, Mr. Laurin held
successively the positions of teacher and Dean with the Hautes Études
Commerciales. Since then, he has acted as Vice President, General Manager,
Planning and Administration for Alcan. He was also the founding President and
CEO of Soccrent, a venture capital firm in Saguenay-Lac-St-Jean. He has
also spent 13 years as Vice Chairman of the Board and President for Quebec of
Merrill Lynch. Mr. Laurin is a member of several boards of directors
of corporations including Quebecor Inc., Microcell Telecommunications Inc.,
Æterna Zentaris and the Fondation J.-Armand Bombardier. Mr. Laurin
holds a Ph.D. degree in business from Harvard University, a Licence ès Sciences
Commerciales from the Hautes Études Commerciales Business School, and Bachelors
degree ès Art from the Séminaire de Philosophie de Montréal. He also
holds a Doctorate Honoris Causa from Concordia University. He is an officer of
the Order of Canada, and holds Lordre du Mérite of the Republic of France.
Gérard Limoges
has served as a director
on our Board since 2004. Mr. Limoges served as the Deputy Chairman of
Ernst & Young LLP Canada until his retirement in September 1999.
After a career of 37 years with Ernst & Young, Mr. Limoges has
been devoting his time as a director of a number of companies. Mr. Limoges
began his career with Ernst & Young in Montreal in 1962. After
graduating from the Management Faculty of Université de Montréal (HEC Montréal)
in 1966,
he wrote the CICA exams the same year
(Honors: Governor Generals Gold Medal for the highest marks in Canada and Gold
Medal of the Ordre des Comptables Agréés du Québec).
He became a
chartered accountant
in 1967
and partner of
Ernst & Young in 1971.
After
practicing as auditor since 1962 and partner since 1971, he was appointed
Managing Partner of the Montreal Office in 1979 and Chairman for Quebec in 1984
when he also joined the National Executive Committee. In 1992, he was appointed
Vice-chairman of Ernst & Young Canada and the following year, Deputy
Chairman of the Canadian firm. After retirement from public practice at the end
of September 1999, he was appointed Trustee of the School board of Greater
Montreal (1999), member of the Quebec Commission on Health Care and Social
Services (2000-2001) and special advisor to the Rector of the University de
Montreal and affiliate schools (2000-2003).
Mr. Limoges is a board
member and chairman of the audit committees of the following public companies:
Æterna Zentaris Inc., Atrium Innovations Inc. (TSX), Hartco
Inc.
(TSX), Hart Stores Inc. (TSX) and a board member
and chairman of the governance committee of Noranda Income Fund (TSX). He is
also a board member of
various
private
companies and charities.
M. Limoges
received the Order of Canada in 2002.
Pierre MacDonald
has served as a director on
our Board since November 2000. Mr. MacDonald is President and CEO of
MacD Consult Inc., a management consulting firm in international finance and
marketing, based in Montreal. He served as the Senior Vice President for
Eastern Canada for Bank of Montreal, a position which involved the review and
evaluation of the financial statements and creditworthiness of borrowers in a
wide variety of industries. In December 1995, he was elected to the
National Assembly of Quebec and became Minister of International Trade and
Technology. He was also named Vice Chairman of the Treasury Board of the
Government of Quebec. He also served as the Chairman of the Audit Committee of
Teleglobe Inc. for six years. Mr. MacDonald received Bachelor of Arts,
Bachelor of Commerce and Master of Commerce degrees from Laval University in
Québec.
Gerald J. Martin
has served as a director on
our Board since 2006. Former Vice President, Corporate Licensing and Technology
Alliances at Abbott Laboratories, Mr. Martin is currently Board Member of
Life Sciences Information Technology Global Institute, a not-for-profit public
benefit corporation chartered to identify and develop Good Informatics
Practices (GIP) with a focus on the establishment of GIP in drug development.
He was former Chairman of the Board of Milkahaus Laboratory based in
Providence, Rhode Island, a biotechnology company specialized mainly in male
health. During his career in the biopharmaceutical and pharmaceutical sectors, Mr. Martin,
in addition to his general management functions, developed a strong expertise
in sales and marketing, business development, as well as in clinical
development.
80
Table of
Contents
Amélie
Métivier
,
Assistant Secretary.
Ms. Métivier has served
as our Assistant Secretary since April 2009. In addition, Ms. Métivier
is currently a lawyer at the law firm of Ogilvy Renault LLP with a business law
and transaction-oriented practice, where she has worked since 2003. She is a
member of the
Barreau du Québec
since 2006, and holds an LL.B. (2004) degree from Université de Montréal.
Nicholas J. Pelliccione
was appointed our Senior
Vice President, Regulatory Affairs and Quality Assurance in May 2007. In
previous roles, Dr. Pelliccione has been responsible for the
clinical/preclinical and CMC regulatory aspects of new drugs in the oncology,
anti-infectives, cytokines and cardiovascular therapy areas, leading to several
approvals. He served as Senior Vice President, Regulatory and Pharmaceutical
Sciences at Chugai Pharma USA from May 2005 until March 2007. Prior
to his experience at Chugai, Dr. Pelliccione spent more than 15 years at
Schering Plough Corporation holding positions with increasing responsibility
from Manager of Regulatory Affairs, Oncology to, prior to his departure, Vice
President, Global Regulatory Affairs, Chemistry, Manufacturing and Controls. Dr. Pelliccione
holds a Ph.D. in Biochemistry from Mount Sinai School of Medicine, New York and
a BS in Chemistry from Polytechnic University.
Matthias Seeber
was appointed our Senior
Vice President, Administration and Legal Affairs in December 2008. Mr. Seeber
served as Managing Director of AEZS Germany since July 2003 up to his most
recent appointment. Prior to that, he had assumed the position of Investor
Relations Manager of Altana AG, following several years in the banking industry
with Deka Investment Management and Dresdner Bank AG. Mr. Seeber is a
member of the Deutsche Vereinigung für Finanzanalyse und Asset Management
(DVFA/CEFA). He obtained his M.B.A. from George Mason University Graduate
School of Business Administration in the United States.
Elliot
Shapiro
was
appointed our Corporate Secretary in April 2009. In addition, Mr. Shapiro
is currently a partner and a lawyer at the law firm of Ogilvy Renault LLP with
a business law and transaction-oriented practice, where he has worked since
1999. He has been a member of the
Barreau du
Québec
since 2000. Mr. Shapiro holds B.C.L. (1999), LL.B.
(1999) and B.A. (1993) degrees from McGill University.
Dennis Turpin
was appointed our Senior
Vice President and Chief Financial Officer in August 2007. Prior to that,
he served as our Vice President and Chief Financial Officer since June 1999.
Mr. Turpin joined Æterna Zentaris in August 1996 as Director of
Finance. Prior to that, he was Director in the tax department at Coopers
Lybrand, now PricewaterhouseCoopers, from 1988 to 1996 and worked as an auditor
from 1985 to 1988. Mr. Turpin earned his Bachelors degree in Accounting
from Laval University in Québec. He obtained his license in accounting in 1985
and became a chartered accountant in 1987.
B.
Compensation
A. Compensation of Outside Directors
The compensation paid to the
Companys directors is designed to (i) attract and retain the most
qualified people to serve on the Board and its committees, (ii) align the
interests of the Companys directors with those of its shareholders, and (iii) provide
appropriate compensation for the risks and responsibilities related to being an
effective director. This compensation is recommended to the Board by the
Corporate Governance, Nominating and Human Resources Committee (the Governance
Committee). During the most recently completed financial year, the Governance
Committee was composed of four (4) directors, each of whom is independent,
namely Messrs. Pierre MacDonald, José P. Dorais, Juergen Ernst and Pierre
Laurin. One of the members of the Governance Committee, namely Juergen Ernst,
is an executive officer of the Company.
The Board has adopted a formal mandate for the
Governance Committee, which is available on our website at www.aezsinc.com. The
mandate of the Governance Committee provides that it is responsible for (i) assisting
the Board in developing our approach to corporate governance issues, (ii) proposing
new Board nominees, (iii) assessing the effectiveness of the Board and its
committees, their respective chairs and individual directors and (iv) making
recommendations to the Board with respect to directors compensation.
In light of prevailing
economic and market conditions, as well as the cost-saving measures implemented
by the Company, the Governance Committee recommended and the Board approved two
sets of reductions to directors and committee members retainers and
attendance fees, such reductions having taken effect as of July 1, 2009
and January 1, 2010, respectively.
We
did not retain the services of any external compensation consultant in or with
respect to the financial year ended December 31, 2009.
81
Table of Contents
Annual Retainers and Attendance Fees
Annual retainers and attendance fees are paid on a
quarterly basis to the members of the Board who are not employees of the
Company or its subsidiaries (Outside Directors) as described in the table
below.
Type of Compensation
|
|
Annualized
Compensation
between Jan. 1 and
June 30, 2009
(in units of home
country currency)
|
|
Annualized
Compensation between
July 1 and Dec. 31, 2009
(in units of home country
currency)
|
|
Average
Annualized
Total Compensation
in 2009
(in units of home
country currency)
|
|
Annual
Compensation
as of Jan. 1, 2010
(in units of home
country currency)
|
Executive Chairmans Retainer
|
|
75,000
|
|
60,000
|
|
67,500
|
|
45,000
|
Vice Chairmans Retainer
|
|
25,000
|
|
20,000
|
|
22,500
|
|
15,000
|
Board Retainer
|
|
25,000
|
|
20,000
|
|
22,500
|
|
15,000
|
Board Meeting Attendance Fees
|
|
2,000 per meeting
|
|
1,500 per meeting
|
|
1,750 per meeting
|
|
1,000 per meeting
|
Audit Committee Chair Retainer
|
|
20,000
|
|
15,000
|
|
17,500
|
|
15,000
|
Audit Committee Member Retainer
|
|
5,000
|
|
4,000
|
|
4,500
|
|
4,000
|
Audit Committee Meeting Attendance Fees
|
|
2,000 per meeting
|
|
1,500 per meeting
|
|
1,750 per meeting
|
|
1,000 per meeting
|
Governance Committee Chair Retainer
|
|
15,000
|
|
12,000
|
|
13,500
|
|
12,000
|
Governance Committee Member Retainer
|
|
2,500
|
|
2,000
|
|
2,250
|
|
2,000
|
Governance Committee Meeting Attendance Fees
|
|
2,000 per meeting
|
|
1,500 per meeting
|
|
1,750 per meeting
|
|
1,000 per meeting
|
All amounts in the above table are paid to Board and committee members
in their home country currency.
The
President and Chief Executive Officer is the only member of the Board who is
not an Outside Director. Therefore, he is not compensated in his capacity as a
director. The Executive Chairman is an Outside Director and is compensated as
such. Outside Directors are reimbursed for travel and other out-of-pocket
expenses incurred in attending Board or committee meetings.
82
Table of Contents
Outstanding
Option-Based Awards and Share-Based Awards
The following table shows
all awards outstanding to each Outside Director up to the end of the financial
year ending December 31, 2009:
|
|
Option-based
Awards
|
|
Share-based
Awards
|
|
Name
|
|
Issuance
Date
(mm-dd-
yyyy)
|
|
Number
of
Securities
Underlying
Unexercised
Options(1)
(#)
|
|
Option
Exercise
Price
(CAN$)
|
|
Option
Expiration
Date
(mm-dd-
yyyy)
|
|
Value
of
Unexercised
In-the-
money
Options(2)
(CAN$)
|
|
Issuance
Date
(mm-dd-
yyyy)
|
|
Number
of
Shares or
Units of
Shares
that have Not
Vested
(#)
|
|
Market
or Payout
Value of Share-
based
Awards that have
Not Vested
($)
|
|
|
|
12-04-2001
|
|
5,000
|
|
6.18
|
|
12-31-2011
|
|
|
|
|
|
|
|
|
|
|
|
12-16-2002
|
|
15,000
|
|
3.68
|
|
12-15-2012
|
|
|
|
|
|
|
|
|
|
|
|
12-11-2003
|
|
30,000
|
|
1.74
|
|
12-10-2013
|
|
|
|
|
|
|
|
|
|
|
|
12-14-2004
|
|
15,000
|
|
5.83
|
|
12-13-2014
|
|
|
|
|
|
|
|
|
|
Marcel Aubut
|
|
12-13-2005
|
|
15,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
5,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
25,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
15,000
|
|
0.55
|
|
12-08-2018
|
|
4,500
|
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
20,000
|
|
0.95
|
|
12-08-2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12-04-2001
|
|
5,000
|
|
6.18
|
|
12-31-2011
|
|
|
|
|
|
|
|
|
|
|
|
12-16-2002
|
|
15,000
|
|
3.68
|
|
12-15-2012
|
|
|
|
|
|
|
|
|
|
|
|
12-11-2003
|
|
30,000
|
|
1.74
|
|
12-10-2013
|
|
|
|
|
|
|
|
|
|
|
|
12-14-2004
|
|
15,000
|
|
5.83
|
|
12-13-2014
|
|
|
|
|
|
|
|
|
|
Martha Byorum
|
|
12-13-2005
|
|
15,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
5,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
25,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
15,000
|
|
0.55
|
|
12-08-2018
|
|
4,500
|
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
20,000
|
|
0.95
|
|
12-08-2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
José P. Dorais
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02-25-2005
|
|
15,000
|
|
5.09
|
|
02-24-2015
|
|
|
|
|
|
|
|
|
|
|
|
12-13-2005
|
|
15,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
5,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
Juergen Ernst
|
|
12-11-2007
|
|
25,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
|
11-14-2008
|
|
100,000
|
|
0.65
|
|
11-13-2018
|
|
20,000
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
15,000
|
|
0.55
|
|
12-08-2018
|
|
4,500
|
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
20,000
|
|
0.95
|
|
12-08-2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pierre Lapalme
|
|
12-09-2009
|
|
20,000
|
|
0.95
|
|
12-08-2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pierre Laurin
|
|
12-04-2001
|
|
5,000
|
|
6.18
|
|
12-31-2011
|
|
|
|
|
|
|
|
|
|
|
12-16-2002
|
|
24,000
|
|
3.68
|
|
12-15-2012
|
|
|
|
|
|
|
|
|
|
|
12-11-2003
|
|
30,000
|
|
1.74
|
|
12-10-2013
|
|
|
|
|
|
|
|
|
|
|
03-29-2004
|
|
3,000
|
|
6.26
|
|
03-28-2014
|
|
|
|
|
|
|
|
|
|
|
12-14-2004
|
|
15,000
|
|
5.83
|
|
12-13-2014
|
|
|
|
|
|
|
|
|
|
|
12-13-2005
|
|
15,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
5,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
25,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
15,000
|
|
0.55
|
|
12-08-2018
|
|
4,500
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
20,000
|
|
0.95
|
|
12-08-2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gérard Limoges
|
|
12-14-2004
|
|
15,000
|
|
5.83
|
|
12-13-2014
|
|
|
|
|
|
|
|
|
|
|
12-13-2005
|
|
15,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
5,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
25,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
15,000
|
|
0.55
|
|
12-08-2018
|
|
4,500
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
20,000
|
|
0.95
|
|
12-08-2019
|
|
|
|
|
|
|
|
|
|
83
Table of Contents
|
|
Option-based
Awards
|
|
Share-based
Awards
|
|
Name
|
|
Issuance
Date
(mm-dd-
yyyy)
|
|
Number
of
Securities
Underlying
Unexercised
Options(1)
(#)
|
|
Option
Exercise
Price
(CAN$)
|
|
Option
Expiration
Date
(mm-dd-
yyyy)
|
|
Value
of
Unexercised
In-the-
money
Options(2)
(CAN$)
|
|
Issuance
Date
(mm-dd-
yyyy)
|
|
Number
of
Shares or
Units of
Shares
that have Not
Vested
(#)
|
|
Market
or Payout
Value of Share-
based
Awards that have
Not Vested
($)
|
|
|
|
12-04-2001
|
|
5,000
|
|
6.18
|
|
12-31-2011
|
|
|
|
|
|
|
|
|
|
|
|
12-16-2002
|
|
24,000
|
|
3.68
|
|
12-15-2012
|
|
|
|
|
|
|
|
|
|
|
|
12-11-2003
|
|
30,000
|
|
1.74
|
|
12-10-2013
|
|
|
|
|
|
|
|
|
|
|
|
12-14-2004
|
|
15,000
|
|
5.83
|
|
12-13-2014
|
|
|
|
|
|
|
|
|
|
Pierre MacDonald
|
|
12-13-2005
|
|
15,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
5,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
25,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
15,000
|
|
0.55
|
|
12-08-2018
|
|
4,500
|
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
20,000
|
|
0.95
|
|
12-08-2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01-25-2006
|
|
15,000
|
|
5.04
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
5,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
Gérald J. Martin
|
|
12-11-2007
|
|
25,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
15,000
|
|
0.55
|
|
12-08-2018
|
|
4,500
|
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
20,000
|
|
0.95
|
|
12-08-2019
|
|
|
|
|
|
|
|
|
|
(1)
The number of securities
underlying unexercised options represent all awards outstanding as at December 31,
2009.
(2)
Value of unexercised
in-the-money options at financial year-end is calculated based on the
difference between the closing price of the common shares on the TSX on the
last trading day of the fiscal year (December 31, 2009) of CAN$0.85 and
the exercise price of the options, multiplied by the number of unexercised
options.
See Summary of the Stock Option Plan below for
more details on the Stock Option Plan (as defined below).
Total Compensation of Outside Directors
The table below summarizes
the total compensation earned by the Outside Directors during the financial
year ended December 31, 2009 (all amounts are in US dollars):
|
|
Fees
earned
($)
|
|
Share-
based
Awards
|
|
Option-based
Awards(2)
|
|
Non-Equity
Incentive Plan
Compensation
|
|
Pension
Value
|
|
All
Other
Compensation(3)
|
|
Total
|
|
Name
|
|
Retainer(1)
|
|
Attendance(1)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Marcel Aubut
|
|
19,710
|
|
11,169
|
|
|
|
9,636
|
|
|
|
|
|
|
|
40,515
|
|
Martha Byorum
|
|
27,000
|
|
17,500
|
|
|
|
9,636
|
|
|
|
|
|
1,500
|
|
55,636
|
|
José P. Dorais
|
|
21,681
|
|
17,739
|
|
|
|
|
|
|
|
|
|
|
|
39,420
|
|
Juergen Ernst
|
|
128,043
|
|
31,924
|
|
|
|
9,636
|
|
|
|
|
|
27,760
|
(4)
|
197,363
|
|
Pierre Lapalme(5)
|
|
|
|
1,314
|
|
|
|
9,636
|
|
|
|
|
|
|
|
10,950
|
|
Pierre Laurin
|
|
21,681
|
|
18,615
|
|
|
|
9,636
|
|
|
|
|
|
|
|
49,932
|
|
Gérard Limoges
|
|
35,04
0
|
|
20,586
|
|
|
|
9,636
|
|
|
|
|
|
3,942
|
|
69,204
|
|
Pierre MacDonald
|
|
55,188
|
|
21,681
|
|
|
|
9,636
|
|
|
|
|
|
2,628
|
|
89,133
|
|
Gerald J. Martin
|
|
22,500
|
|
14,750
|
|
|
|
9,636
|
|
|
|
|
|
|
|
46,886
|
|
(1) These amounts represent the portion paid in cash to the Outside
Directors and are paid in each directors home country currency.
(2)
The
value of option-based awards represents the closing price of the common shares
on the TSX at the date of grant (CAN$0.95, equivalent to US$0.83) for options
granted on December 9, 2009 multiplied by the Black-Scholes factor as at
such date (57.895% for options granted on December 9, 2009) and the number
of stock options granted in 2009.
(3)
These amounts
represent fees paid in cash for special tasks or overseas travelling and are
also paid in each directors home country currency.
(4)
Excludes a bonus
of 125,000 paid to Mr. Ernst in 2009 in his prior capacity as Interim
President and CEO in connection with the entering into of the commercial
agreement for cetrorelix with sanofi-aventis in March 2009.
(5)
Pierre Lapalme
was appointed to the Board on December 8, 2009.
84
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During
the financial year ended December 31, 2009, the Company paid an aggregate
amount of $521,951 to all of its Outside Directors for services rendered in
their capacity as directors, excluding reimbursement of out-of-pocket expenses
and the value of option-based awards granted in 2009. Outside Directors are
paid in their home country currency and are reimbursed for travel and other
out-of-pocket expenses incurred while attending Board or committee meetings.
B. Compensation of Executive Officers
The
mandate of the Governance Committee provides that it is responsible for taking
all reasonable measures to ensure that appropriate human resources systems and
procedures, such as hiring policies, competency profiles, training policies and
compensation structures are in place so that we can attract, motivate and
retain the quality of personnel required to meet our business objectives.
The
Governance Committee also assists the Board in discharging its responsibilities
relating to executive and other human resources hiring, assessment,
compensation and succession planning matters.
Thus,
the Governance Committee recommends the appointment of senior officers,
including the terms and conditions of their appointment and termination, and
reviews the evaluation of the performance of our senior officers, including
recommending their compensation. The Board, which includes the members of the
Governance Committee, reviews the Chief Executive Officers corporate goals and
objectives and evaluates his performance and compensation in light of such
goals and objectives.
Compensation Discussion & Analysis
Compensation Philosophy and Objectives
The
Companys executive compensation program is designed to attract, motivate and
retain high performing senior executives, encourage and reward superior
performance and align the executives interests with those of our shareholders
by:
·
providing the opportunity
for an executive to earn compensation that is competitive with the compensation
received by executives employed by a group of comparable North American
companies;
·
providing executives with
an equity-based incentive plan, namely a stock option plan;
·
aligning employee
compensation with company corporate objectives; and
·
attracting and retaining
highly qualified individuals in key positions.
Benchmarking
In
order to attain our objectives of providing market competitive compensation
opportunities, our executive compensation plan, based on a study provided by
AON Corporation (and updated annually), is benchmarked against market
compensation data gathered from organizations of comparable size and other
companies with which we compete for executive talent (the Reference Group).
An overview of the characteristics of the Reference Group is provided in the
following table:
(In
millions of US$)
|
|
Æterna Zentaris
|
|
Survey Reference Group
|
|
Location
|
|
North America and
Europe
|
|
North America
|
|
Industries
|
|
Biopharmaceutical
|
|
Biopharmaceutical
|
|
Revenues
Last
fiscal year
|
|
38.48
|
(1)
|
37.6
|
(2)
|
Market Capitalization
As
at October 30, 2009
|
|
64.35
|
|
148.69
|
|
Net Loss
Last
fiscal year
|
|
59.82
|
(1)
|
53.13
|
(2)
|
(1)
For the year ended December 31,
2008.
(2)
The Reference Group for the
financial year ended December 31, 2009 was selected in October 2009
and these data are based on their most recently completed fiscal year at such
time.
85
Table of Contents
The Reference Group used in
respect of the financial year ended December 31, 2009 was composed of the
following companies: Acadia Pharmaceuticals Inc.; Acorda
Therapeutics Inc.; Array Biopharma Inc.; Caraco Pharmaceutical Labs;
BioSanté Pharmaceuticals, Inc.; Cell Therapeutics Inc.; Enzon
Pharmaceuticals Inc.; Genomic Health Inc.; Ista
Pharmaceuticals Inc.; Ligand Pharmaceuticals; MDRNA, Inc.; Neurocrine
Biosciences Inc.; Nps Pharmaceuticals Inc.; Salix
Pharmaceuticals Ltd; Savient Pharmaceuticals Inc.; and Xoma Ltd.
Positioning
The
Companys compensation policy is for executive compensation to be generally
aligned with the 50th percentile of the Reference Group. The Governance
Committee uses discretion and judgment when determining compensation levels as
they apply to a specific executive officer. Individual compensation may be
positioned above or below median, based on individual experience and
performance or other criteria deemed important by the Governance Committee. The
total cash target payment for our executive officers generally falls within the
market 50
th
percentile
competitive range.
Compensation Elements
An
executive compensation policy has been established to acknowledge and reward
the contributions of the executive officers to our success and to ensure
competitive compensation, in order that we may benefit from the expertise
required to pursue our objectives.
Our
executive compensation policy is comprised of both fixed and variable
components. The variable components include equity and non-equity incentive
plans. Each compensation component is intended to serve a different function,
but all elements are intended to work in concert to maximize company and
individual performance by establishing specific, competitive operational and
corporate goals and by providing financial incentives to employees based on
their level of attainment of these goals.
Our
current executive compensation program is comprised of the following four basic
components:
(i)
base salary;
(ii)
non-equity
incentives
consisting of a cash
bonus linked to both individual and corporate performance;
(iii)
long-term
compensation consisting of our stock option plan established for the benefit
of our directors, executive officers and employees (the Stock Option Plan);
and
(iv)
other elements
of compensation
consisting of
benefits, perquisites and retirement benefits.
Base Salary
Salaries
of our executive officers are established based on a comparison with
competitive benchmark positions. The starting point to determine executive base
salaries is the median of executive salaries in the Reference Group.
In
determining individual base salaries, the Governance Committee takes into
consideration individual circumstances that may include the scope of an
executives position, the executives relevant competencies or experience and
retention risk. The Governance Committee also takes into consideration the
fulfillment of our corporate objectives as well as the individual performance
of the executive.
Short-Term Non-Equity Incentive Compensation
The
short-term non-equity incentive compensation plan sets out the allocation of
incentive awards based on the financial results and the advancement of our
product development and strategic objectives. These objectives are set at the
beginning of each financial year as part of the annual review of corporate
strategies.
In
the case of executive officers, a program is designed to maximize both
corporate and individual performance by establishing specific operational and
financial goals and to provide financial incentives to executive officers based
on their level of attainment of these goals. The granting of cash incentives
requires the approval of both the Governance Committee and the Board and is
based upon an assessment of each individuals performance, as well as the
performance of the Company.
86
Table
of Contents
For the financial year ended December 31, 2009,
the Governance Committee recommended, and the Board approved, in light of
prevailing
economic and market conditions, as well as the
cost-saving measures implemented by the Company, that
no cash bonuses be paid in respect of the 2009 year, and that there be no
increase in 2010 from the 2009 annual base salaries and potential bonus amounts
for all executive officers. Instead, in partial replacement of their 2009
annual cash bonuses, the Governance Committee approved the granting of
additional stock options to executives according to the following formula: $1
(CAN or US) or 1 = 1 stock option, as adjusted based on each senior
executives individual performance. Stock options granted in December 2009
to the Companys senior executives were granted with an accelerated vesting
schedule (18 months instead of three years, with the first one-third of the
options vesting six months after the date of grant), in order to allow these
grants to serve their purpose as partial compensation for the non-payment of
cash bonuses. See Summary of the Stock Option Plan below for more details on
the Stock Option Plan.
The stock options granted
to our executive officers represented 95% of the target payout established by
the Governance Committee.
Long-term
Equity Compensation Plan of Executive Officers
The long-term component
of the compensation of the Companys executive officers is based exclusively on
the Stock Option Plan, which permits the award of a number of options that
varies in accordance with the contribution of the officers and their
responsibilities. To encourage retention and focus management on developing and
successfully implementing the continuing growth strategy of the Company, stock
options generally vest over a period of three years, however, as mentioned in
the section above, the vesting schedule for the options granted to senior
executives in December 2009 was accelerated from three years to 18 months.
Stock options are usually granted to executive officers in December of
each year.
Summary of the Stock Option Plan
We
established the Stock Option Plan in order to attract and retain directors,
executive officers and employees, who will be motivated to work towards
ensuring the success of the Company. The Board has full and complete authority
to interpret the Stock Option Plan, to establish applicable rules and
regulations applying to it and to make all other determinations it deems
necessary or useful for the administration of the Stock Option Plan, provided
that such interpretations, rules, regulations and determinations are consistent
with the rules of all stock exchanges and quotation systems on which our
securities are then traded and with all relevant securities legislation.
Individuals
eligible to participate under the Stock Option Plan will be determined by
either the Board or the Governance Committee.
Options
granted under the Stock Option Plan may be exercised at any time within a
maximum period of ten years following the date of their grant (the Outside
Expiry Date). The Board or the Governance Committee, as the case may be,
designates, at its discretion, the individuals to whom stock options are
granted under the Stock Option Plan and determines the number of common shares
covered by each of such options grants, the grant date, the exercise price of
each option, the expiry date, the vesting schedule and any other matter
relating thereto, in each case in accordance with the applicable rules and
regulations of the regulatory authorities. The price at which the common shares
may be purchased may not be lower than the greater of the closing prices of the
common shares on the TSX and the NASDAQ on the last trading day preceding the
date of grant of the option. Options granted under the Stock Option Plan
generally vest in equal tranches over a three-year period (one-third each year,
starting on the first anniversary of the grant date) or as otherwise determined
by the Board or the Governance Committee, as the case may be.
Unless
the Board or the Governance Committee decides otherwise, option holders cease
to be entitled to exercise their options under the Stock Option Plan: (i) immediately,
in the event an option holder who is an officer or employee resigns or
voluntarily leaves his or her employment with the Company or one of its
subsidiaries or the employment with the Company or one of its subsidiaries is
terminated with cause and, in the case of an optionee who is a non-employee
director of the Company or one of its subsidiaries, the date on which such
optionee ceases to be a member of the relevant board of directors; (ii) six
months following the date on which employment is terminated as a result of the
death of an option holder who is an officer or employee and, in the case of an
optionee who is a non-employee director of the Company or one of its
subsidiaries, six months following the date on which such optionee ceases to be
a member of the relevant board of directors by reason of death; (iii) 30
days following the date on which an option holders employment with the Company
or any of its subsidiaries is terminated for a reason other than those
mentioned in (i) or (ii) above including, without limitation, upon
the disability, long-term illness, retirement or early retirement of the option
holder; and (iv) where the option holder is a service supplier, 30 days
following the date on which such option holder ceases to act as such, for any
cause or reason (each, an Early Expiry Date).
87
Table of
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The
Stock Option Plan also provides that, if the expiry date of an option(s) (whether
an Early Expiry Date or an Outside Expiry Date) occurs during a blackout
period or within the seven business days immediately after a blackout period
imposed by the Company, the expiry date will be automatically extended to the
date that is seven business days after the last day of the blackout period. For
the purposes of the foregoing, blackout period means the period during which
trading in the Companys securities is restricted in accordance with its
corporate policies.
Option
holders may not assign their options (nor any interest therein) other than by
will or in accordance with the applicable laws of estates and succession.
In
the event that, at any time, an offer to purchase is made to holders of all our
common shares, notice of such offer shall be given by the Company to each
optionee and all unexercised options will become exercisable immediately at
their respective exercise prices, but only to the extent necessary to enable
optionees to tender their common shares in response to such offer.
The Stock Option Plan
currently provides that the following amendments may be made to the Stock
Option Plan upon approval of each of the Board and our shareholders as well as
receipt of all required regulatory approvals:
·
any amendment to Section 3.2
of the Stock Option Plan (which sets forth the limit on the number of options
that may be granted to insiders) that would have the effect of permitting,
without having to obtain shareholder approval on a disinterested vote at a
duly convened shareholders meeting, the grant of any option(s) under the
Stock Option Plan otherwise prohibited by Section 3.2;
·
any amendment to the number
of securities issuable under the Stock Option Plan (except for certain
permitted adjustments, such as in the case of stock splits, consolidations or
reclassifications);
·
any amendment which would
permit any option granted under the Stock Option Plan to be transferable or
assignable other than by will or in accordance with the applicable laws of
estates and succession;
·
the addition of a cashless
exercise feature, payable in cash or securities, which does not provide for a full
deduction of the number of underlying securities from the Stock Option Plan
reserve;
·
the addition of a deferred
or restricted share unit component or any other provision which results in
employees receiving securities while no cash consideration is received by the
Company;
·
with respect to any option
holder whether or not such option holder is an insider and except in respect
of certain permitted adjustments, such as in the case of stock splits,
consolidations or reclassifications:
·
any reduction in the
exercise price of any option after the option has been granted, or
·
any cancellation of an
option and the re-grant of that option under different terms;
·
any extension to the term
of an option beyond its Outside Expiry Date to an option holder who is an
insider (except for extensions made in the context of a blackout period);
·
any amendment to the method
of determining the exercise price of an option granted pursuant to the Stock
Option Plan;
·
the addition of any form of
financial assistance or any amendment to a financial assistance provision which
is more favourable to employees; and
·
any amendment to the
foregoing amending provisions requiring Board, shareholder and regulatory
approvals.
The
Stock Option Plan further currently provides that the following amendments may
be made to the Stock Option Plan upon approval of the Board and upon receipt of
all required regulatory approvals, but without shareholder approval:
·
amendments of a
housekeeping or clerical nature or to clarify the provisions of the Stock
Option Plan;
·
amendments regarding any
vesting period of an option;
88
Table of
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·
amendments regarding the
extension of an option beyond an Early Expiry Date in respect of any option
holder, or the extension of an option beyond the Outside Expiry Date in respect
of any option holder who is a non-insider of the Company;
·
adjustments to the number
of issuable common shares underlying, or the exercise price of, outstanding
options resulting from a split or a consolidation of the common shares, a
reclassification, the payment of a stock dividend, the payment of a special
cash or non-cash distribution to our shareholders on a pro rata basis provided
such distribution is approved by our shareholders in accordance with applicable
law, a recapitalization, a reorganization or any other event which necessitates
an equitable adjustment to the outstanding options in proportion with
corresponding adjustments made to all outstanding common shares;
·
discontinuing or
terminating the Stock Option Plan; and
·
any other amendment which
does not require shareholder approval under the terms of the Stock Option Plan.
The
maximum number of common shares issuable under the Stock Option Plan is fixed
at 11.4% of the issued and outstanding common shares at any given time, which,
as at March 22, 2010, represented 7,192,255 common shares. There are
currently 6,213,922 options outstanding under the Stock Option Plan
representing 9.8% of all issued and outstanding common shares. Under the Stock
Option Plan, (i) the number of securities issued to insiders, at any time,
or issuable within any one-year period, under all of the Companys
security-based compensation arrangements, cannot exceed 10% of the Companys
issued and outstanding securities and (ii) no single option holder may
hold options to purchase, from time to time, more than 5% of the Companys
issued and outstanding common shares.
Outstanding Option-Based Awards and
Share-Based Awards
The following table shows
all awards outstanding to each of our
Company
s President and Chief Executive Officer,
the Chief Financial Officer and our three (3) other most highly compensated
executive officers of the
Company
during the most recently completed financial year
(collectively, the
Named Executive Officers
) as of December 31, 2009:
|
|
Option-based
Awards
|
|
Share-based
Awards
|
Name
|
|
Issuance
Date
(mm-dd-
yyyy)
|
|
Number
of
Securities
Underlying
Unexercised
Options(1)
(#)
|
|
Option
Exercise
Price
(CAN$)
|
|
Option
Expiration
Date
(mm-dd-
yyyy)
|
|
Value
of
Unexercised In-the-money
Options(2)
(CAN$)
|
|
Issuance
Date
|
|
Number
of
Shares or
Units of shares
that have Not
Vested
(#)
|
|
Market
or
Payout
Value of
Share-based
Awards that
have Not
Vested
($)
|
Engel, Juergen
|
|
02-20-2003
|
|
60,000
|
|
2.43
|
|
12-31-2012
|
|
|
|
|
|
|
|
|
|
|
12-11-2003
|
|
60,000
|
|
1.74
|
|
12-10-2013
|
|
|
|
|
|
|
|
|
|
|
12-14-2004
|
|
100,000
|
|
5.83
|
|
12-13-2014
|
|
|
|
|
|
|
|
|
|
|
12-13-2005
|
|
50,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
50,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
50,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
11-14-2008
|
|
200,000
|
|
0.65
|
|
11-13-2018
|
|
40,000
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
75,000
|
|
0.55
|
|
12-08-2018
|
|
22,500
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
165,000
|
|
0.95
|
|
12-08-2010
|
|
|
|
|
|
|
|
|
Turpin, Dennis
|
|
12-04-2001
|
|
30,000
|
|
6.18
|
|
12-04-2011
|
|
|
|
|
|
|
|
|
|
|
11-01-2002
|
|
90,000
|
|
3.94
|
|
10-31-2012
|
|
|
|
|
|
|
|
|
|
|
12-16-2002
|
|
50,000
|
|
3.68
|
|
12-15-2012
|
|
|
|
|
|
|
|
|
|
|
12-11-2003
|
|
60,000
|
|
1.74
|
|
12-10-2013
|
|
|
|
|
|
|
|
|
|
|
12-14-2004
|
|
90,000
|
|
5.83
|
|
12-13-2014
|
|
|
|
|
|
|
|
|
|
|
12-13-2005
|
|
50,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
50,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
50,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
115,000
|
|
0.95
|
|
12-08-2010
|
|
|
|
|
|
|
|
|
Blake, Paul
|
|
07-27-2007
|
|
45,000
|
|
3.05
|
(3)
|
07-26-2017
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
50,000
|
|
1.82
|
(3)
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
50,000
|
|
0.55
|
|
12-08-2018
|
|
15,000
|
|
|
|
|
|
|
89
Table of Contents
|
|
Option-based
Awards
|
|
Share-based
Awards
|
Name
|
|
Issuance
Date
(mm-dd-
yyyy)
|
|
Number
of
Securities
Underlying
Unexercised
Options(1)
(#)
|
|
Option
Exercise
Price
(CAN$)
|
|
Option
Expiration
Date
(mm-dd-
yyyy)
|
|
Value
of
Unexercised In-the-money
Options(2)
(CAN$)
|
|
Issuance
Date
|
|
Number
of
Shares or
Units of shares
that have Not
Vested
(#)
|
|
Market
or
Payout
Value of
Share-based
Awards that
have Not
Vested
($)
|
|
|
12-09-2009
|
|
110,000
|
|
0.95
|
|
12-08-2010
|
|
|
|
|
|
|
|
|
Seeber, Matthias
|
|
02-20-203
|
|
15,000
|
|
2.43
|
|
12-31-2012
|
|
|
|
|
|
|
|
|
|
|
12-11-2003
|
|
45,000
|
|
1.74
|
|
12-10-2013
|
|
|
|
|
|
|
|
|
|
|
12-14-2004
|
|
50,000
|
|
5.83
|
|
12-13-2014
|
|
|
|
|
|
|
|
|
|
|
12-13-2005
|
|
40,000
|
|
3.53
|
|
12-12-2015
|
|
|
|
|
|
|
|
|
|
|
01-04-2007
|
|
30,000
|
|
4.65
|
|
01-03-2017
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
25,000
|
|
1.82
|
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
30,000
|
|
0.55
|
|
12-08-2018
|
|
9,000
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
115,000
|
|
0.95
|
|
12-08-2010
|
|
|
|
|
|
|
|
|
Pelliccione
, Nicholas J.
|
|
05-07-2007
|
|
25,000
|
|
3.96
|
(3)
|
05-06-2017
|
|
|
|
|
|
|
|
|
|
|
12-11-2007
|
|
50,000
|
|
1.82
|
(3)
|
12-10-2017
|
|
|
|
|
|
|
|
|
|
|
12-08-2008
|
|
20,000
|
|
0.55
|
|
12-08-2018
|
|
6,000
|
|
|
|
|
|
|
|
|
12-09-2009
|
|
60,000
|
|
0.95
|
|
12-08-2010
|
|
|
|
|
|
|
|
|
(1)
The number of securities underlying unexercised options represents all
awards outstanding at December 31, 2009.
(2)
Value of unexercised in-the-money options at financial year-end is
calculated based on the difference between the closing price of the common
shares on the TSX on the last trading day of the year (December 31, 2009)
of CAN$0.85 and the exercise price of the options, multiplied by the number of
unexercised options.
(3)
These amounts are expressed in US dollars.
Incentive
plan awards - Value vested or earned during the year
The following table shows
the incentive plan awards value vested or earned for each Named Executive
Officer for the financial year ending December 31, 2009.
Name
|
|
Option-based awards - Value
vested during the year(1)
(CAN$)
|
|
Share-based awards - Value
vested during the year
(CAN$)
|
|
Non-equity incentive plan
compensation - Value earned
during the year
(CAN$)
|
|
Engel, Juergen
|
|
40,000
|
|
|
|
|
|
Turpin, Dennis
|
|
|
|
|
|
|
|
Blake, Paul
|
|
6,667
|
|
|
|
|
|
Seeber, Matthias
|
|
4,000
|
|
|
|
|
|
Pelliccione
, Nicholas J.
|
|
2,667
|
|
|
|
|
|
(1)
The amount represents the aggregate dollar value that would have been
realized if the options had been exercised on the vesting date, based on the
difference between the closing price of the common shares on the TSX and the
exercise price on such vesting date.
Other Forms of Compensation
Benefits and Perquisites
Our
executive employee benefits program also includes life, medical, dental and
disability insurance. Perquisites consist of a car allowance and human
resources counselling. These benefits and perquisites are designed to be
competitive overall with equivalent positions in comparable North American
organizations in the life sciences industry.
90
Table of
Contents
Pension Plan
One
of our Named Executive Officers, namely Dr. Juergen Engel, the President
and Chief Executive Officer, participates in a non-contributory defined benefit
pension plan. Benefits payable under this plan correspond to 40% of the
executive officers average salary of the last twelve months during the first
five working years after initial participation in this plan and increase by
0.4% for each additional year of employment.
The normal retirement age
is 65 years, but early retirement in accordance with Germanys social pension
insurance is possible without reduction (or clawback) of the benefit. The
following table shows total annual pension benefits payable to Dr. Engel
pursuant to this plan. Upon the death of a participant, the surviving spouse
and/or children of the participant will be entitled to a benefit equal to 60%
of the benefits to which such participant was entitled. All benefits payable
under this plan are in addition to German governmental social security
benefits. Only base salary is taken into consideration in calculating pension
benefits.
As
at December 31, 2009, Dr. Engel had 33 years and 4 months of credited
service in the aforementioned non-contributory defined benefit pension plan.
Defined Benefit Plans Table
|
|
Number of
years of
credited
|
|
Annual benefits
payable
|
|
Accrued
obligation at
|
|
Compensatory
|
|
Non-
compensatory
|
|
Accrued
obligation at
|
|
Name
|
|
service
(#)
|
|
At year end
($)(1)
|
|
At age 65
($)(1)
|
|
start of year
($)(1)
|
|
change
($)(1)
|
|
change
($)(1)
|
|
year end
($)(1)
|
|
Juergen Engel
|
|
33.33
|
|
218,217
|
|
218,501
|
|
2,998,772
|
|
431,110
|
|
113,769
|
|
3,543,651
|
|
(1)
All amounts in
the above table have been converted from euros to US$ based on the exchange
rate on December 31, 2009, which was 1.000 = US$1.4272.
Employer Contribution to Employees Retirement Plan
In
2008, the Board approved a plan whereby we would contribute to our employees
retirement plans both in Canada (RRSP) and the United States (401(k)) to the
extent of 50% of the employees contribution up to a maximum of $7,750 annually
for employees under 50 years old and $10,250 for those over 50 years old. This
plan was implemented in 2008. Employees based in Frankfurt, Germany already
benefit from certain employer contributions into the employees pension funds
(DUPK/RUK). Our executive officers, including the Named Executive Officers, are
eligible to participate in the aforementioned employer-contribution plans to
the same extent and in the same manner as all of our other employees.
Summary Compensation Table
The
Summary Compensation Table set forth below shows compensation information for
the Named Executive Officers for services rendered in all capacities during the
financial year ended December 31, 2009 and 2008. Our executive officers
are generally paid in their home countrys currency. All amounts in the Summary
Compensation Table below are in US dollars and have been converted from the
Named Executive Officers home country currency to US dollars based on the
following average exchange rates for the financial year ended December 31,
2009: 1.00 = US$1.388; and CAN$1.00 = US$0.876; and for the financial year
ended December 31, 2008: 1.00 = US$1.464; and CAN$1.00 = US$0.937.
91
Table of Contents
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
Non-equity
incentive
plan compensation
|
|
|
|
|
|
|
|
Name and
principal
|
|
|
|
Salary
|
|
Share
based
awards
|
|
Option
based
awards(1)
|
|
Annual
incentive
plan
|
|
Long-term
incentive
plans
|
|
Pension
value
|
|
All
other
compensation(2)
|
|
Total
compensation
|
|
position
|
|
Years
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Juergen Engel
President and CEO
|
|
2009
|
|
458,040
|
|
|
|
79,497
|
|
|
|
|
|
431,110
|
|
3,209
|
(3)
|
971,856
|
|
|
2008
|
|
405,925
|
(4)
|
|
|
67,777
|
|
248,093
|
(5)(6)
|
|
|
473,277
|
|
3,366
|
(3)
|
1,198,438
|
|
Dennis Turpin
Senior Vice President and CFO
|
|
2009
|
|
284,700
|
|
|
|
55,407
|
|
|
|
|
|
|
|
|
|
340,107
|
|
|
2008
|
|
317,352
|
|
|
|
|
|
30,000
|
(6)
|
|
|
|
|
95,780
|
(7)
|
443,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Blake
Senior Vice President and Chief Medical Officer
|
|
2009
|
|
366,000
|
|
|
|
52,998
|
|
|
|
|
|
|
|
10,250
|
(7)
|
429,248
|
|
|
2008
|
|
355,250
|
|
|
|
10,788
|
|
135,000
|
(6)
|
|
|
|
|
10,250
|
(8)
|
511,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthias Seeber
Senior Vice President, Administration and Legal Affairs
|
|
2009
|
|
306,748
|
|
|
|
55,407
|
|
|
|
|
|
|
|
54,300
|
(3)
|
416,455
|
|
|
2008
|
|
307,372
|
|
|
|
6,473
|
|
120,755
|
(5)
|
|
|
|
|
61,881
|
(3)
|
496,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas J. Pelliccione
Senior Vice President Regulatory Affairs and Quality Assurance
|
|
2009
|
|
317,300
|
|
|
|
28,908
|
|
|
|
|
|
|
|
8,250
|
(7)
|
354,458
|
|
|
2008
|
|
317,300
|
|
|
|
4,315
|
|
70,000
|
(6)
|
|
|
|
|
10,250
|
(8)
|
401,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The value of the option-based awards represents the closing price of the
common shares on the TSX at the date of grant (CAN$0.95 equivalent to US$0.83)
for options granted on December 9, 2009 multiplied by the Black-Scholes
factor as at such date (57.895% for options granted on December 9, 2009)
and the number of stock options granted in 2009.
(2)
All Other Compensation represents perquisites and other personal
benefits which, in the aggregate, amount to $50,000 or more, or are equivalent
to 10% or more of a Named Executive Officers total salary for the financial
year ended December 31, 2009. The type and amount of each perquisite, the
value of which exceeds 25% of the total value of perquisites, is separately
disclosed for each Named Executive Officer, if applicable.
(3)
Represents DUPK/RUK (Germany) employer contributions
to Dr. Engels and Mr. Seebers retirement
savings plans. Although the Company does not generally view employer
contributions to employees and executives retirement savings plans as
perquisites or benefits since such contributions are available to all
employees, it has decided to voluntarily disclose the amounts of such employer
contributions to the Named Executive Officers in the above table in order to
provide fulsome disclosure.
(4)
Represents Dr. Engels
annual base salary as Executive Vice President and Chief Scientific Officer
that was paid to him up until September 1, 2008 plus an adjusted annual
base salary following his appointment as President and CEO between September 1
and December 31, 2008.
(5)
Includes special
bonuses paid to Dr. Engel and Mr. Seeber in connection with the
negotiation, management and successful completion of two important transactions
in 2008, namely the monetization of Cetrotide
®
and the sale
of all rights related to Impavido
®
.
(6)
Includes a one time cash payment of $10,000 that was awarded in March 2008
to the Named Executive Officers with the exception of Mr. Seeber. This
award, to have been used solely to purchase the
Company
s common shares on the NASDAQ, was granted by the Board in order to
encourage share ownership of the
Company
s common shares by senior management.
(7)
Represents
$91,765 of relocation costs and $4,015 in employers contribution to Mr. Turpins
401(k) retirement savings plan. Although the Company does not generally
view employer contributions to employees and executives retirement savings
plans as perquisites or benefits since such contributions are available to all
employees, it has decided to voluntarily disclose the amounts of such employer
contributions to the Named Executive Officers in the above table in order to
provide fulsome disclosure.
(8)
Represents 401(k) employer contributions to Messrs. Blakes
and Pellicciones retirement savings plans.
Although the Company does not
generally view employer contributions to employees and executives retirement
savings plans as perquisites or benefits since such contributions are available
to all employees, it has decided to voluntarily disclose the amounts of such
employer contributions to the Named Executive Officers in the above table in
order to provide fulsome disclosure.
Compensation of the Chief Executive Officer
The
compensation of the President and Chief Executive Officer is governed by the
Companys executive compensation policy described in section entitled,
Compensation of Executive Officers, under Item 6 and the President and Chief
Executive Officer participates together with the other Named Executive Officers
in all of our incentive plans.
92
Table
of Contents
Dr. Engels total earned salary for 2009 was
$458,040, which places him approximately 5.1% below the 50
th
percentile in relation to the companies in the
Reference Group.
The Governance Committee recommended, and the Board
approved, in light of prevailing
economic and market
conditions, as well as the
cost-saving measures implemented by the Company, that no annual cash
bonus be paid in respect of the 2009 year. Instead, in partial replacement of
the 2009 annual cash bonus, the Governance Committee approved the granting of
additional stock options to the CEO based on his individual performance. The
terms of such grant provide for accelerated vesting conditions, in order to
allow these grants to serve their purpose as a partial replacement for annual
bonuses. See Summary of the Stock Option Plan on page 87 for more
details on the Stock Option Plan.
The President and Chief Executive Officer was awarded
a grant of 165,000 stock options on December 9, 2009 (at an exercise
price of CAN$0.95) for his performance in the context of the Companys
objectives in 2009.
C. Board
practices
Our
Articles provide that our Board shall be composed of a minimum of five and a
maximum of fifteen directors. Directors are elected annually by our
shareholders, but the directors may from time to time appoint one or more
directors, provided that the total number of directors so appointed does not
exceed one-third of the number of directors elected at the last annual meeting
of shareholders. Each elected director will remain in office until termination
of the next annual meeting of the shareholders or until his or her successor is
duly elected or appointed, unless his or her post is vacated earlier.
Under the terms of contractual agreements among the
Company, SGF Santé Inc. and Dr. Éric Dupont concerning, among other
matters, the election of directors, provided that SGF Santé Inc. holds at
least 5% of the Companys issued and outstanding voting shares, (a) the
Companywill propose for election as a director of the Company, at each annual
meeting of the shareholders (i) one candidate designated by SGF
Santé Inc., provided that the candidate receives a favourable
recommendation from the Governance Committee, and (ii) one candidate
jointly designated by SGF Santé Inc. and Dr. Éric Dupont, (b) the
Companywill solicit proxies from its shareholders for the election of such
candidates as directors of the Company, and (c) Dr. Éric Dupont will
exercise the voting rights attached to his common shares, on any
resolution relating to the election of directors to be submitted to the
beneficial holders of any participating shares of the Company, in favour of the
election of the candidates so designated. Similarly, under the terms of an
agreement among the Company, SGF Santé Inc. and Fonds de solidarité des
travailleurs du Québec (F.T.Q.). (F.T.Q.) concerning the election of
directors, provided that SGF Santé Inc. and F.T.Q. together hold at least
5% of the Companys issued and outstanding voting shares, (a) the
Companywill propose for election as a director of the Company, at each annual
meeting of the shareholders, one candidate jointly designated by SGF
Santé Inc. and F.T.Q., provided that the candidate receives a favourable
recommendation from the Governance Committee and (b) the Companywill
solicit proxies from its shareholders for the election of such candidate as a
director of the Company.
Committees
of the Board of Directors
Audit
Committee
Our
Board has established an Audit Committee and the Governance Committee.
The
Audit Committee assists the Board in fulfilling its oversight responsibilities.
The Audit Committee reviews the financial reporting process, the system of
internal control, the audit process, and the Companys process for monitoring
compliance with laws and regulations and with our Code of Ethical Conduct. In
performing its duties, the Audit Committee will maintain effective working
relationships with the Board, management, and the external auditors. To
effectively perform his or her role, each committee member will obtain an
understanding of the detailed responsibilities of committee membership as well
as the Companys business, operations and risks.
The
function of the Audit Committee is oversight and while it has the
responsibilities and powers set forth in its charter (filed as Exhibit 11.2
to this annual report), it is neither the duty of the committee to plan or to
conduct audits or to determine that the Companys financial statements are
complete, accurate and in accordance with generally accepted accounting
principles, nor to maintain internal controls and procedures.
The
current members of the Audit Committee are Martha Byorum, Gérard Limoges and
Pierre MacDonald.
93
Table of
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Governance
Committee
The
mandate of the Governance Committee provides that it is responsible for taking
all reasonable measures to ensure that appropriate human resources systems and
procedures, such as hiring policies, competency profiles, training policies and
compensation structures are in place so that the Company can attract, motivate
and retain the quality of personnel required to meet its business objectives.
The
Governance Committee also assists the Board in discharging its responsibilities
relating to executive and other human resources hiring, assessment,
compensation and succession planning matters.
Thus,
the Governance Committee recommends the appointment of senior officers,
including the terms and conditions of their appointment and termination, and
reviews the evaluation of the performance of our senior officers, including
recommending their compensation. The Board, which includes the members of the
Governance Committee, reviews the Chief Executive Officers corporate goals and
objectives and evaluates his or her performance and compensation in light of
such goals and objectives.
The
current members of the Governance Committee are Juergen Ernst, José P. Dorais,
Pierre Laurin and Pierre MacDonald.
D. Employees
As of March 1, 2010,
we had a total of 99 Full Time Equivalents (FTE) (as compared to 109 at March 1,
2009 and 131 at March 1, 2008), of which 82 are based in Frankfurt,
Germany (excluding the effects of short
hours as explained below), 6 in New Jersey, United States, and 11 in Quebec
City, Canada. Of these, 61 are involved in discovery, preclinical, clinical and
pharmaceutical development, 11 are involved in regulatory affairs, quality
assurance and intellectual property, and 27 are involved in business
operations, communications, finance, information technology, human resources,
project management and legal affairs. Following the negative results of our
Phase 3 efficacy studies for Cetrorelix in BPH in 2009, we applied for and were
granted approval by the German Ministry of Labor to implement the so-called
Kurzarbeit (short hours) regime for a one-year term. Short hours is a system offered by the
German Ministry of Labor for companies undergoing economic distress as a result
of an unexpected event which causes temporary overcapacity in the work force.
Under the system, we are allowed to selectively reduce the working hours of our
employees thereby reducing the labor costs for the company accordingly. The
employees affected by short hours are compensated for the salary shortfall by
the German Government. As of March 1,
2010, and including the effects of short hours, the equivalent number of FTE
is further reduced to 68 FTE for Frankfurt, Germany and to 85 for the Company
as a whole. The initial approval by the German Ministry of Labor is valid until
August 2010 allowing for a follow-up application of up to a maximum of one
additional year.
We have agreements with
all of our employees covering confidentiality and loyalty, non-competition, and
assignment to the Company of all intellectual property rights developed during
the employment period. Some of our employees based in Frankfurt, Germany are represented
by the Chemical Union of Germany. As such, their compensation is largely driven
by the outcome of the negotiations between the Chemical Union and the
Association of Employers for the chemical industry which is then binding for
all German companies in the industry. The current collective bargaining
agreement (
Tarifvertrag
) that
applies to all tariff-employees of AEZS Germany expires on March 31, 2010.
We have never experienced a work stoppage and we believe that relations
with our employees as well as with the works council representing our German
employees are generally good.
94
Table of Contents
E. Share ownership
The information in the table below is provided as of March 22,
2010:
Name
|
|
No. of common shares
owned or held
|
|
Percent(1)
|
|
No. of stock options
Held(2)
|
|
No. of currently
exercisable options
|
|
|
|
|
|
|
|
|
|
|
|
Marcel Aubut
|
|
112,500
|
|
*
|
|
145,000
|
|
110,000
|
|
Paul Blake
|
|
60,720
|
|
*
|
|
255,000
|
|
80,001
|
|
Martha Byorum
|
|
12,000
|
|
*
|
|
145,000
|
|
110,000
|
|
José P. Dorais
|
|
|
|
*
|
|
|
|
|
|
Juergen Engel
|
|
79,779
|
|
*
|
|
810,000
|
|
445,001
|
|
Juergen Ernst
|
|
58,850
|
|
*
|
|
195,000
|
|
93,334
|
|
Pierre Lapalme
|
|
|
|
|
|
20,000
|
|
|
|
Pierre Laurin
|
|
50,200
|
|
*
|
|
157,000
|
|
122,000
|
|
Gérard Limoges
|
|
9,000
|
|
*
|
|
95,000
|
|
60,000
|
|
Pierre MacDonald
|
|
26,500
|
|
*
|
|
154,000
|
|
119,000
|
|
Gerald J. Martin
|
|
14,000
|
|
*
|
|
80,000
|
|
45,000
|
|
Nicholas J.
Pelliccione
|
|
25,000
|
|
*
|
|
155,000
|
|
56,668
|
|
Matthias Seeber
|
|
|
|
*
|
|
350,000
|
|
206,667
|
|
Dennis Turpin
|
|
13,250
|
|
*
|
|
585,000
|
|
453,334
|
|
|
|
|
|
|
|
|
|
|
|
All of our
directors and senior
officers as a group
|
|
461,799
|
|
0.73
|
|
3,146,000
|
|
1,901,005
|
|
* Less than 1%
(1)
Based on 63,089,954 common
shares outstanding as of March 22, 2010.
(2)
For information regarding option
expiration dates and exercise price refer to the tables included under item
6.B.
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders
We
are not directly or indirectly owned or controlled by another corporation or by
any foreign government.
Based
on filings with the Securities and Exchange Commission and the Canadian
securities regulatory authorities, as of March 22, 2010, set out below are
the only persons/entities who beneficially owned, directly or indirectly, or
exercised control or direction over our common shares carrying more than 5% of
the voting rights attached to all our common shares. As used in the table
below, beneficial ownership means sole or shared power to vote or direct the
voting of the security, or the sole or shared investment power with respect to
a security (i.e., the power to dispose, or direct a disposition, of a
security). A person is deemed at any date to have beneficial ownership of any
security that the person has a right to acquire within 60 days. More than one
person may be deemed to have beneficial ownership of the same group of
securities.
Name of shareholder
|
|
Common Shares
|
|
Total Percentage
of Voting Rights
|
|
|
|
(#)
|
|
(%)
|
|
Fonds de solidarité
des travailleurs du Québec (F.T.Q.)
|
|
8,161,569
|
|
12.94
|
|
|
|
|
|
|
|
SGF Santé Inc.
|
|
8,810,878
|
|
13.97
|
|
None of the shareholders set out above has different
voting rights from the other shareholders, although F.T.Q. and SGF do have
certain Board nomination rights as described under Item 6.C above, Directors,
Senior Management and Employees Board Practices.
95
Table of Contents
United
States Shareholders
As
of December 31, 2009, there were a total of 236 holders of record of our
common shares, of which 7 were registered with addresses in the United States
holding in the aggregate approximately 17.45% of our outstanding common shares.
We believe that the number of beneficial owners of our common shares is
substantially greater than the number of record holders, because a large
portion of our common shares are held in broker street names.
B. Related party transactions
None
C. Interests of experts and counsel
Not applicable.
Item 8. Financial Information
A. Consolidated statements and other
financial information
The financial statements filed as part of this
annual report are presented under Item 18. Financial Statements.
Valuation and qualifying accounts are as follows (in thousands of US
dollars):
Valuation allowance on future income tax assets
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Balance
- Beginning of year
|
|
$
|
36,581
|
|
$
|
23,289
|
|
$
|
13,337
|
|
Change
in valuation allowance
|
|
9,959
|
|
17,554
|
|
6,963
|
|
Impact
of foreign exchange rate changes
|
|
3,810
|
|
(4,262
|
)
|
2,989
|
|
|
|
|
|
|
|
|
|
Balance
- End of year
|
|
$
|
50,350
|
|
$
|
36,581
|
|
$
|
23,289
|
|
Export Sales
Export and domestic sales in thousands of US
dollars and as percentage of total sales as follows:
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Export
Sales
|
|
$
|
63,237
|
|
100.00
|
%
|
$
|
38,145
|
|
99.13
|
%
|
$
|
41,668
|
|
99.05
|
%
|
Domestic
Sales
|
|
|
|
0.00
|
%
|
333
|
|
0.87
|
%
|
400
|
|
0.95
|
%
|
|
|
$
|
63,237
|
|
100.00
|
%
|
$
|
38,478
|
|
100.00
|
%
|
$
|
42,068
|
|
100.00
|
%
|
Dividend Policy
Since our incorporation, we have not paid any
dividends, and we do not anticipate paying any dividends in the foreseeable
future.
B. Significant changes
No significant changes occurred since the date of
our annual consolidated financial statements included elsewhere in this annual
report.
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Table of Contents
Item 9. The Offering and Listing
A. Offer and listing details
Not Applicable, except for Item 9A(4).
Our common shares are listed and posted for trading
on NASDAQ under the symbol AEZS and on the TSX under the symbol AEZ. The
following table indicates, for the relevant periods, the high and low closing
prices of our common shares on NASDAQ and on the TSX:
|
|
NASDAQ (US$)
|
|
TSX (CAN$)
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
2009
|
|
2.83
|
|
0.46
|
|
3.11
|
|
0.57
|
|
2008
|
|
1.80
|
|
0.40
|
|
1.85
|
|
0.44
|
|
2007
|
|
4.36
|
|
1.46
|
|
5.10
|
|
1.47
|
|
2006
|
|
7.46
|
|
4.05
|
|
8.60
|
|
4.68
|
|
2005
|
|
6.36
|
|
4.18
|
|
7.65
|
|
4.92
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Fourth
quarter
|
|
0.60
|
|
0.40
|
|
0.72
|
|
0.44
|
|
Third
quarter
|
|
1.36
|
|
0.59
|
|
1.42
|
|
0.61
|
|
Second
quarter
|
|
1.80
|
|
1.00
|
|
1.85
|
|
1.01
|
|
First
quarter
|
|
1.73
|
|
0.77
|
|
1.78
|
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
Fourth
quarter
|
|
1.25
|
|
0.80
|
|
1.40
|
|
0.83
|
|
Third
quarter
|
|
2.83
|
|
0.89
|
|
3.11
|
|
0.97
|
|
Second
quarter
|
|
2.35
|
|
0.89
|
|
2.63
|
|
1.06
|
|
First
quarter
|
|
0.97
|
|
0.46
|
|
1.25
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
Last six months
|
|
|
|
|
|
|
|
|
|
Feb-10
|
|
0.87
|
|
0.81
|
|
0.91
|
|
0.86
|
|
Jan-10
|
|
0.93
|
|
0.80
|
|
0.99
|
|
0.83
|
|
Dec-09
|
|
1.12
|
|
0.80
|
|
1.17
|
|
0.83
|
|
Nov-09
|
|
1.10
|
|
0.98
|
|
1.17
|
|
1.05
|
|
Oct-09
|
|
1.25
|
|
0.99
|
|
1.40
|
|
1.07
|
|
Sept-09
|
|
1.38
|
|
0.89
|
|
1.46
|
|
0.98
|
|
B. Plan of distribution
Not applicable.
C. Markets
Our common shares are
listed and posted for trading on the TSX under the symbol AEZ and are quoted
on the NASDAQ under the symbol AEZS. On January 21, 2010, we announced
that we had received a letter from the Listing Qualifications Department of the
Nasdaq Stock Market regarding the failure by the Company to comply with
NASDAQs minimum closing bid price requirements. In accordance with NASDAQ
Listing Rule 5810(c)(3)(a), we are provided a grace period of 180 calendar
days, or until July 20, 2010, to regain compliance with this requirement.
If we fail to meet any of NASDAQs continued listing requirements and NASDAQ
attempts to enforce compliance with its rules, our common shares may be
delisted from NASDAQ. If our shares were delisted from TSX or NASDAQ, investors
may have difficulty in disposing of our common shares held by them.
D. Selling shareholders
Not applicable.
97
E. Dilution
Not applicable.
F. Expenses of the issuer
Not applicable.
Item 10. Additional Information
A. Share capital
Not applicable.
B. Memorandum and articles of
association
The
Company is governed by its restated articles of incorporation (the Restated
Articles of Incorporation) under the
Canada
Business Corporations Act
(the CBCA) and by its bylaws (the
bylaws). The Companys Restated Articles of Incorporation are on file with
the Corporations Directorate of Industry Canada under Corporation Number
264271-9. The Restated Articles of Incorporation do not include a stated
purpose and do not place any restrictions on the business that the Company may
carry on.
Inspection Rights of Shareholders
Under
the CBCA, shareholders are entitled to be provided with a copy of the list of
registered shareholders of the Company. In order to obtain the shareholder
list, the Company must be provided with an affidavit including, among other
things, a statement that the list will only be used for the purposes permitted
by the CBCA. These permitted purposes include an effort to influence the voting
of shareholders of the Company, an offer to acquire securities of the Company
and any other matter relating to the affairs of the Company. The Company is
entitled to charge a reasonable fee for the provision of the shareholder list
and must deliver that list no more than ten days after receipt of the affidavit
described above.
Under
the CBCA, shareholders of the Company have the right to inspect certain
corporate records, including its Restated Articles of Incorporation and bylaws
and minutes of meetings and resolutions of the shareholders. Shareholders have
no statutory right to inspect minutes of meetings and resolutions of directors
of the Company. Shareholders of the Company have the right to certain financial
information respecting the Company. In addition to the annual and quarterly
financial statements required to be filed under applicable securities laws,
under the CBCA the Company is required to place before every annual meeting of
shareholders its audited comparative annual financial statements. In addition,
shareholders have the right to examine the financial statements of each of our
subsidiaries and any other corporate entity whose accounts are consolidated in
the financial statements of the Company.
Directors
The
minimum number of directors of the Company is five and the maximum number is
fifteen. In accordance with the Companys bylaws and the CBCA, a majority of
its directors must be residents of Canada. In order to serve as a director, a
person must be a natural person at least 18 years of age, of sound mind, not
bankrupt, and must not be prohibited by any court from holding the office of
director. For as long as the Company is a company that publicly distributes its
securities, at least two-thirds of its directors must not be officers or
employees of the Company or its subsidiaries. None of the Restated Articles of
Incorporation, the bylaws and the CBCA impose any mandatory retirement
requirements for directors.
The
directors are elected by a majority of the votes cast at the annual meeting at
which an election of directors is required, to hold office until the election
of their successors except in the case of resignations or if their offices
become vacant by death or otherwise. Subject to the provisions of the Companys
bylaws, all directors may, if still qualified to serve as directors, stand for
re-election. The Board is not replaced at staggered intervals but is elected
annually.
Under
the Companys bylaws and the Restated Articles of Incorporation, a director of
the Company need not be a shareholder.
98
Table of Contents
The directors are entitled
to remuneration as shall from time to time be determined by the Board or by a
committee to which the Board may delegate the power to do so. Under the mandate
of the Companys Governance Committee, such committee, comprised of a majority
of independent directors, is tasked with making recommendations to the Board
concerning director remuneration.
The
Companys bylaws provide that a director shall promptly disclose to the Company
any interest he or she has in any undertaking or association that is likely to
place him or her in a situation of conflict of interest, as well as the rights
he or she may assert against the Company, indicating, should such be the case,
the nature and value thereof. Likewise, the CBCA and the Companys bylaws
provide that a director who is a party to, or who is a director or officer of,
or has a material interest in, any person who is a party to a material contract
or transaction or proposed material contract or transaction with the Company
must disclose to the Company the nature and extent of his or her interest at
the time and in the manner provided by the CBCA, or request that same be
entered in the minutes of the meetings of the Board, even if such contract, in
connection with the normal business activity of the Company, does not require
the approval of either the directors or the shareholders. At the request of the
president or any director, the director placed in a situation of conflict of
interest must leave the meeting while the Board discusses the matter. The CBCA
and the Companys bylaws prohibit such a director from voting on any resolution
to approve the contract or transaction unless the contract or transaction:
·
relates primarily to his or
her remuneration as a director, officer, employee or agent of the Company or an
affiliate;
·
is for indemnity or
insurance for directors liability as permitted by the CBCA; or
·
is with an affiliate of the
Company.
The
CBCA provides that the Board may, on behalf of the Company and without
authorization of its shareholders:
·
borrow money upon the
credit of the Company;
·
issue, reissue, sell or
pledge debt obligations of the Company;
·
give a guarantee on behalf
of the Company to secure performance of an obligation of any person; and
·
mortgage, hypothecate,
pledge or otherwise create a security interest in all or any property of the
Company, owned or subsequently acquired, to secure any obligation of the
Company.
The
shareholders have the ability to restrict such powers through the Companys
Restated Articles of Incorporation or bylaws (or through a unanimous
shareholder agreement), but no such restrictions are in place.
In
addition, the Companys bylaws provide that the Board may:
·
subject to the provisions
of the Companys Restated Articles of Incorporation, accept subscriptions,
allot, issue all or part of the unissued shares of the Company, grant options
in respect of such shares or otherwise dispose thereof to such persons, on such
terms and conditions and for such consideration and in such manner not contrary
to the CBCA or the Restated Articles of Incorporation of the Company as the
directors think fit; and
·
from time to time as it may
deem advisable and to the extent permitted by the CBCA, declare and pay to the
shareholders, according to their rights, dividends in money or property or in
the form of shares of the Company.
The
CBCA prohibits the giving of a guarantee to any shareholder, director, officer
or employee of the Company or of an affiliated corporation or to an associate
of any such person for any purpose or to any person for the purpose of or in
connection with a purchase of a share issued or to be issued by the Company or
its affiliates, where there are reasonable grounds for believing that the
Company is or, after giving the guarantee, would be unable to pay its
liabilities as they become due, or the realizable value of the Companys assets
in the form of assets pledged or encumbered to secure a guarantee, after giving
the guarantee, would be less than the aggregate of the Companys liabilities
and stated capital of all classes. These borrowing powers may be varied by the
Companys bylaws or its Restated Articles of Incorporation. However, the
Companys bylaws and Restated Articles of Incorporation do not contain any
restrictions on or variations of these borrowing powers.
99
Table of Contents
Pursuant to the Companys
bylaws, the directors of the Company manage and administer the business and
affairs of the Company and exercise all such powers and authority as the
Company is authorized to exercise pursuant to the CBCA, the Restated Articles of
Incorporation and the bylaws. The general duties of a director or officer of
the Company under the CBCA are to act honestly and in good faith with a view to
the best interests of the Company and to exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances.
Any breach of these duties may lead to liability to the Company and its
shareholders for breach of fiduciary duty. In addition, a breach of certain
provisions of the CBCA, including the improper payment of dividends or the
improper purchase or redemption of shares, will render the directors who
authorized such action liable to account to the Company for any amounts
improperly paid or distributed.
The
Companys bylaws provide that the Board may, from time to time, appoint from
amongst their number committees of the Board, and delegate to any such
committee any of the powers of the Board except those which pursuant to the
CBCA a committee of the Board has no authority to exercise. As such, the Board has
two standing committees: the Audit Committee and the
Governance Committee
.
Subject
to the limitations provided by the CBCA, the Company must indemnify a director
or an officer of the Company, a former director or officer of the Company or a
person who acts or acted at the Companys request as a director or officer of a
body corporate of which the Company is or was a shareholder or creditor, and
his or her heirs and legal representatives, against all costs, losses, charges
and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her in respect of any civil, criminal
or administrative action or proceeding to which he or she is made a party by
reason of having been a director or officer of the Company or such body
corporate, provided:
(a)
he or she
acted in good faith in the best interests of the Company; and
(b)
in the case of
a criminal or an administrative action or proceeding that is enforced by a
monetary penalty, he or she had reasonable grounds to believe that his or her
conduct was lawful.
The
directors of the Company are authorized to indemnify from time to time any
director or other person who has assumed or is about to assume in the normal
course of business any liability for the Company or for any corporation
controlled by the Company, and to secure such director or other person against
any loss by the pledge of all or part of the movable or immovable property of
the Company through the creation of a hypothec or any other real right in all or
part of such property or in any other manner.
Share Capitalization
Our authorized share
capital structure consists of an unlimited number of shares of the following
classes (all classes are without nominal or par value): common shares; and
first preferred shares (the First Preferred Shares) and second preferred
shares (the Second Preferred Shares and, together with the First Preferred
Shares, the Preferred Shares), both issuable in series. As of March 22,
2010, there were 63,089,954 common shares outstanding. No Preferred Shares of
the Company have been issued to date.
Common
Shares
The holders of the common
shares are entitled to one vote for each common share held by them at all
meetings of shareholders, except meetings at which only shareholders of a
specified class of shares are entitled to vote. In addition, the holders are
entitled to receive dividends if, as and when declared by the Companys Board
of Directors on the common shares. Finally, the holders of the common shares
are entitled to receive the remaining property of the Company upon any
liquidation, dissolution or winding-up of the affairs of the Company, whether
voluntary or involuntary. Shareholders have no liability to further capital
calls as all shares issued and outstanding are fully paid and non-assessable.
Preferred
Shares
The First and Second
Preferred Shares are issuable in series with rights and privileges specific to
each class. The holders of Preferred Shares are generally not entitled to
receive notice of or to attend or vote at meetings of shareholders. The holders
of First Preferred Shares are entitled to preference and priority to any
participation of holders of Second Preferred Shares, common shares or shares of
any other class of shares of the share capital of the Company ranking junior to
the First Preferred Shares with respect to dividends and, in the event of the
liquidation of the Company, the distribution of its property upon its
dissolution or winding-up, or the distribution of all or part of its assets
among the shareholders, to an amount equal to the value of the consideration
paid in respect of such shares outstanding, as credited to the issued and
paid-up share capital of the
100
Table of
Contents
Company, on an equal
basis, in proportion to the amount of their respective claims in regard to such
shares held by them. The holders of Second Preferred Shares are entitled to
preference and priority to any participation of holders of common shares or
shares of any other class of shares of the share capital of the Company ranking
junior to the Second Preferred Shares with respect to dividends and, in the
event of the liquidation of the Company, the distribution of its property upon
its dissolution or winding-up, or the distribution of all or part of its assets
among the shareholders, to an amount equal to the value of the consideration
paid in respect of such shares outstanding, as credited to the issued and
paid-up share capital of the Company, on an equal basis, in proportion to the
amount of their respective claims in regard to such shares held by them.
Our Board of Directors
may, from time to time, provide for additional series of Preferred Shares to be
created and issued, but the issuance of any Preferred Shares is subject to the
general duties of the directors under the CBCA
to act
honestly and in good faith with a view to the best interests of the Company and
to exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.
Shareholder Actions
The
CBCA provides that shareholders of the Company may, with leave of a court,
bring an action in the name of and on behalf of the Company for the purpose of
prosecuting, defending or discontinuing an action on behalf of the Company. In
order to grant leave to permit such an action, the CBCA provides that the court
must be satisfied that the directors of the Company were given adequate notice of
the application, the shareholder is acting in good faith and that it appears to
be in the Companys best interests that the action be brought.
Shareholder Rights Plan
Objectives
and Background of the Shareholder Rights Plan
The fundamental objectives of the Companys
Shareholder Rights Plan (the Rights Plan) are to provide adequate time for
our Board and shareholders to assess an unsolicited take-over bid for the
Company, to provide the Board with sufficient time to explore and develop
alternatives for maximizing shareholder value if a take-over bid is made, and
to provide shareholders with an equal opportunity to participate in a take-over
bid.
The Rights Plan encourages a potential acquiror who
makes a take-over bid to proceed either by way of a Permitted Bid, as
described below, which requires a take-over bid to satisfy certain minimum
standards designed to promote fairness, or with the concurrence of our Board.
If a take-over bid fails to meet these minimum standards and the Rights Plan is
not waived by the Board, the Rights Plan provides that holders of common
shares, other than the acquiror, will be able to purchase additional common
shares at a significant discount to market, thus exposing the person acquiring
common shares to substantial dilution of its holdings.
Summary
of the Rights Plan
The following is a summary of the principal terms of
the Rights Plan, which summary is qualified in its entirety by reference to the
terms thereof. Capitalized terms not otherwise defined in this summary shall
have the meaning ascribed to such terms in the Shareholder Rights Plan
Agreement which sets forth the Rights Plan. The Rights Plan is filed as an
exhibit to this annual report on Form 20-F.
Operation
of the Rights Plan
Pursuant to the terms of the Rights Plan, one right
was issued in respect of each common share outstanding at 5:01 p.m. on March
29
,
2010 (the Effective Date). In addition, one right will be issued for each
additional common share issued after the Record Time and prior to the earlier of
the Separation Time (as defined below) and the Expiration Time (as defined
below). The rights have an initial exercise price equal to the Market Price (as
defined below) of the common shares as determined at the Separation Time,
multiplied by five, subject to certain anti-dilution adjustments (the Exercise
Price), and they are not exercisable until the Separation Time. Upon the
occurrence of a Flip-in Event, each right will entitle the holder thereof,
other than an Acquiring Person or any other person whose rights are or become
void pursuant to the provisions of the Rights Plan, to purchase from the
Company, effective at the close of business on the eighth trading day after the
Stock Acquisition Date, upon payment to the Company of the Exercise Price, common
shares having an aggregate Market Price equal to twice the Exercise Price on
the date of consummation or occurrence of such Flip-in Event, subject to
certain anti-dilution adjustments.
101
Table of Contents
Definition
of Market Price
Market Price is generally defined in the Rights Plan,
on any given day on which a determination must be made, as the volume weighted
average trading price of the common shares for the five consecutive trading
days (i.e. days on which the TSX is open for the transaction of business,
subject to certain exceptions), through and including the trading day
immediately preceding such date of determination, subject to certain
exceptions.
Trading of
Rights
Until the Separation Time (or the earlier termination
or expiration of the rights), the rights trade together with the common shares
and are represented by the same share certificates as the common shares or an
entry in the Companys securities register in respect of any outstanding common
shares. From and after the Separation Time and prior to the Expiration Time,
the rights are evidenced by rights certificates and trade separately from the
common shares. The rights do not carry any of the rights attaching to the
common shares such as voting or dividend rights.
Separation
Time
The rights will separate from the common shares to
which they are attached and become exercisable at the time (the Separation Time)
of the close of business on the eighth business day after the earliest to occur
of:
1.
the first date (the Stock Acquisition Date) of a
public announcement of facts indicating that a person has become an Acquiring
Person; and
2.
the date of the commencement of, or first public
announcement of the intention of any person (other than the Company or any of
its subsidiaries) to commence a take-over bid or a share exchange bid for more
than 20% of the outstanding common shares of the Company other than a Permitted
Bid or a Competing Permitted Bid (as defined below), so long as such take-over
bid continues to satisfy the requirements of a Permitted Bid or a Competing
Permitted Bid), as the case may be.
The Separation Time can also be such later time as may
from time to time be determined by the Board, provided that if any such
take-over bid expires, or is cancelled, terminated or otherwise withdrawn prior
to the Separation Time, without securities deposited thereunder being taken up
and paid for, it shall be deemed never to have been made and if the Board
determines to waive the application of the Rights Plan to a Flip-in Event, the
Separation Time in respect of such Flip-in Event shall be deemed never to have
occurred.
From and after the Separation Time and prior to the
Expiration Time, each right entitles the holder thereof to purchase one common
share upon payment to the Company of the Exercise Price.
Flip-in
Event
The acquisition by a person (an Acquiring Person),
including others acting jointly or in concert with such person, of more than
20% of the outstanding common shares, other than by way of a Permitted Bid, a
Competing Permitted Bid or in certain other limited circumstances described in
the Rights Plan, is referred to as a Flip-in Event.
In the event that, prior to the Expiration Time, a
Flip-in Event which has not been waived occurs (see Waiver and Redemption
below), each right (other than those held by or deemed to be held by the
Acquiring Person) will thereafter entitle the holder thereof, effective as of
the close of business on the eighth trading day after the Stock Acquisition
Date, to purchase from the Company, upon payment of the Exercise Price and
otherwise exercising such right in accordance with the terms of the Rights
Plan, that number of common shares having an aggregate Market Price on the date
of consummation or occurrence of the Flip-in Event equal to twice the Exercise
Price, for an amount in cash equal to the Exercise Price (subject to certain
anti-dilution adjustments described in the Rights Plan).
A bidder may enter into Lock-up Agreements with the
Companys shareholders (Locked-up Persons) who are not affiliates or
associates of the bidder and who are not, other than by virtue of entering into
such agreement, acting jointly or in concert with the bidder, whereby such
shareholders agree to tender their common shares to the take-over bid (the
Lock-up Bid) without the bidder being deemed to beneficially own the common
shares deposited pursuant to the Lock-up Bid. Any such agreement must include a
provision that permits the Locked-up Person to withdraw the common shares to
tender to another take-over bid or to support another transaction that will
either provide greater consideration to the shareholder than the Lock-up Bid or
provide for a right to sell a greater number of shares than the Lock-up Bid
contemplates (provided that the Lock-up
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Agreement may require that such greater number exceed
the number of shares under the Locked-up Bid by a specified percentage not to
exceed 7%).
The Lock-up Agreement may require that the
consideration under the other transaction exceed the consideration under the
Lock-up Bid by a specified amount. The specified amount may not be greater than
7%. For greater certainty, a Lock-up Agreement may contain a right of first
refusal or require a period of delay (or other similar limitation) to give a bidder
an opportunity to match a higher price in another transaction as long as the
limitation does not preclude the exercise by the Locked-up Person of the right
to withdraw the common shares during the period of the other take-over bid or
transaction.
The Rights Plan requires that any Lock-up Agreement be
made available to the Company and the public. The definition of Lock-up
Agreement also provides that under a Lock-up Agreement, no break up fees,
topping fees, penalties, expenses or other amounts that exceed in aggregate
the greater of (i) 2½% of the price or value of the aggregate
consideration payable under the Lock-up Bid, and (ii) 50% of the amount by
which the price or value of the consideration received by a Locked-up Person
under another take-over bid or transaction exceeds what such Locked-up Person
would have received under the Lock-up Bid, can be payable by such Locked-up
Person if the Locked-up Person fails to deposit or tender common shares to the
Lock-up Bid or withdraws common shares previously tendered thereto in order to
deposit such common shares to another take-over bid or support another
transaction.
Permitted
Bid Requirements
The requirements of a Permitted Bid include the
following:
1.
the take-over bid must be made by means of a take-over
bid circular;
2.
the take-over bid must be made to all holders of
common shares wherever resident, on identical terms and conditions, other than
the bidder;
3.
the take-over bid must not permit common shares
tendered pursuant to the bid to be taken up or paid for
(a)
prior to the close of business on a date which is not
less than 60 days following the date of the bid, and
(b)
then only if at such date more than 50% of the then
outstanding common shares held by shareholders other than any other Acquiring
Person, the bidder, the bidders affiliates or associates, persons acting
jointly or in concert with the bidder and any employee benefit plan, deferred
profit-sharing plan, stock participation plan or trust for the benefit of
employees of the Company or any of its subsidiaries, unless the beneficiaries
of such plan or trust direct the manner in which the common shares are to be
voted or direct whether the common shares are to be tendered to a take-over bid
(the Independent Shareholders), have been deposited or tendered to the
take-over bid and not withdrawn;
4.
the take-over bid must allow common shares to be
deposited, unless the take-over bid is withdrawn, at any time up to the close
of business on the date that the common shares are to be first taken up and
paid for;
5.
the take-over bid must allow common shares to be
withdrawn until taken up and paid for; and
6.
if more than 50% of the then outstanding common shares
held by Independent Shareholders are deposited or tendered to the take-over bid
within the 60-day period and not withdrawn, the bidder must make a public
announcement of that fact and the take-over bid must remain open for deposits
and tenders of common shares for not less than ten days from the date of such
public announcement.
A Permitted Bid need not be a bid for all outstanding
common shares not held by the bidder, i.e., a Permitted Bid may be a partial
bid. The Rights Plan also allows a competing Permitted Bid (a Competing
Permitted Bid) to be made while a Permitted Bid is in existence. A Competing
Permitted Bid must satisfy all the requirements of a Permitted Bid other than
the requirement set out in clause 3(a) above and must not permit common
shares tendered or deposited pursuant to the bid to be taken up or paid for prior
to the close of business on a date which is earlier than 35 days (or such
longer minimum period of days that the bid must be open for acceptance after
the date of the bid under applicable Canadian provincial securities legislation
and the 60th day after the earliest date on which any other Permitted Bid or
Competing Permitted Bid that is then in existence was made.
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Waiver and
Redemption
The Board may, prior to the occurrence of a Flip-in
Event, waive the dilutive effects of the Rights Plan in respect of, among other
things, a particular Flip-in Event resulting from a take-over bid made by way
of a take-over bid circular to all holders of common shares of the Company. In
such an event, such waiver shall also be deemed to be a waiver in respect of
any other Flip-in Event occurring under a take-over bid made by way of a
take-over bid circular to all holders of common shares prior to the expiry of
the first mentioned take-over bid.
The Board may, with the approval of a majority of
Independent Shareholders (or, after the Separation Time has occurred, holders
of rights, other than rights which are void pursuant to the provisions of the
Rights Plan or which, prior to the Separation Time, are held otherwise than by
Independent Shareholders), at any time prior to the occurrence of a Flip-in
Event which has not been waived, elect to redeem all, but not less than all, of
the then outstanding rights at a price of $0.00001 each, appropriately adjusted
as provided in the Rights Plan (the Redemption Price).
Where a take-over bid that is not a Permitted Bid or
Competing Permitted Bid is withdrawn or otherwise terminated after the
Separation Time has occurred and prior to the occurrence of a Flip-in Event,
the Board may elect to redeem all the outstanding rights at the Redemption
Price without the consent of the holders of the common shares or the rights and
reissue rights under the Rights Plan to holders of record of common shares
immediately following such redemption. Upon the rights being so redeemed and
reissued, all the provisions of the Rights Plan will continue to apply as if
the Separation Time had not occurred, and the Separation Time will be deemed
not to have occurred and the Company shall be deemed to have issued replacement
rights to the holders of its then outstanding common shares.
Amendment to the Rights Plan
The Rights Plan may be amended to correct any clerical
or typographical error or to make such changes as are required to maintain the
validity of the Rights Plan as a result of any change in any applicable
legislation, regulations or rules thereunder, without the approval of the
holders of the common shares or rights. Prior to the Separation Time, the
Company may, with the prior consent of the holders of common shares, amend,
vary or delete any of the provisions of the Rights Plan in order to effect any
changes which the Board, acting in good faith, considers necessary or
desirable. The Company may, with the prior consent of the holders of rights, at
any time after the Separation Time and before the Expiration Time, amend, vary
or delete any of the provisions of the Rights Plan.
Protection Against Dilution
The Exercise Price, the number and nature of
securities which may be purchased upon the exercise of rights and the number of
rights outstanding are subject to adjustment from time to time to prevent
dilution in the event of stock dividends, subdivisions, consolidations,
reclassifications or other changes in the outstanding common shares,
pro rata
distributions to holders of common shares and other
circumstances where adjustments are required to appropriately protect the
interests of the holders of rights.
Fiduciary
Duty of Board
The Rights Plan will not detract from or lessen the
duty of the Board to act honestly and in good faith with a view to the best
interests of the Company and its shareholders. The Board will continue to have
the duty and power to take such actions and make such recommendations to the
Companys shareholders as are considered appropriate.
Exemptions for Investment Advisors
Fund managers, investment advisors (for fully-managed
accounts), trust companies (acting in their capacities as trustees and
administrators), statutory bodies whose business includes the management of
funds, and administrators of registered pension plans are exempt from triggering
a Flip-in Event, provided that they are not making, or are not part of a group
making, a take-over bid.
Term
The Rights Plan will
expire (the Expiration Time) on the earlier of the
first
annual meeting of shareholders of the
Company
following
March
29
,
2016, being the
sixth anniversary of the Effective Date
(subject to the approval of the resolution by the
shareholders at the Meeting and reconfirmation at the
first
annual meeting of shareholders of the
Company
following March 29,
2013 (being the third anniversary of the Effective Date))
and the time at which the right to
exercise rights shall terminate
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pursuant to the
provisions of the Rights Plan pertaining to the redemption of rights and the
waiver of the application of the Rights Plan, after which time it will
automatically terminate.
Action Necessary to Change Rights of Shareholders
In
order to change the rights of its shareholders, the Company would need to amend
its Restated Articles of Incorporation to effect the change. Such an amendment
would require the approval of holders of two-thirds of the issued and
outstanding shares cast at a duly called special meeting. For certain
amendments such as those creating a class of Preferred Shares, a shareholder is
entitled under the CBCA to dissent in respect of such a resolution amending the
Restated Articles of Incorporation and, if the resolution is adopted and the
Company implements such changes, demand payment of the fair value of its
shares.
Disclosure of Share Ownership
In
general, under applicable securities regulation in Canada, a person or company
who beneficially owns, or who exercises control or direction over directly or
indirectly, voting securities of a reporting issuer voting securities of an
issuer or a combination of both, carrying more than ten percent of the voting
rights attached to all the issuers outstanding voting securities is an insider
and must, within ten days of becoming an insider, file a report in the required
form effective the date on which the person became an insider, disclosing 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 ten days from the day on which the change takes place.
Section 13
of the
United States Securities Exchange Act
of 1934
(the Exchange Act) imposes reporting requirements on
persons who acquire beneficial ownership (as such term is defined in the Rule 13d-3
under the Exchange Act) of more than five percent of a class of an equity
security registered under Section 12 of the Exchange Act. The Companys
common shares are so registered. In general, such persons must file, within ten
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.
Meeting of Shareholders
An
annual meeting of shareholders is held each year for the purpose of considering
the financial statements and reports, electing directors, appointing auditors
and fixing or authorizing the Board to fix their remuneration and for the
transaction of other business as may properly come before a meeting of
shareholders. Any annual meeting may also constitute a special meeting to take
cognizance and dispose of any matter of which a special meeting may take
cognizance and dispose. Under the bylaws, the president of the Company has the
power to call a meeting of shareholders.
While
the bylaws provide that one or more shareholders who hold at least 20% of the
outstanding voting shares of the Company may requisition the directors of the
Company to call a meeting of shareholders for the purpose stated in the
requisition, the CBCA provides that the holders of not less than 5% of the
outstanding voting shares of the Company may so requisition the directors of
the Company. Except in limited circumstances, including where a meeting of shareholders
has already been called and a notice of meeting already given or where it is
clear that the primary purpose of the requisition is to redress a personal
grievance against the Company or its directors, officers or shareholders, the
directors of the Company, on receipt of such requisition, must call a meeting
of shareholders. If the directors fail to call a meeting of shareholders within
twenty-one days after receiving the requisition, any shareholder who signed the
requisition may call the meeting of shareholders and, unless the shareholders
resolve otherwise at the meeting, the Company shall reimburse the shareholders
for the expenses reasonably incurred by them in requisitioning, calling and
holding the meeting of shareholders.
The
CBCA also provides that, except in limited circumstances, a resolution in
writing signed by all of the shareholders entitled to vote on that resolution
at a meeting of shareholders is as valid as if it had been passed at a meeting
of shareholders.
A quorum of shareholders is
present at an annual or special meeting of shareholders, regardless of the
number of persons present in person at the meeting, if the holder or holders of
shares representing at least 20% of the outstanding voting shares at such
meeting are present in person or represented in accordance with the Companys
bylaws. In the case where the CBCA, the Restated Articles of Incorporation or
the bylaws of the Company require or permit the vote by class of holders of a
given class of shares of the share capital of the Company, the quorum at any
meeting will be one or more persons representing 20% of the outstanding shares
of such class.
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Notice
of the time and place of each annual or special meeting of shareholders must be
given not less than 21 days, nor more than 50 days, before the date of each
meeting to each director, to the auditor and to each shareholder entitled to
vote thereat. If the address of any shareholder, director or auditor does not
appear in the books of the Company, the notice may be sent to such address as
the person sending the notice may consider to be most likely to reach such
shareholder, director or auditor promptly. Every person who, by operation of
the CBCA, transfers or by any other means whatsoever, becomes entitled to any
share, shall be bound by every notice given in respect of such share which,
prior to the entry of his or her name and address on the register of the
Company, is given to the person whose name appears on the register at the time
such notice is sent. Notice of meeting of shareholders called for any other
purpose other than consideration of the financial statements and auditors
report, election of directors and reappointment of the incumbent auditor, must
state the nature of the business in sufficient detail to permit the shareholder
to form a reasoned judgment on and must state the text of any special
resolution or bylaw to be submitted to the meeting.
Limitations on Right to Own Securities
Neither
Canadian law nor the Companys Restated Articles of Incorporation or bylaws
limit the right of a non-resident to hold or vote common shares, other than as
provided in the
Investment Canada Act
(the Investment Act). The Investment Act prohibits implementation of
certain direct reviewable investments by an individual, government or agency
thereof, corporation, partnership, trust or joint venture that is not a
Canadian, as defined in the Investment Act (a non-Canadian), unless,
after review, the minister responsible for the Investment Act is satisfied or
is deemed to be satisfied that the investment is likely to be of net benefit to
Canada. An investment in the common shares of the Company by a non-Canadian
(other than a WTO Investor, as defined below) would be reviewable under the
Investment Act if it were an investment to acquire direct control of the
Company, and the book value of the assets of the Company were CAN$5 million
or more (provided that immediately prior to the implementation of the
investment the Company was not controlled by WTO Investors). Subject to the
Amendments (as defined below), an investment in common shares of the Company by
a WTO Investor would be reviewable under the Investment Act if it were an
investment to acquire direct control of the Company and the value of the assets
of the Company equalled or exceeded CAN$299 million (for 2010). A
non-Canadian, whether a WTO Investor or otherwise, would be deemed to acquire
control of the Company for purposes of the Investment Act if he or she acquired
a majority of the common shares of the Company. The acquisition of less than a
majority, but at least one-third of the shares, would be presumed to be an
acquisition of control of the Company, unless it could be established that the
Company was not controlled in fact by the acquirer through the ownership of the
shares. In general, an individual is a WTO Investor if he or she is a
national of a country (other than Canada) that is a member of the World Trade
Organization (WTO Member) or has a right of permanent residence in a WTO
Member. A corporation or other entity will be a WTO Investor if it is a WTO
Investor-controlled entity, pursuant to detailed rules set out in the
Investment Act. The United States is a WTO Member. Certain transactions
involving the common shares would be exempt from the Investment Act, including:
(a) an acquisition of the shares if the acquisition were made in the
ordinary course of that persons business as a trader or dealer in securities; (b) an
acquisition of control of the Company in connection with the realization of a
security interest granted for a loan or other financial assistance and not for
any purpose related to the provisions of the Investment Act; and (c) an
acquisition of control of the Company by reason of an amalgamation, merger,
consolidation or corporate reorganization, following which the ultimate direct
or indirect control in fact of the Company, through the ownership of voting
interests, remains unchanged.
The
Canadian Federal Government adopted certain amendments (the Amendments)
to the Investment Act in 2009. Some of the Amendments, which came into force on
February 6, 2009, introduce a national security test and review process,
authorizing the Canadian Minister of Industry to review investments that could
be injurious to national security, regardless of the size of the transaction.
Some of the other Amendments will come into force on a day to be fixed by order
of the Canadian Governor in Council, including the increase to the thresholds
that trigger governmental review for WTO Investors. Therefore, the thresholds
for the review of direct acquisitions of control by WTO Investors would
increase from the current CAN$299 million (based on book value) to
CAN$600 million (to be based on the enterprise value of the
Canadian business) for the two years after such Amendments come into force, to
CAN$800 million in the following two years and then to CAN$1 billion
for the next two years. Thereafter, the thresholds are to be adjusted to
account for inflation. A number of the Amendments still require additional
definition and details, which will be set forth in regulations promulgated
under the Investment Act.
There are no limits on the rights of non-Canadians to
exercise voting rights on their common shares of the Company.
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C. Material contracts
Other
than as disclosed herein under Shareholder Rights Plan and below, and except
for contracts entered into in the ordinary course of business, there are no
material contracts to which the Company or any of its subsidiaries is a party other
than the employment agreements and change of control agreements with our
executive officers as described below.
Employment Agreements
The
Company and/or its subsidiaries have entered into employment agreements
(the Employment Agreements) with each of the Named Executive Officers.
The Employment Agreements provide that we will pay the Named Executive Officers
a base salary and an annual bonus and that such executives will be eligible to
receive grants of stock options which will be reviewed annually in accordance
with our policies. The Employment Agreements have an indefinite term. However,
in addition to his Employment Agreement, Dr. Engel had previously entered
into a service contract in his prior capacity as Managing Director with Æterna
Zentaris GmbH, our principal subsidiary, which service contract expires on August 31,
2010.Each of the Employment Agreements provides that, if we terminate the
employment of a Named Executive Officer without cause, then the executive will
be entitled to receive, in the case of Dr. Engel, a lumpsum payment, less
statutory deductions, of the equivalent of twelve months of his then applicable
base salary, an amount equivalent to the annual bonus received for the most
recently completed year and an amount equivalent to twelve months of the cost
of the other benefits to which he is entitled (such amounts increasing to the
equivalent of 24 months of his then applicable base salary and twice his annual
bonus received for the last completed year, commencing in March 2010). In
the case of Mr. Turpin, the lump sum will be equivalent to 18 months
of his then applicable base salary, 1.5 times the annual bonus of the preceding
year and 18 months of the value of the other benefits to which he is entitled.
In the case of Dr. Blake and Messrs. Pelliccione and Seeber, they are
entitled to receive, upon termination of employment without cause, a lump sum
equivalent to twelve months of their then applicable base salaries, an amount
equivalent to the annual bonus received for the preceding year and twelve
months of the value of the other benefits to which they are entitled.
Furthermore,
each Named Executive Officer shall not, directly or indirectly, solicit any of
our customers for the purpose or intent of selling them any products which are
similar or otherwise competing with our products; nor shall any Named Executive
Officer induce, entice or otherwise attempt to directly or indirectly hire or
engage any of our employees, for a period equal to one year following such
executives termination of employment with the Company.
Pursuant
to the Employment Agreements, each of the Named Executive Officers is also
entitled to certain payments (the Change of Control Payments) in the event (i) a
Change of Control occurs and (ii) during the twelve-month period
following the Change of Control, either the Company terminates the employment
of the executive without Cause or if the executive terminates his or her
employment for Good Reason.
The
Change of Control Payments are as follows:
·
for Dr. Engel and Mr. Seeber,
(i) the equivalent of 24 months of their then prevailing annual base
salaries, (ii) an amount equivalent to twice the annual bonus, if any,
which the executive would have been entitled to receive in the year during
which the Change of Control occurred, and (iii) an amount equivalent to 24
months of the value of the benefits which were in force at the time of
termination of the executives employment, calculated on a yearly basis,
including car allowance, but excluding operating costs; and
·
for Mr. Turpin, the Change of Control Payment would be the same as
in the context of a termination of employment described above, except that the
1.5 multiple of his bonus payment would be based on his potential bonus for the
year in which the Change of Control occurs as opposed to his actual bonus
received for the preceding financial year; and
·
for Dr. Blake and Mr. Pelliccione
(i) the equivalent of 18 months of their then prevailing annual base
salaries, (ii) an amount equivalent to 1.5 times the annual bonus, if any,
which the executive would have been entitled to receive in the year during
which the Change of Control occurred, and (iii) an amount equivalent to 18
months of the value of the benefits which were in force at the time of
termination of the executives employment, calculated on a yearly basis,
including car allowance, but excluding operating costs.
All
Change of Control Payments described above are subject to applicable statutory
withholdings. In addition, any outstanding stock options held by a Named
Executive Officer are unaffected by the change of control provisions included
in the Employment Agreements and, in the event of a Change of Control followed
by termination of employment within twelve months, such stock options will be
treated in accordance with the applicable provisions of the Stock Option Plan
described elsewhere in this annual report.
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For
the purposes of the Employment Agreements (including the annexes and schedules
thereto):
·
a Change of Control shall
be deemed to have occurred in any of the following circumstances: (i) subject
to certain exceptions, upon the acquisition by a person (or one or more persons
who are affiliates of one another or who are acting jointly or in concert) of a
beneficial interest in securities of the Company representing in any
circumstance 50% or more of the voting rights attaching to the then outstanding
securities of the Company; (ii) upon a sale or other disposition of all or
substantially all of the Companys assets; (iii) upon a plan of
liquidation or dissolution of the Company; or (iv) if, for any reason,
including an amalgamation, merger or consolidation of the Company with or into
another company, the individuals who, as at the date of the relevant Employment
Agreement, constituted the Board (and any new directors whose appointment by
the Board or whose nomination for election by the Companys shareholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors as at the date of the relevant Employment Agreement
or whose appointment or nomination for election was previously so approved)
cease to constitute a majority of the members of the Board;
·
termination of employment
by the Company for Cause includes (but is not limited to) (i) if the
Executive commits any fraud, theft, embezzlement or other criminal act of a
similar nature, and (ii) if the Executive is guilty of serious misconduct
or willful negligence in the performance of his duties; and
·
termination of employment
by the executive officer for Good Reason means the occurrence, without the
executives express written consent, of any of the following acts: (i) a
material reduction of the executives total compensation (including annual base
salary plus annual bonus, benefits and number of stock options) as in effect on
the date of the relevant Employment Agreement or as same may be increased from
time to time; (ii) a material reduction or change in the executives
duties, authority, responsibilities, accountability or a change in the business
or corporate structure of the Company which materially affects his or her
authority, compensation or ability to perform duties or responsibilities (such
as shifting from a policy-making to a policy-implementation position); (iii) a
forced relocation; or (iv) a material change in the terms and conditions
of the change of control provisions included in the relevant Employment
Agreement.
Other Material Contracts
We are party to a license and collaboration
agreement with Keryx. Under the terms of this agreement, Keryx undertakes, at
its own cost, all development activities necessary to obtain regulatory and
marketing approvals of perifosine, a signal transduction inhibitor, for all
uses in the United States, Canada and Mexico. The agreement provides for, among
other things, the availability of data generated by both parties free of
charge. In September 2002, we received an upfront payment of approximately
$0.5 million and are eligible to receive payments of up to an aggregate of
$18.3 million upon Keryxs successful achievement of clinical development and
regulatory milestones, in addition to scale-up royalties (from high single to
low double-digit) on future net sales in the United States, Canada and Mexico.
In
November 2008, we signed a definitive agreement to sell to CHRP our rights
to royalties on future sales of Cetrotide
®
covered by our
license agreement with Merck Serono. This license agreement was signed in 2000
and granted Merck Serono exclusive rights to market, distribute and sell
Cetrotide
®
worldwide, with the exception of Japan, in the field of
in vitro
fertilization. On closing, we
received $52.5 million from CHRP (less transaction costs of $1.0 million) and,
contingent on 2010 net sales of Cetrotide
®
reaching a specified
level, we would receive an additional payment of $2.5 million from CHRP. Under
the terms of the agreement, if cetrorelix is approved for sale by the European
regulatory authorities in an indication other than
in vitro
fertilization, we have agreed to make a one-time
cash payment to CHRP in an amount ranging from $5 million up to $15 million.
D. Exchange controls
Canada has no system of exchange controls. There are
no exchange restrictions on borrowing from foreign countries or on the
remittance of dividends, interest, royalties and similar payments, management
fees, loan repayments, settlement of trade debts or the repatriation of
capital.
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E. Taxation
THE
FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, NOR
SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
HOLDER. CONSEQUENTLY, HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
FOR ADVICE AS TO THE TAX CONSEQUENCES OF AN INVESTMENT IN THE COMMON SHARES
HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCES.
The
following summary describes the principal Canadian federal income tax
consequences to a purchaser who acquires common shares (a holder) who, for
the purposes of the Canadian federal Income Tax Act, R.S.C. 1985, as amended
(the Tax Act), deals at arms length with, and is not affiliated with, the
Corporation and holds their common shares as capital property. Common
shares will generally be considered to be capital property for purposes of the
Tax Act unless either the holder holds such common shares in the course of
carrying on a business, or the holder has held or acquired such common shares
in a transaction or transactions considered to be an adventure in the nature of
trade.
This
summary is not applicable to a holder an interest in which is a tax shelter
investment as defined in the Tax Act, or to a holder which is a financial
institution as defined in the Tax Act subject to the mark-to-market rules set
out therein. Such holders should consult their own tax advisors.
This
summary is based upon the current provisions of the Tax Act and the regulations
thereunder (the Regulations) and the Companys understanding of the current
published administrative practices and policies of the Canada Revenue Agency
(CRA). It also takes into account all proposed amendments to the Tax
Act and the Regulations publicly released by the Minister of Finance (Canada)
(Tax Proposals) prior to the date hereof, and assumes that all such Tax
Proposals will be enacted as currently proposed. No assurance can be
given that the Tax Proposals will be enacted in the form proposed or at
all. This summary does not otherwise take into account or anticipate any
changes in law, whether by way of legislative, judicial or administrative
action or interpretation, nor does it address any provincial, local,
territorial or foreign tax considerations.
Holders
Not Resident in Canada
The
following discussion applies to a holder of common shares who, at all relevant
times, for purposes of the Tax Act and any applicable income tax treaty or
convention, is neither resident nor deemed to be resident in Canada and does
not, and is not deemed to, use or hold common shares in carrying on a business
or part of a business in Canada (a Non-Resident holder). In addition,
this discussion does not apply to an insurer who carries on an insurance
business in Canada and elsewhere or to an authorized foreign bank (as defined
in the Tax Act).
Disposition
of Common Shares
A
Non-Resident holder will not be subject to tax under the Tax Act in respect of
any capital gain realized by such Non-Resident holder on a disposition of
common shares unless such shares constitute taxable Canadian property (as
defined in the Tax Act) of the Non-Resident holder at the time of disposition
and the holder is not entitled to relief under an applicable income tax treaty
or convention. As long as the common shares are then listed on a
designated stock exchange (which currently includes the NASDAQ and the TSX),
the common shares generally will not constitute taxable Canadian property of a
Non-Resident holder, unless at any time during the 60-month period immediately
preceding the disposition, the Non-Resident holder, persons with whom the
Non-Resident holder did not deal at arms length, or the Non-Resident holder
together with all such persons, owned 25% or more of the issued shares of any
class or series of shares of the capital stock of the
Company
.
Under
Tax Proposals announced by the Minister of Finance on March 4, 2010,
common shares will generally not constitute taxable Canadian property to a
Non-Resident holder at a particular time provided that (a) the common
shares are listed on a designated stock exchange and (b) during the
60-month period that ends at the time the common shares are disposed of, both (i) 25%
or more of the issued shares of any class or series of shares of the
Company
were not owned by and did
not belong to one or any combination of the Non-Resident holder and persons
with whom the Non-Resident holder did not deal at arms length, and (ii) not
more than 50% of the fair market value of the common shares was derived
directly or indirectly from real or immovable property situated in Canada,
Canadian resource properties, timber resource properties and options in respect
of, interests in or rights in such properties, whether or not the property
exists.
If
the common shares were to cease being listed on the NASDAQ, the TSX or another
recognized stock exchange, a Non-Resident holder who disposes of common
shares that are taxable Canadian property may be required to fulfill the
requirements of section 116 of the Tax Act. An exemption from such requirements
is available on the disposition of treaty-
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protected
property, which is property any income or gain on the disposition of which is
exempt from tax under Part I of the Tax Act as a result of an applicable
income tax treaty or convention.
Taxation
of Dividends on Common Shares
Dividends
paid or credited or deemed to be paid or credited on the common shares to a
Non-Resident holder will be subject to Canadian withholding tax in the amount
of 25%. Such withholding tax may be reduced by virtue of the provisions
of an income tax treaty or convention between Canada and the country of which
the Non-Resident holder is a resident. Under the Canada-United States
Income Tax Convention (the Convention), the rate of withholding tax in respect
of dividends or deemed dividends beneficially owned by a resident of the United
States entitled to the benefits of the Convention is generally reduced to 15%.
Holders
Resident in Canada
The
following discussion applies to a holder of common shares who, at all relevant
times, for purposes of the Tax Act and any applicable income tax treaty or
convention, is or is deemed to be resident in Canada (a Canadian
holder). Certain Canadian holders whose common shares might not
otherwise qualify as capital property may, in certain circumstances, treat the
common shares and every other Canadian security (as defined in the Tax Act)
owned by the Canadian holder as capital property by making an irrevocable
election provided by subsection 39(4) of the Tax Act.
Taxation
of Dividends on Common Shares
Dividends
received or deemed to be received on the common shares will be included in a
Canadian holders income for purposes of the Tax Act. Such dividends
received or deemed to be received by a Canadian holder that is an individual
(other than certain trusts) will be subject to the gross-up and dividend tax
credit rules generally applicable under the Tax Act in respect of
dividends received on shares of taxable Canadian corporations. Generally,
a dividend will be eligible for the enhanced gross-up and dividend tax credit
if the recipient receives written notice from the corporation designating the
dividend as an eligible dividend (within the meaning of the Tax Act).
There may be limitations on the ability of the
Company
to designate dividends as
eligible dividends. A Canadian holder that is a corporation will be
required to include such dividends in computing its income and will generally
be entitled to deduct the amount of such dividends in computing its taxable income.
A Canadian holder that is a private corporation or a subject corporation
(as such terms are defined in the Tax Act), may be liable under Part IV of
the Tax Act to pay a refundable tax of 33 1/3% on dividends received or deemed
to be received on the common shares to the extent such dividends are deductible
in computing the holders taxable income.
Disposition
of Common Shares
A
disposition, or a deemed disposition, of a common share by a Canadian holder
will generally give rise to a capital gain (or a capital loss) equal to the
amount by which the proceeds of disposition of the share, net of any reasonable
costs of disposition, exceed (or are less than) the adjusted cost base of the
share to the holder. Such capital gain (or capital loss) will be subject
to the treatment described below under Taxation of Capital Gains and Capital
Losses.
Additional
Refundable Tax
A
Canadian holder that is a Canadian-controlled private corporation (as such
term is defined in the Tax Act) may be liable to pay an additional refundable
tax of 6 2/3% on certain investment income including amounts in respect of
Taxable Capital Gains, as defined below.
Taxation
of Capital Gains and Capital Losses
In
general, one half of any capital gain (a Taxable Capital Gain) realized by a
Canadian holder in a taxation year will be included in the holders income in
the year. Subject to and in accordance with the provisions of the Tax
Act, one half of any capital loss (an Allowable Capital Loss) realized by a
Canadian holder in a taxation year must be deducted from Taxable Capital Gains
realized by the holder in the year and Allowable Capital Losses in excess of
Taxable Capital Gains may be carried back and deducted in any of the three
preceding taxation years or carried forward and deducted in any subsequent
taxation year against net Taxable Capital Gains realized in such years.
The amount of any capital loss realized by a Canadian holder that is a
corporation on the disposition of a common share may be reduced by the amount of
dividends received or deemed to be received by it on such common share (or on a
share for which the common share has been substituted) to the extent and under
the circumstances prescribed by the Tax Act. Similar rules may apply
where a corporation is a member of a partnership or a beneficiary of a trust
that owns common shares, directly or indirectly, through a partnership or a
trust. A
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Taxable
Capital Gain realized by a Canadian holder who is an individual may give rise
to liability for alternative minimum tax.
Certain U.S. Federal Income Tax Considerations
The
following discussion is a summary of certain U.S. federal income tax
consequences applicable to the ownership and disposition of common shares
(Shares) by a U.S. Holder (as defined below), but does not purport to be a
complete analysis of all potential U.S. federal income tax effects. This summary
is based on the Internal Revenue Code of 1986, as amended (the Code), U.S.
Treasury regulations promulgated thereunder, Internal Revenue Service (IRS)
rulings and judicial decisions in effect on the date hereof. All of these are
subject to change, possibly with retroactive effect, or different
interpretations.
This
summary does not address all aspects of U.S. federal income taxation that may
be relevant to particular U.S. Holders in light of their specific circumstances
(for example, U.S. Holders subject to the alternative minimum tax provisions of
the Code) or to holders that may be subject to special rules under U.S.
federal income tax law. This summary also does not address the tax consequences
of holding, exercising or disposing of warrants in the Company. If the Company
is a passive foreign investment company (PFIC), as defined below, U.S.
Holders of its warrants will be subject to adverse tax rules and will not
be able to make the mark-to-market or the QEF election described below with
respect to such warrants. U.S. Holders of warrants should consult their tax
advisors with regard to the U.S. federal income tax consequences of holding,
exercising or disposing of warrants in the Company, including in the situation
in which the Company is classified as a PFIC.
This
summary also does not discuss any aspect of state, local or foreign law, or
U.S. federal estate or gift tax law as applicable to U.S. Holders. U.S. Holders
should consult their tax advisors about the potential application of such laws and
the application of the U.S. federal income tax rules summarized below to
their particular situation. In addition, this discussion is limited to U.S.
Holders holding Shares as capital assets. For purposes of this summary, U.S.
Holder means a beneficial holder of Shares who or that for U.S. federal income
tax purposes is:
·
an individual citizen or
resident of the United States;
·
a corporation or other
entity classified as a corporation for U.S. federal income tax purposes created
or organized in or under the laws of the United States, any state thereof or
the District of Columbia;
·
an estate, the income of
which is subject to U.S. federal income taxation regardless of its source; or
·
a trust, if a court within
the United States is able to exercise primary supervision over the
administration of such trust and one or more U.S. persons (within the meaning
of the Code) have the authority to control all substantial decisions of the
trust, or if a valid election is in effect for it to be treated as a U.S.
person.
If
a partnership or other entity or arrangement classified as a partnership for
U.S. federal income tax purposes holds Shares, the U.S. federal income tax
treatment of a partner generally will depend on the status of the partner and
the activities of the partnership. This summary does not address the tax
consequences to any such partner. Such a partner should consult its own tax
advisor as to the tax consequences of the partnership owning and disposing of
Shares.
Dividends
Subject
to the PFIC rules discussed below, any distributions paid by the Company
out of current or accumulated earnings and profits (as determined for U.S.
federal income tax purposes), before reduction for any Canadian withholding tax
paid with respect thereto, will generally be taxable to a U.S. Holder as
foreign source dividend income, and will not be eligible for the dividends
received deduction generally allowed to corporations. Distributions in excess
of current and accumulated earnings and profits will be treated as a
non-taxable return of capital to the extent of the U.S. Holders adjusted tax
basis in the Shares and thereafter as capital gain. U.S. Holders should consult
their own tax advisors with respect to the appropriate U.S. federal income tax
treatment of any distribution received from the Company.
For
taxable years beginning before January 1, 2011, dividends paid by the
Company should be taxable to a non-corporate U.S. Holder at the special reduced
rate normally applicable to long term capital gains, provided that certain
conditions are satisfied. A U.S. Holder will not be able to claim the reduced
rate if the Company is treated as a PFIC for the taxable year in which a
dividend is paid or the preceding year. See Passive Foreign Investment Company
Considerations below.
Under
current law payments of dividends by the Company to non-Canadian investors are
generally subject to a 25 percent Canadian withholding tax. The rate of
withholding tax applicable to U.S. Holders that are eligible for benefits under
the Canada-United States Tax Convention (1980) (the Treaty) is reduced to a
maximum of 15%. This reduced rate of
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withholding
will not apply if the dividends received by a U.S. Holder are effectively
connected with a permanent establishment of the U.S. Holder in Canada.
Dividends paid in
Canadian dollars will be included in income in a U.S. dollar amount calculated
by reference to the exchange rate in effect on the day the dividends are received
by the U.S. Holder, regardless of whether the Canadian dollars are converted
into U.S. dollars at that time. Gain or loss, if any, realized on a sale or
other disposition of the Canadian dollars will generally be U.S. source
ordinary income or loss to a U.S. Holder.
A
U.S. Holder will generally be entitled, subject to certain limitations, to a
credit against its U.S. federal income tax liability, or a deduction in
computing its U.S. federal taxable income, for Canadian income taxes withheld
by the Company. U.S. Holders should consult their tax advisors concerning the
foreign tax credit implications of the payment of Canadian taxes.
The
Company generally does not pay any dividends and does not anticipate paying any
dividends in the foreseeable future.
Sale or Other Taxable Disposition
Subject
to the PFIC rules discussed below, upon a sale or other taxable
disposition of Shares, a U.S. Holder generally will recognize capital gain or
loss for U.S. federal income tax purposes equal to the difference, if any,
between the amount realized on the sale or other taxable disposition and the
U.S. Holders adjusted tax basis in the Shares.
This
capital gain or loss will be long-term capital gain or loss if the U.S.
Holders holding period in the Shares exceeds one year. For taxable years
beginning before January 1, 2011, the rates of taxation for long-term
capital gains of non-corporate U.S. Holders are reduced
as compared to
such rates thereafter
. The deductibility of capital losses is subject to
limitations. Any gain or loss will generally be U.S. source for U.S. foreign
tax credit purposes.
Passive Foreign Investment Company
Considerations
A
foreign corporation will be classified as a PFIC for any taxable year in which,
after taking into account the income and assets of the corporation and certain
subsidiaries pursuant to applicable look-through rules, either (i) at
least 75% of its gross income is passive income or (ii) at least 50% of
the average value of its assets is attributable to assets which produce passive
income or are held for the production of passive income.
The
Company believes it was not a PFIC for the 2009 taxable year. However, since
the fair market value of the Companys assets may be determined in large part
by the market price of the Shares, which is likely to fluctuate, and the
composition of the Companys income and assets will be affected by how, and how
quickly, the Company spends any cash that is raised in any financing
transaction, no assurance can be provided that the Company would not be
classified as a PFIC for the 2010 taxable year and for any future taxable year.
If
the Company is classified as a PFIC for any taxable year during which a U.S.
Holder owns Shares, the U.S. Holder, absent certain elections (including the
mark-to-market election described below), will generally be subject to adverse rules (regardless
of whether the Company continues to be classified as a PFIC) with respect to (i) any
excess distributions (generally, any distributions received by the U.S.
Holder on the Shares in a taxable year that are greater than 125% of the
average annual distributions received by the U.S. Holder in the three preceding
taxable years or, if shorter, the U.S. Holders holding period for the Shares)
and (ii) any gain realized on the sale or other disposition of Shares.
Under
these adverse rules (a) the excess distribution or gain will be
allocated rateably over the U.S. Holders holding period, (b) the amount
allocated to the current taxable year and any taxable year prior to the first
taxable year in which the Company is classified as a PFIC will be taxed as
ordinary income, and (c) the amount allocated to each of the other taxable
years during which the Company was classified as a PFIC will be subject to tax
at the highest rate of tax in effect for the applicable class of taxpayer for
that year and an interest charge will be imposed with respect to the resulting
tax attributable to each such other taxable year.
U.S.
Holders can avoid the interest charge described above by making a mark-to-market
election with respect to the Shares, provided that the Shares are marketable.
Shares will be marketable if they are regularly traded on a qualified exchange
or other market. For this purpose, Shares generally will be considered to be
regularly traded during any calendar year during which they are traded, other
than in
de minimis
quantities, on at least 15
days during each calendar quarter. The Shares are currently listed and
regularly traded on NASDAQ, which constitutes a qualified exchange.
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A
U.S. Holder that makes a mark-to-market election must include in gross income,
as ordinary income, for each taxable year an amount equal to the excess, if
any, of the fair market value of the Shares at the close of the taxable year
over the U.S. Holders adjusted tax basis in the Shares. An electing U.S.
Holder may also claim an ordinary loss deduction for the excess, if any, of the
U.S. Holders adjusted tax basis in the Shares over the fair market value of
the Shares at the close of the taxable year, but this deduction is allowable
only to the extent of any net mark-to-market gains for prior taxable years. A U.S.
Holder that makes a mark-to-market election generally will adjust such U.S.
Holders tax basis in the Shares to reflect the amount included in gross income
or allowed as a deduction because of such mark-to-market election. Gains from
the actual sale or other disposition of the Shares will be treated as ordinary
income, and any losses incurred on a sale or other disposition of Shares will
be treated as ordinary loss to the extent of any net mark-to-market gains for
prior taxable years.
A
mark-to-market election will be effective for the taxable year for which the
election is made and all subsequent taxable years. The election cannot be
revoked without the consent of the IRS unless the Shares cease to be
marketable, in which case the election is automatically terminated. If the
Company is classified as a PFIC for any taxable year in which a U.S. Holder
owns Shares but before a mark-to-market election is made, the interest charge rules described
above will apply to any mark-to-market gain recognized in the year the election
is made.
In
some cases, a shareholder of a PFIC can avoid the interest charge and other
adverse PFIC consequences described above by making a qualified electing fund
(QEF) election to be taxed currently on its share of the PFICs undistributed
income. If the Company is classified as a PFIC, it does not, however, expect to
provide to U.S. Holders the information regarding its income that would be
necessary in order for a U.S. Holder to make a QEF election with respect to
Shares.
If
the Company is classified as a PFIC, a U.S. Holder of Shares will generally be
treated as owning stock owned by the Company in any direct or indirect
subsidiaries that are also PFICs and will be subject to similar adverse rules with
respect to distributions to the Company by, and dispositions by the Company of
the stock of such subsidiaries. A
mark-to-market election is not permitted for the shares of any subsidiary of
the Company that is also classified as a PFIC.
If
the Company is classified as a PFIC and then ceases to be so classified, a U.S.
Holder may make an election (a deemed sale election) to be treated for U.S.
federal income tax purposes as having sold such U.S. Holders Shares on the
last day of the taxable year of the Company during which it was a PFIC. A U.S.
Holder that made a deemed sale election would then cease to be treated as
owning a stock in a PFIC by reason of ownership of Shares in the Company.
However, gain recognized as a result of making the deemed sale election would
be subject to the adverse rules described above.
Under recently enacted U.S. tax legislation and subject to future
guidance, if the Company is a PFIC, U.S. Holders will be required to file, for
returns due after March 18, 2010, an annual information return with the IRS
relating to their ownership of Shares.
Although expected, no guidance has yet been issued about such return,
including on the information required to be reported on such return, the form
of the return, or the due date for the return.
U.S.
Holders should consult their tax advisors regarding the potential application
of the PFIC regime and any reporting obligations to which they may be subject
under that regime.
Information Reporting and Backup
Withholding
The proceeds of a sale or other disposition, as
well as dividends paid with respect to Shares by a U.S. payor, generally will
be reported to the IRS and to the U.S. Holder as required under applicable
regulations. Backup withholding tax may apply to these payments if the U.S.
Holder fails to timely provide in the appropriate manner an accurate taxpayer
identification number or otherwise fails to comply with, or establish an
exemption from, such backup withholding tax requirements. Certain U.S. Holders
(including, among others, corporations) are not subject to the information
reporting or backup withholding tax requirements described herein. U.S. Holders
should consult their tax advisors as to their qualification for exemption from
backup withholding tax and the procedure for obtaining an exemption.
Backup withholding is not an additional tax. U.S.
Holders generally will be allowed a refund or credit against their U.S. federal
income tax liability for amounts withheld, provided the required information is
timely furnished to the IRS.
Subject to specified exceptions and future
guidance
, recently enacted U.S. tax legislation generally requires a U.S. Holder (that is an individual or, to the
extent provided in future guidance, a domestic entity) to report to the
IRS such U.S. Holders interests in stock or securities issued by a non-U.S.
person (such as the Company) for taxable years beginning after March 18,
2010. Although expected, no guidance on this reporting requirement has yet been
issued. U.S. Holders should consult their tax advisors regarding the information reporting obligations that may arise
from their acquisition, ownership
or disposition of Shares.
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F. Dividends and paying agents
Not applicable.
G. Statement by experts
Not applicable.
H. Documents on display
In addition to placing our audited comparative
annual financial statements before every annual meeting of shareholders as
described above, we are subject to the information requirements of the
Securities Exchange Act of 1934, as amended. In accordance with these
requirements, we file and furnish reports and other information with the SEC.
These materials, including this annual report on Form 20-F and the
exhibits thereto, may be inspected and copied at the SECs Public Reference Room at
100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may
obtain information on the operation of the SECs Public Reference Room by
calling the SEC in the United States at 1-800-SEC-0330. The SEC also maintains
a website at www.sec.gov that contains reports, proxy statements and other
information regarding registrants that file electronically with the SEC. The
Companys annual reports and some of the other information submitted by the
Company to the SEC may be accessed through this website. In addition, material
filed by the Company can be inspected on the Canadian Securities
Administrators electronic filing system, SEDAR, accessible at the website
www.sedar.com. This material includes the Companys Management Information
Circular for its annual meeting to be held on May 13, 2010 to be furnished
to the SEC on Form 6-K, which provides information including directors
and officers remuneration and indebtedness and principal holders of
securities. Additional financial information is provided in our annual
financial statements for the year ended December 31, 2009 and our MD&A
relating to these statements included elsewhere in this annual report. These
documents are also accessible on SEDAR (www.sedar.com) and on EDGAR
(www.sec.gov).
I. Subsidiary information
The subsidiaries of the Company are set forth under
Item 4C. Organizational Structure.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
We have not entered into any forward currency
contracts or other financial derivatives to hedge foreign exchange risk and,
therefore, we are subject to foreign currency transaction and translation gains
and losses.
Fair value
The Company has established
the following classifications for its financial instruments:
·
cash and cash
equivalents and restricted cash (2009 only) are classified under Assets Held
for Trading;
·
short-term
investments (2008 only) are classified under Available-for-Sale Assets;
·
accounts
receivable are classified under Loans and Receivables; and
·
accounts
payable and accrued liabilities, long-term payable and other long-term
liability are classified under Other Financial Liabilities.
The carrying values of all
of the aforementioned financial instruments approximate their fair values due
to their short-term maturity or to the prevailing interest rates of these
instruments, which are comparable to those of the market.
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Financial risk management
Disclosures relating to
the nature and extent of the Companys exposure to risks arising from financial
instruments, including
credit risk, liquidity risk, foreign currency risk
and interest rate risk, and how the Company manages those risks, are presented
below.
a)
Credit
risk
Credit
risk is the risk of an unexpected loss if a customer or counterparty to a
financial instrument fails to meet its contractual obligations. The Company
regularly monitors its credit risk exposure and takes steps to mitigate the
likelihood of these exposures from resulting in actual loss.
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, restricted cash,
short-term investments and accounts receivable.
Cash and cash equivalents and restricted cash balances are maintained
with high-credit quality financial institutions. Short-term investments (2008
only) consist of notes issued by high-credit quality corporations and
institutions. Also, any accounts receivable balances due to the Company that
are past due as at December 31, 2009 are insignificant, both individually
and in the aggregate. Consequently, management considers the risk of
non-performance related to cash and cash equivalents, restricted cash,
short-term investments and accounts receivable to be minimal.
b)
Foreign
Currency Risk
Since
the Company operates on an international scale, it is exposed to currency risks
as a result of potential exchange rate fluctuations related to non-intragroup
transactions. Fluctuations in the US dollar and the EUR exchange rates could
have a potentially significant impact on the Companys results of
operations. The following variations are reasonably possible over a
12-month period:
·
Foreign exchange rate variation of -5%
(depreciation of the EUR) and +5%
(appreciation of the EUR) against the US$, from a period-end rate of EUR1.00 =
US$1.4272.
If
these variations were to occur, the impact on the Companys consolidated net
loss for each category of financial instruments held at December 31, 2009
would be as follows:
|
|
Carrying
|
|
Balances denominated
in US$
|
|
(in thousands)
|
|
amount
|
|
-5%
|
|
+5%
|
|
|
|
$
|
|
$
|
|
$
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
27,244
|
|
1,362
|
|
(1,362
|
)
|
Total impact on consolidated
net loss - (increase)/decrease
|
|
|
|
1,362
|
|
(1,362
|
)
|
c)
Liquidity
risk
Liquidity
risk is the risk that the Company will not be able to meet its financial
obligations as they become due. The Company manages liquidity risk through the
management of its capital structure and financial leverage. The Company also
manages liquidity risk by continuously monitoring actual and projected cash
flow. The Board of Directors reviews and approves the Companys operating and
capital budgets, and reviews any material transactions outside of the normal
course of business.
The
Companys investment policy ensures the safety and preservation of its
principal, as outlined above, to ensure the Companys liquidity needs are met.
115
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 depositary shares
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modification to the Rights of Security Holders and
Use of Proceeds
None.
Item 15. Controls and Procedures
Under
the supervision and with the participation of the Registrants management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of our disclosure controls and procedures as at December 31,
2009. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and procedures were
effective as at December 31, 2009.
Managements Annual Report on Internal Control over
Financial Reporting
The
Registrants management is responsible for establishing and maintaining
adequate internal control over financial reporting. The Registrants internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP.
The
Registrants internal control over financial reporting includes those policies
and procedures that: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Registrants assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of the
Registrant are being made only in accordance with authorizations of the
Registrants management; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Registrants assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management
conducted an evaluation of the effectiveness of the Registrants internal
control over financial reporting based on the criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Registrants internal control over financial reporting was
effective as at December 31, 2009.
116
Table of Contents
Attestation
Report of the Independent Auditors
See the report of PricewaterhouseCoopers LLP included
under Item 18, Financial Statements.
Changes in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting during
the year ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
The
Board of the Registrant has determined that the Registrant has at least one
audit committee financial expert (as defined in paragraph (b) of Item 16A
to Form 20-F). The name of the audit committee financial expert of the
Registrant is Mr. Gérard Limoges, FCA, the Audit Committees
Chairman. The Commission has indicated that the designation of Mr. Limoges
as the audit committee financial expert of the Registrant does not: (i) make
Mr. Limoges an expert for any purpose, including without limitation for
purposes of Section 11 of the Securities Act of 1933, as amended, as a
result of this designation; (ii) impose any duties, obligations or
liability on Mr. Limoges that are greater than those imposed on him as a
member of the Audit Committee and the Board in the absence of such designation;
or (iii) affect the duties, obligations or liability of any other member
of the Audit Committee or the Board. The other members of the Audit committee
are Ms. Martha Byorum and Mr. Pierre MacDonald, each of whom, along
with Mr. Limoges, is independent, as that term is defined in the NASDAQ
listing standards. For a description of their respective education and
experience, please refer to Item 6. Directors, Senior Management and
Employees.
Item 16B. Code of Ethics
On
March 29, 2004, the Board adopted a Code of Ethical Conduct, which has
been amended by the Board on November 3, 2004, December 13, 2005, March 2,
2007 and March 10, 2009. The December 13, 2005 amendment incorporates
changes to the duty to report violations consistent with applicable laws. The
Registrant has selected an independent third party supplier to provide a
confidential and anonymous communication channel for reporting concerns about
possible violations to the Registrants Code of Ethical Conduct as well as
financial and/or accounting irregularities or fraud. A copy of the Code of
Ethical Conduct, as amended, is attached as Exhibit 11.1 to this annual
report and is also available on the Registrants Web site at www.aezsinc.com
under the Investors Governance tab. The Code of Ethical Conduct is a code of
ethics as defined in paragraph (b) of Item 16B to Form 20-F. The
Code of Ethical Conduct applies to all of the Registrants employees, directors
and officers, including the Registrants principal executive officer, principal
financial officer, and principal accounting officer or controller, or persons
performing similar functions, and includes specific provisions dealing with
integrity in accounting matters, conflicts of interest and compliance with
applicable laws and regulations. The Registrant will provide this document
without charge to any person or company upon request to the Corporate Secretary
of the Registrant, at its head office at 1405 du Parc-Technologique Boulevard,
Quebec City, Quebec, G1P 4P5, Canada.
Item 16C. Principal Accountant Fees and Services
(All amounts are in US dollars)
A. Audit Fees
During the financial years ended December 31,
2009 and 2008, the Registrants principal accountant, PricewaterhouseCoopers
LLP, billed it aggregate amounts of $435,710 and $332,495, respectively, for
the audit of the Registrants annual consolidated financial statements and
services in connection with statutory and regulatory filings.
B. Audit-related Fees
During
the financial years ended December 31, 2009 and 2008,
the Registrants
principal
accountant, PricewaterhouseCoopers LLP, billed it aggregate amounts of $44,485
and $219,407, respectively, for audit or attest services not required by
statute or regulation, employee benefit plan audits, due diligence services,
and accounting consultations on
117
Table of
Contents
proposed
transactions, including the review of prospectuses and the delivery of
customary consent and comfort letters in connection therewith.
C. Tax Fees
During
the financial years ended December 31, 2009 and 2008,
the Registrants
principal
accountant, PricewaterhouseCoopers LLP, billed it aggregate amounts of $63,819
and $96,017, respectively, for services related to tax compliance, tax planning
and tax advice.
D. All Other Fees
During
the financial years ended December 31, 2009 and 2008,
the Registrants
principal
accountant, Pricewaterhouse Coopers LLP, billed it aggregate amounts of $4,164
and $12,962, respectively, for services not included in audit fees,
audit-related fees and tax fees consisting primarily of fees for
translation services.
E. Audit Committee Pre-Approval
Policies and Procedures
Under
applicable Canadian securities regulations,
the Registrant is
required to disclose
whether its Audit Committee has adopted specific policies and procedures for
the engagement of non-audit services and to prepare a summary of these policies
and procedures. The Audit Committee Charter (filed as Exhibit 11.6 to this
annual report) provides that it is such committees responsibility to approve
all audit engagement fees and terms as well as reviewing policies for the
provision of non-audit services by the external auditors and, when required,
the framework for pre-approval of such services. The Audit Committee delegates
to its Chairman the pre-approval of such non-audit fees. The pre-approval by
the Chairman is then presented to the Audit Committee at its first scheduled
meeting following such pre-approval.
For
each of the years ended December 31, 2009 and 2008, none of the non-audit
services provided by
the
Registrants
external auditor were approved by the Audit
Committee pursuant to the de minimis exception to the pre-approval
requirement for non-audit services.
During
the financial year ended on December 31, 2009, only full-time permanent
employees of
the
Registrants
principal accountant, PricewaterhouseCoopers LLP,
performed work to audit
the
Registrants
financial statements.
Item 16D. Exemptions from the Listing Standards for Audit Committees
None.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
None.
Item 16F. Changes in Registrants Certifying Accountant
None.
Item 16G. Corporate Governance
The
Registrant is in compliance with the corporate governance requirements of the
NASDAQ except as described below. The Registrant is not in compliance with the
NASDAQ requirement that a quorum for a meeting of the holders of the common
stock of the Registrant be no less than 33 1/3% of such outstanding shares. The
by-laws of the Registrant provide that a quorum for purposes of any meeting of
shareholders of the Registrant consists of at least 20% of the outstanding
voting shares. The Registrant received an exemption from NASDAQ from this
quorum requirement because the quorum provided for in the by-laws of the
Registrant is consistent with generally accepted business practices in Canada,
the Registrants country of domicile, and with the TSX, the home country
exchange on which the Registrants voting shares are traded.
In addition, the Registrant follows certain of its
home country practices in lieu of compliance with the NASDAQ requirements that:
(i) independent directors of the Registrant have regularly scheduled
meetings at which only independent directors are present (executive
sessions); (ii) the compensation of the chief executive officer and the
other executive officers of the Registrant be determined, or recommended to the
Registrants Board for determination, by a compensation committee comprised
solely of independent directors; and (iii) the director nominees be
selected, or recommended for
118
Table of Contents
selection by the Registrants Board, by a
nominations committee comprised solely of independent directors. The Chairman
of the Board of the Registrant from time to time ensures that directors hold
meetings at which senior management is not present, and the Registrants
Corporate Governance, Nominating and Human Resources Committee, which serves as
the Registrants compensation and nominations committee, is comprised of four
members, four of whom are independent directors. In accordance with applicable
current NASDAQ requirements, the Registrant has in the past provided to NASDAQ
letters from outside counsel certifying that these practices are not prohibited
by the Registrants home country law.
PART III
Item 17. Financial Statements
We have elected to provide
financial statements pursuant to Item 18.
Item 18. Financial Statements
The financial statements appear on pages 120
through 170.
119
Table of
Contents
Æterna
Zentaris Inc.
Consolidated
Financial Statements
December 31,
2009, 2008 and 2007
(expressed
in thousands of US dollars)
120
Table of
Contents
Independent Auditors Report
To the
Shareholders of
Æterna
Zentaris Inc.
We have completed integrated audits of Æterna Zentaris
Inc.s 2009, 2008 and 2007 consolidated financial statements and of its
internal control over financial reporting as at December 31, 2009. Our
opinions, based on our audits, are presented below.
Consolidated
financial statements
We have audited the
accompanying consolidated balance sheets of Æterna Zentaris Inc. as at December 31,
2009 and 2008, and the related consolidated
statements of
operations, comprehensive loss, accumulated other comprehensive income and
deficit, changes in shareholders equity and cash flows
for
each of the years in the three-year period ended December 31, 2009. We
have also audited the financial statement schedules, Valuation and Qualifying
Accounts and Export Sales, in Item 8.A. of this Annual Report on Form 20-F.
These consolidated financial statements and financial statement schedules are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits
of the Companys financial statements in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. A financial statement audit also
includes assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as at December 31,
2009 and 2008 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2009
in accordance with Canadian generally accepted accounting
principles. Furthermore, in our opinion, the financial statement schedules,
Valuation and Qualifying Accounts and Export Sales, in Item 8.A. of this Annual
Report on Form 20-F present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
Internal
control over financial reporting
We have also audited
Æterna Zentaris Inc.s internal
control over financial reporting as at December 31, 2009, based on
criteria established in
Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission
(COSO). The Companys management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in Managements Annual Report on Internal Control over Financial
Reporting appearing on Page 116 of this Annual Report on Form 20-F.
Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.
PricewaterhouseCoopers
refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited
liability partnership, or, as the context requires, the PricewaterhouseCoopers
global network or other member firms of the network, each of which is a
separate legal entity.
121
Table of
Contents
We conducted our audit of
internal control over financial reporting in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A companys internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as at December 31,
2009
based on criteria established in
Internal Control Integrated Framework issued by the COSO.
|
(1)
|
|
|
Quebec City, Province
of Quebec, Canada
|
|
March 23, 2010
|
|
(1) Chartered
accountant auditor permit No. 11070
122
Table of
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Æterna
Zentaris Inc.
Consolidated
Balance Sheets
(expressed
in thousands of US dollars)
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
$
|
|
$
|
|
ASSETS
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
38,100
|
|
49,226
|
|
Short-term
investments
|
|
|
|
493
|
|
Accounts
receivable
|
|
|
|
|
|
Trade
|
|
2,444
|
|
3,425
|
|
Other
|
|
992
|
|
1,100
|
|
Income
taxes
|
|
113
|
|
48
|
|
Inventory
(note 9)
|
|
4,415
|
|
3,385
|
|
Prepaid
expenses and other current assets
|
|
2,949
|
|
4,047
|
|
|
|
49,013
|
|
61,724
|
|
Restricted cash
(note 10)
|
|
878
|
|
|
|
Property, plant and equipment
(note 11)
|
|
4,358
|
|
6,682
|
|
Deferred charges and other long-term assets
(note 12)
|
|
4,733
|
|
5,959
|
|
Intangible assets
(note 13)
|
|
17,034
|
|
23,894
|
|
Goodwill
(note 14)
|
|
10,246
|
|
10,083
|
|
|
|
86,262
|
|
108,342
|
|
LIABILITIES
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Accounts
payable and accrued liabilities (note 15)
|
|
11,919
|
|
13,690
|
|
Income
taxes
|
|
965
|
|
800
|
|
Deferred
revenues
|
|
6,327
|
|
7,631
|
|
Current
portion of long-term payable (note 8)
|
|
57
|
|
49
|
|
|
|
19,268
|
|
22,170
|
|
Deferred
revenues
|
|
45,919
|
|
54,433
|
|
Long-term
payable
(note 8)
|
|
143
|
|
172
|
|
Employee future
benefits
(note 16)
|
|
11,640
|
|
10,092
|
|
Other long-term
liability
|
|
66
|
|
|
|
|
|
77,036
|
|
86,867
|
|
Commitments and
contingencies
(note 24)
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
Share capital
(note 17)
|
|
41,203
|
|
30,566
|
|
Warrants
(note 17)
|
|
2,899
|
|
|
|
Other capital
|
|
79,943
|
|
79,669
|
|
Deficit
|
|
(127,538
|
)
|
(102,814
|
)
|
Accumulated other comprehensive income
|
|
12,719
|
|
14,054
|
|
|
|
9,226
|
|
21,475
|
|
|
|
86,262
|
|
108,342
|
|
Basis of presentation (note 2)
|
|
|
|
|
|
Evaluation of going concern (note 2)
|
|
|
|
|
|
Approved by the Board of Directors
|
|
|
Juergen Ernst, MBA
|
|
Gérard Limoges, FCA
|
Director
|
|
Director
|
The accompanying notes are an integral part of these consolidated
financial statements.
123
Table of
Contents
Æterna
Zentaris Inc.
Consolidated
Statements of Changes in Shareholders Equity
For
the years ended December 31, 2009, 2008 and 2007
(expressed
in thousands of US dollars, except share data)
|
|
Common
shares
|
|
Share
capital
|
|
Warrants
|
|
Other
capital
|
|
Deficit
|
|
Accumulated
other
comprehensive
income
|
|
Total
|
|
|
|
(number of)
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Balance December 31, 2006
|
|
53,169,470
|
|
168,466
|
|
|
|
6,226
|
|
(10,114
|
)
|
14,301
|
|
178,879
|
|
Effect of the application of new accounting
standards
|
|
|
|
|
|
|
|
|
|
(587
|
)
|
(41
|
)
|
(628
|
)
|
Distribution of Atrium (note 6)
|
|
|
|
(137,959
|
)
|
|
|
71,122
|
|
|
|
(5,624
|
)
|
(72,461
|
)
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
(32,296
|
)
|
|
|
(32,296
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
13,783
|
|
13,783
|
|
Variation in the fair value of short-term
investments, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
51
|
|
Issuances pursuant to the stock option plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For cash (note 17)
|
|
18,000
|
|
33
|
|
|
|
|
|
|
|
|
|
33
|
|
Ascribed value from Other capital
|
|
|
|
26
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
Disposal of shares of Echelon (note 7)
|
|
|
|
|
|
|
|
|
|
|
|
(754
|
)
|
(754
|
)
|
Stock-based compensation costs
|
|
|
|
|
|
|
|
1,984
|
|
|
|
|
|
1,984
|
|
Balance
December 31, 2007
|
|
53,187,470
|
|
30,566
|
|
|
|
79,306
|
|
(42,997
|
)
|
21,716
|
|
88,591
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
(59,817
|
)
|
|
|
(59,817
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(7,655
|
)
|
(7,655
|
)
|
Variation in the fair value of short-term
investments, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
(7
|
)
|
Stock-based compensation costs
|
|
|
|
|
|
|
|
363
|
|
|
|
|
|
363
|
|
Balance December 31,
2008
|
|
53,187,470
|
|
30,566
|
|
|
|
79,669
|
|
(102,814
|
)
|
14,054
|
|
21,475
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
(24,724
|
)
|
|
|
(24,724
|
)
|
Issuances pursuant to registered direct offerings,
net of transaction costs (note 17)
|
|
9,902,484
|
|
10,637
|
|
2,899
|
|
|
|
|
|
|
|
13,536
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
(1,332
|
)
|
(1,332
|
)
|
Variation in the fair value of short-term
investments, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
(3
|
)
|
Stock-based compensation costs
|
|
|
|
|
|
|
|
274
|
|
|
|
|
|
274
|
|
Balance December 31,
2009
|
|
63,089,954
|
|
41,203
|
|
2,899
|
|
79,943
|
|
(127,538
|
)
|
12,719
|
|
9,226
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
124
Table of
Contents
Æterna
Zentaris Inc.
Consolidated
Statements of Accumulated Other Comprehensive Income and Deficit
(expressed
in thousands of US dollars)
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
Accumulated
other comprehensive income:
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
12,719
|
|
14,051
|
|
21,706
|
|
Variation
in fair market value of short-term investments, net of income taxes
|
|
|
|
3
|
|
10
|
|
Accumulated Other Comprehensive Income
|
|
12,719
|
|
14,054
|
|
21,716
|
|
Deficit
|
|
(127,538
|
)
|
(102,814
|
)
|
(42,997
|
)
|
Total
Accumulated Other Comprehensive Income and Deficit
|
|
(114,819
|
)
|
(88,760
|
)
|
(21,281
|
)
|
The accompanying notes are
an integral part of these consolidated financial statements.
125
Table of Contents
Æterna
Zentaris Inc.
Consolidated
Statements of Operations
For
the years ended December 31,
(expressed
in thousands of US dollars, except share and per share data)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
Revenues
|
|
|
|
|
|
|
|
License fees
|
|
42,221
|
|
8,504
|
|
12,843
|
|
Sales and royalties
|
|
20,957
|
|
29,462
|
|
28,825
|
|
Other
|
|
59
|
|
512
|
|
400
|
|
|
|
63,237
|
|
38,478
|
|
42,068
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Cost
of sales, excluding depreciation and amortization (note 9)
|
|
16,501
|
|
19,278
|
|
12,930
|
|
Research
and development costs
|
|
44,217
|
|
57,448
|
|
39,248
|
|
Research
and development tax credits and grants
|
|
(403
|
)
|
(343
|
)
|
(2,060
|
)
|
Selling,
general and administrative expenses
|
|
16,040
|
|
17,325
|
|
20,403
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
Property,
plant and equipment (note 11)
|
|
3,285
|
|
1,515
|
|
1,562
|
|
Intangible
assets (note 13)
|
|
7,555
|
|
5,639
|
|
4,004
|
|
Impairment
of long-lived assets held for sale (note 8)
|
|
|
|
|
|
735
|
|
|
|
87,195
|
|
100,862
|
|
76,822
|
|
Loss from
operations
|
|
(23,958
|
)
|
(62,384
|
)
|
(34,754
|
)
|
Other income
(expenses)
|
|
|
|
|
|
|
|
Interest income
|
|
349
|
|
868
|
|
1,904
|
|
Interest
expense
|
|
(5
|
)
|
(118
|
)
|
(85
|
)
|
Foreign
exchange gain (loss)
|
|
(1,110
|
)
|
3,071
|
|
(1,035
|
)
|
Loss
on disposal of long-lived assets held for sale (note 8)
|
|
|
|
(35
|
)
|
|
|
Loss
on disposal of equipment
|
|
|
|
(44
|
)
|
(28
|
)
|
|
|
(766
|
)
|
3,742
|
|
756
|
|
Loss before
income taxes from continuing operations
|
|
(24,724
|
)
|
(58,642
|
)
|
(33,998
|
)
|
Income tax
(expense) recovery
(note 19)
|
|
|
|
(1,175
|
)
|
1,961
|
|
Net loss from
continuing operations
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,037
|
)
|
Net loss from
discontinued operations
(note 7)
|
|
|
|
|
|
(259
|
)
|
Net loss for the
year
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,296
|
)
|
|
|
|
|
|
|
|
|
Net loss per
share from continuing operations
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
(0.43
|
)
|
(1.12
|
)
|
(0.61
|
)
|
Net loss per
share from discontinued operations
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
|
|
|
|
|
Net loss per
share
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
(0.43
|
)
|
(1.12
|
)
|
(0.61
|
)
|
Weighted average
number of shares
(note 21)
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
56,864,484
|
|
53,187,470
|
|
53,182,803
|
|
The accompanying notes are an integral part of these consolidated financial
statements.
126
Table of Contents
Æterna
Zentaris Inc.
Consolidated Statements of
Comprehensive Loss
For the years ended December
31,
(expressed in thousands of US
dollars)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
Net loss for the year
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,296
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(1,332
|
)
|
(7,655
|
)
|
13,783
|
|
Reclassification adjustment related to disposal of
Echelon (note 7)
|
|
|
|
|
|
(754
|
)
|
Variation in fair market value of short-term
investments, net of income taxes
|
|
(3
|
)
|
(7
|
)
|
51
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
(26,059
|
)
|
(67,479
|
)
|
(19,216
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
127
Table of
Contents
Æterna Zentaris Inc.
Consolidated
Statements of Cash Flows
For
the years ended December 31,
(expressed
in thousands of US dollars)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net loss for the year
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,296
|
)
|
Net loss from discontinued operations (note 7)
|
|
|
|
|
|
259
|
|
Net loss from continuing operations
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,037
|
)
|
Items not affecting cash and cash equivalents
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
10,840
|
|
7,154
|
|
5,566
|
|
Stock-based compensation costs
|
|
274
|
|
363
|
|
1,984
|
|
Future income taxes
|
|
|
|
|
|
(1,868
|
)
|
Inventory write-down (note 9)
|
|
|
|
726
|
|
|
|
Employee future benefits
|
|
1,365
|
|
984
|
|
164
|
|
Amortization of deferred charges and other
long-term assets
|
|
1,819
|
|
729
|
|
510
|
|
Amortization of deferred revenues
|
|
(13,506
|
)
|
(6,213
|
)
|
(7,012
|
)
|
Accretion on long-term borrowings
|
|
|
|
|
|
82
|
|
Loss on disposal of long-lived assets held for
sale
|
|
|
|
35
|
|
|
|
Loss on disposal of equipment
|
|
|
|
44
|
|
28
|
|
Impairment of long-lived asset held for sale
|
|
|
|
|
|
735
|
|
Foreign exchange loss (gain) on items denominated
in foreign currency
|
|
1,098
|
|
(3,801
|
)
|
641
|
|
Amortization of prepaid expenses and other
non-cash items
|
|
15,192
|
|
10,179
|
|
8,632
|
|
Changes in operating assets and liabilities (note
18)
|
|
(16,496
|
)
|
48,345
|
|
(3,087
|
)
|
Net cash used in continuing operating activities
|
|
(24,138
|
)
|
(1,272
|
)
|
(25,662
|
)
|
Net cash provided by discontinued operating
activities (note 7)
|
|
|
|
|
|
132
|
|
Net cash used in operating activities
|
|
(24,138
|
)
|
(1,272
|
)
|
(25,530
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Proceeds from issuances of common shares and
warrants, net of cash transaction costs of $1,244 (note 17)
|
|
14,256
|
|
|
|
|
|
Repayment of long-term debt and long-term payable
|
|
(51
|
)
|
(784
|
)
|
(751
|
)
|
Issuance of shares pursuant to the exercise of
stock options
|
|
|
|
|
|
33
|
|
Deferred share issue expenses
|
|
|
|
(408
|
)
|
(366
|
)
|
Net cash provided by (used in) continuing
financing activities
|
|
14,205
|
|
(1,192
|
)
|
(1,084
|
)
|
Net cash used in discontinued financing activities
(note 7)
|
|
|
|
|
|
(230
|
)
|
Net cash provided by (used in) financing
activities
|
|
14,205
|
|
(1,192
|
)
|
(1,314
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
|
(1,664
|
)
|
(6,180
|
)
|
Proceeds from sale and maturity of short-term
investments
|
|
553
|
|
30,027
|
|
33,405
|
|
Increase in restricted cash (note 10)
|
|
(866
|
)
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(510
|
)
|
(1,147
|
)
|
(3,702
|
)
|
Net proceeds from sale of long-lived assets held
for sale
|
|
|
|
14,854
|
|
|
|
Proceeds from sale of property, plant and
equipment
|
|
6
|
|
|
|
729
|
|
Purchases of amortizable intangible assets
|
|
(280
|
)
|
(67
|
)
|
(67
|
)
|
Net cash provided by (used in) continuing investing
activities
|
|
(1,097
|
)
|
42,003
|
|
24,185
|
|
Net cash provided by discontinued investing
activities (note 7)
|
|
|
|
|
|
2,238
|
|
Net cash provided by (used in) investing
activities
|
|
(1,097
|
)
|
42,003
|
|
26,423
|
|
Effect of exchange rate changes
on cash and cash equivalents
|
|
(96
|
)
|
(585
|
)
|
1,337
|
|
Net change in cash and cash equivalents
|
|
(11,126
|
)
|
38,954
|
|
916
|
|
Cash and cash equivalents Beginning of
year
|
|
49,226
|
|
10,272
|
|
9,356
|
|
Cash and cash equivalents End of year
|
|
38,100
|
|
49,226
|
|
10,272
|
|
Cash and cash equivalents components:
|
|
|
|
|
|
|
|
Cash
|
|
33,100
|
|
13,256
|
|
10,195
|
|
Cash equivalents
|
|
5,000
|
|
35,970
|
|
77
|
|
|
|
38,100
|
|
49,226
|
|
10,272
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
128
Table
of Contents
Æterna Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except share/option/warrant
and per share/option/warrant data and as otherwise noted)
1
Incorporation and
nature of activities
Æterna Zentaris Inc. (Æterna Zentaris or the Company), incorporated
under the
Canada Business Corporations Act
, is a
global biopharmaceutical company focused on oncology and endocrine therapy with
expertise in drug discovery, development and commercialization. The Companys
pipeline encompasses compounds at all stages of development, from drug
discovery through marketed products.
2
Summary of
significant accounting policies
Basis
of presentation
The
accompanying consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles (Canadian GAAP). These
consolidated financial statements differ in certain respects from those
prepared in accordance with United States generally accepted principles (US
GAAP). The recognition, measurement and disclosure differences as they relate
to the Company are described in note 26, Differences between Canadian and US
GAAP.
Evaluation
of going concern, results of operations and managements plans
The
Canadian Institute of Chartered Accountants (CICA) Handbook Section 1400,
General Standards of Financial Statement
Presentation
, requires management to make an assessment of an
entitys ability to continue as a going concern, taking into account all
available information about the future, which is at least, but is not limited
to, 12 months from the balance sheet dates. Disclosure is required of material
uncertainties related to events or conditions that may cast significant doubt
upon the entitys ability to continue as a going concern. Managements
assessment took into account the cash received in connection with the sale, in December 2008,
of rights to future royalties (see note 5), the upfront payment received in
connection with the development, commercialization and license agreement with
sanofi-aventis U.S. LLC (sanofi) on March 5, 2009, discussed in note 4,
and the net proceeds received in connection with the two registered direct
offerings discussed in note 17, as well as the Companys strategic plan and
corresponding budgets for 2010 and projections for 2011 and 2012. As a result
of this assessment, and despite the announcements in 2009 of negative results
associated with our Phase 3 studies with cetrorelix in benign prostatic
hyperplasia (BPH), management believes that the Company has sufficient
financial resources to fund planned expenditures and other working capital
needs for at least, but not limited to, the next 12-month period from the
balance sheet date.
Basis
of consolidation
These
consolidated financial statements include all companies in which the Company,
directly or indirectly holds more than 50% of the voting rights or over which
it exercises control. Companies are included in the consolidation from the date
that control is transferred to the Company, while companies sold are excluded
from the consolidation from the date that control ceases. The purchase method
of accounting is used to account for acquisitions. All intercompany balances
and transactions are eliminated on consolidation.
Investments
in affiliated companies
Where
applicable, investments in companies over which the Company exercises
significant influence (generally where the Company holds 20% to 50% of the
investees voting rights) but over which it does not exercise control are
accounted for using the equity method. The Companys share of its affiliated
results of operations is recognized in the statement of operations.
129
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
Accounting
estimates
The
preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Those
estimates and assumptions also affect the disclosure of contingencies at the
date of the financial statements as well as the reported amounts of revenues
and expenses during the reported years. Significant estimates are generally
made in connection with the calculation of revenues, research and development
expenses, stock-based compensation costs, as well as in determining the
allowance for doubtful accounts, inventory and provisions for obsolete
inventory, future income tax assets and liabilities, the useful lives of
property, plant and equipment and intangible assets with finite lives, the
valuation of intangible assets and goodwill, the fair value of stock options
and warrants granted, employee future benefits and certain accrued liabilities.
The Company bases its estimates on historical experience, where relevant, and
on various other assumptions that management believes to be reasonable under
the circumstances. Actual results could differ from those estimates.
Foreign
currency translation
Reporting
currency
The
Company uses the US dollar as its reporting currency. Assets and liabilities of
the Company and of its self-sustaining subsidiaries whose functional currency
is other than the US dollar are translated using the exchange rate in effect at
the balance sheet date. Revenues and expenses are translated at the average
rate in effect during the year. Translation gains and losses are included in
the consolidated statement of comprehensive loss.
Foreign
currency transactions and remeasurement
The
financial statements of integrated foreign operations and transactions
denominated in currencies other than the functional currency are remeasured
into the functional currency using the temporal method. Under this method,
monetary assets and liabilities are remeasured to their functional currency at
the exchange rate in effect on the date of the balance sheet. Non-monetary
assets and liabilities are remeasured at historical rates, unless such assets
and liabilities are carried at market, in which case, they are remeasured using
the exchange rate in effect on the date of the balance sheet. Revenues and
expenses are remeasured at the monthly average exchange rate. Transaction gains
and losses resulting from such remeasurement are reflected in the consolidated
statement of operations.
Effective
January 1, 2009, due to a change in economic facts and circumstances, the
Company and its US subsidiary adopted the Euro (EUR) as their functional
currency. This change did not result in any significant impact on the Companys
consolidated financial statements.
Cash
and cash equivalents
Cash
and cash equivalents consist of unrestricted cash on hand and balances with
banks, excluding bank advances, as well as short-term, interest-bearing
deposits either with a term of less than three months at the acquisition date
or that are readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
Short-term
investments
Short-term
investments consist mainly of notes and bonds which do not meet the Companys
definition of cash and cash equivalents.
In
accordance with the requirements of CICA Handbook Section 3855,
Financial Instruments
, short-term investments are classified
as available-for-sale investments. The Company recognizes transactions on the
settlement date. These investments are recognized at fair value. Unrealized
gains and losses are recognized, net of income taxes, if any, in other
comprehensive income. Upon the disposal or impairment of these investments,
these gains or losses are reclassified to the consolidated statement of
operations.
130
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
Inventory
Inventory
is valued at the lower of cost and net realizable value, which is defined as
the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to make the
sale. Cost is determined on a first-in, first-out basis. The cost of finished
goods and work in progress includes raw materials, labour and manufacturing
overhead under the absorption costing method.
Restricted
cash
Restricted
cash includes a bank deposit related to the Companys long-term lease
obligation in Germany. See also note 10.
Property, plant and equipment and depreciation
Property,
plant and equipment are recorded at cost, net of related government grants and
accumulated depreciation. Depreciation is calculated using the following
methods, annual rates and periods:
|
|
Methods
|
|
Annual rates
and period
|
|
|
|
|
|
Equipment
|
|
Declining balance and straight-line
|
|
20%
|
Furniture
and fixtures
|
|
Declining balance and straight-line
|
|
10% and 20%
|
Computer
equipment
|
|
Straight-line
|
|
25% and 33
1
/
3
%
|
Leasehold
improvements
|
|
Straight-line
|
|
Remaining lease term
|
Royalty sale transaction expenses and other deferred charges
The
Company has deferred direct and incremental costs associated with its
transaction to sell its future rights to a royalty stream and are accounted for
as discussed in note 5.
Other
deferred charges relate to upfront payments made related to research and
development collaborations. These charges are included in deferred charges and
other long-term assets and are amortized in the consolidated statement of
operations over the duration of the research and development work related to
the contracts.
Intangible
assets
Intangible
assets with finite useful lives consist of in-process research and development,
acquired in business combinations, patents and trademarks, technology and
other. Patents and trademarks are comprised of costs, including professional
fees incurred in connection with the filing of patents and the registration of
trademarks for product marketing and manufacturing purposes, net of related
government grants and accumulated amortization. Intangible assets with finite
useful lives are amortized on a straight-line basis over their estimated useful
lives of eight to fifteen years for in-process research and development and
patents, ten years for trademarks and from three to ten years for technology
and other.
Goodwill
Goodwill
represents the excess of the purchase price over the fair values of the net
assets of entities acquired at their respective dates of acquisition. Goodwill
is not amortized but is tested for impairment annually, or more frequently if
events or changes in circumstances indicate that the carrying value of the
reporting unit to which the goodwill is assigned may exceed the fair value of
the reporting unit.
In the
event that the carrying amount of a reporting unit, including goodwill, exceeds
its fair value, an impairment loss is recognized in an amount equal to the
excess. Fair value of goodwill is estimated in the same way as goodwill is
131
Table of Contents
Æterna Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
determined
at the date of the acquisition in a business combination, that is, the excess
of the fair value of the reporting unit over the fair value of the identifiable
net assets of the reporting unit.
Impairment
of long-lived assets
Property,
plant and equipment and intangible assets with finite lives are reviewed for
impairment when events or circumstances indicate that carrying values may not
be recoverable. Impairment exists when the carrying value of the asset or asset
group is greater than the undiscounted future cash flows expected to be
provided by the asset or asset group. The amount of impairment loss, if any, is
the excess of its carrying value over its fair value, which in turn is
determined based upon discounted cash flows or appraised values, depending on
the nature of assets.
Employee
future benefits
The
Companys subsidiary in Germany maintains defined contribution and unfunded
defined benefit plans as well as other benefit plans for its employees. Its
obligations are accrued under employee benefit plans and the related costs. In
this regard, the following policies have been adopted:
·
the
cost of pension and other benefits earned by employees is actuarially
determined using the projected unit credit method and benefit method prorated
on length of service and managements best estimate of salary escalation, retirement
ages of employees and employee turnover;
·
the
net actuarial gain (loss) of the benefit obligation is recorded in the
consolidated statement of operations as it arises.
For defined
contribution plans, the pension expenses recorded in the consolidated statement
of operations is the amount of contribution the Company is required to pay for
services rendered by employees.
Deferred
revenues
Deferred
revenues relate to the unamortized portion of the cash proceeds received in
connection with the Companys sale of future rights to a royalty stream. Those proceeds are recognized as royalty
revenue based on the units-of-revenue method, as discussed in note 5. Also
included in deferred revenues are upfront payments received primarily in
connection with license cooperation agreements.
Those payments are recognized as revenues, as discussed below.
Revenue
recognition
The
Company is currently in a phase in which potential products are being further
developed or marketed jointly with strategic partners. Existing licensing
agreements usually foresee one-time payments (upfront payments), payments for
research and development services in the form of cost reimbursements, milestone
payments and royalty receipts for licensing and marketing product candidates. Revenues
associated with those multiple-element arrangements are allocated to the
various elements based on their relative fair value.
Agreements
containing multiple elements are divided into separate units of accounting if
certain criteria are met, including whether the delivered element has
stand-alone value to the customer and whether there is objective and reliable
evidence of the fair value of the undelivered obligation(s). The consideration
received is allocated among the separate units based on each units fair value,
and the applicable revenue recognition criteria are applied to each of the
separate units.
License
fees representing non-refundable payments received upon the execution of
license agreements are recognized as revenue upon execution of the license
agreements when the Company has no significant future performance obligations
and collectibility of the fees is assured. Upfront payments received at the
beginning of licensing agreements are not recorded as revenue when received but
are amortized based on the progress to the related research and development
132
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Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
work.
This progress is based on estimates of total expected time or duration to
complete the work, which is compared to the period of time incurred to date in
order to arrive at an estimate of the percentage of revenue earned to date.
Milestone
payments, which are generally based on developmental or regulatory events, are
recognized as revenue when the milestones are achieved, collectibility is
assured, and when there are no significant future performance obligations in
connection with the milestones.
Royalty
revenue, based on a percentage of sales of certain declared products sold by
third parties, is recorded when the Company has fulfilled the terms in
accordance with the contractual agreement, has no future obligations, the
amount of the royalty fee is determinable and collection is reasonably assured.
The Company defers recognition of proceeds received in connection with
the sale of rights to future royalties (see note 5) and recognizes these
deferred revenues over the life of the license agreement, pursuant to the
units-of-revenue method.
Revenues
from sales of products are recognized, net of estimated sales allowances and
rebates, when title passes to customers, which is at the time goods are
shipped, when there are no future performance obligations, when the purchase
price is fixed and determinable and collection is reasonably assured.
Stock-based
compensation costs
Since January 1,
2003, the Company accounts for all forms of employee stock-based compensation
using the fair value-based method.
The
fair value of stock options is determined on the date of grant using the
Black-Scholes option pricing model and stock-based compensation costs are
recognized over the vesting period of the options and credited to Other
Capital, and any consideration received by the Company on the exercise of stock
options is credited to Share Capital. Any Other Capital component of the
stock-based compensation is transferred to Share Capital upon the issuance of
shares.
Income taxes
The
Company follows the liability method of accounting for income taxes. Under this
method, future income tax assets and liabilities are determined based on the
temporary differences between the carrying amounts and tax bases of the assets
and liabilities. Future income tax assets and liabilities are measured using
substantively enacted and enacted tax rates expected to apply in the years in
which the differences are expected to reverse.
The
Company establishes a valuation allowance against future income tax assets if,
based on available information, it is more likely than not that some or all of
the future income tax assets will not be realized.
Research
and development costs
Research
costs are expensed as incurred. Development costs are expensed as incurred
except for those which meet generally accepted criteria for deferral, in which
case, the costs are capitalized and amortized to operations over the estimated
period of benefit. No costs have been deferred during any of the periods
presented.
133
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of Contents
Æterna Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Research and
development tax credits and grants
The
Company is entitled to scientific research and experimental development
(SR&ED) tax credits granted by the Canadian federal government
(Federal) and the government of the Province of Quebec (Provincial).
Federal SR&ED tax credits are earned on qualified Canadian SR&ED
expenditures at a rate of 20% and can only be used to offset Federal income
taxes otherwise payable. Refundable Provincial SR&ED tax credits are
generally earned on qualified salaries, subcontracting and university contract
expenses incurred in the Province of Quebec, at a rate of 17.5% of eligible
base amounts.
Additionally,
the Companys German subsidiary is entitled to research grants from the German
Federal Ministry of Education and Research.
Funding is earned on qualified projects, and corresponding expenses are
reimbursed at a rate of 50% of eligible base amounts.
Tax
credits and grants are accounted for using the cost reduction method.
Accordingly, tax credits and grants are recorded as a reduction of the related
expenses or capital expenditures in the period the expenses are incurred,
provided that the Company has reasonable assurance the credits or grants will
be realized.
Loss
per share
Basic
net loss per share is calculated using the weighted average number of common
shares outstanding during the year.
Diluted
net loss per share is calculated based on the weighted average number of common
shares outstanding during the year, plus the effects of dilutive common share
equivalents such as options and warrants. This method requires that diluted net
loss per share be calculated using the treasury stock method, as if all common
share equivalents had been exercised at the beginning of the reporting period,
or period of issuance, as the case may be, and that the funds obtained thereby
were used to purchase common shares of the Company at the average trading price
of the common shares during the period.
3
New accounting standards and
pronouncements
a)
Adopted in 2009
In February 2008, the CICA issued Handbook Section 3064,
Goodwill and Intangible Assets
. This
standard provides guidance on the recognition of intangible assets and the
criteria for asset recognition, clarifying the applications of the concept of
matching revenues and expenses, whether these assets are separately acquired or
are developed internally. The standard applies to the Companys interim and
annual financial statements for periods beginning on January 1, 2009.
Adoption of this standard has not had any impact on the Companys consolidated
financial statements.
In January 2009, the CICA issued Handbook Section 1582,
Business Combinations
, which replaces the existing
standards. This section establishes the standards for accounting for business
combinations and states that all assets and liabilities of an acquired business
will be recorded at fair value. Obligations for contingent considerations and
contingencies will also be recorded at fair value at the acquisition date. The
standard also states that acquisition-related costs will be expensed as
incurred and that restructuring charges will be expensed in the periods after
the acquisition date. The Company has early adopted this standard effective January 1,
2009 and will apply the provisions thereof prospectively to future business
combinations.
In January 2009, the CICA issued Handbook Section 1601,
Consolidated Financial Statements
, which replaces the
existing standards and establishes the standards for preparing consolidated
financial statements and is effective for 2011. The Company has early adopted
this standard effective January 1, 2009 and will apply the provisions
thereof prospectively, where applicable.
In January 2009, the CICA issued Handbook Section 1602,
Non-controlling Interests
, which establishes standards for
accounting for non-controlling interests of a subsidiary in the preparation of
consolidated financial statements subsequent
134
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Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
to a business combination. The Company has early adopted this standard
effective January 1, 2009 and has applied the provisions thereof
retrospectively, without any impact on the Companys consolidated financial
statements.
In January 2009, the CICAs Emerging Issue Committee (EIC)
issued Abstract EIC-173, Credit Risk and the Fair Value of Financial Assets and
Liabilities, which requires entities to take both counterparty credit
risk and their own credit risk into account when measuring the fair value of
financial assets and liabilities, including derivatives. The Company adopted
EIC-173 on January 1, 2009, and such adoption did not have a material
impact on the Companys consolidated financial statements.
In July 2009, the CICA amended Handbook Section 1506,
Accounting Changes
, to exclude from its scope changes in
accounting policies upon the complete replacement of an entitys primary basis
of accounting. The amendments apply to
interim and annual financial statements relating to years beginning on or after
July 1, 2009. The Company early adopted these amendments on July 1,
2009, and such adoption did not have any impact on the consolidated financial
statements.
In June 2009, the CICA amended Handbook Section 3862,
Financial InstrumentsDisclosures
(CICA
Handbook Section 3862), to include additional disclosure requirements
about fair value measurements of financial instruments and to enhance liquidity
risk disclosure requirements for publicly accountable enterprises. The amendments apply to annual financial
statements for years ending after September 30, 2009. The Company has
adopted these amendments, and there has been no significant impact on the
consolidated financial statements. Additional required disclosures have been
made where applicable.
b)
Not yet adopted
In
December 2009, the EIC issued abstract EIC-175, Multiple Deliverable
Revenue Arrangements (EIC-175), which requires a vendor to allocate
arrangement consideration at the inception of an arrangement to all
deliverables using the relative selling price method. EIC-175 also changes the
level of evidence of the standalone selling price required to separate
deliverables when more objective evidence of the selling price is not
available. Given the requirement to use the relative selling price method of
allocating arrangement consideration, EIC-175 prohibits the use of the residual
method. EIC-175 may be applied prospectively and is applicable to revenue
arrangements with multiple deliverables entered into or materially modified in
the first annual fiscal period beginning on or after January 1, 2011, with
early adoption permitted. The Company is currently evaluating the impact that
this guidance may have on its consolidated financial statements.
4
Development, commercialization
and license agreement
On
March 4, 2009, the Company entered into a development, commercialization
and license agreement (the Agreement) with sanofi. The Agreement was for the
development, registration and marketing of cetrorelix in BPH for the United
States market. Under the terms of the Agreement, sanofi made an upfront
nonrefundable license fee payment to the Company of $30,000,000. Also per the
Agreement, the Company would have been entitled to receive certain payments
upon achieving certain pre-established regulatory and commercial milestones as
well as escalating double-digit royalties on future net sales of cetrorelix for
BPH in the United States.
As
with similar prior arrangements, the Company applied the provisions of the
EICs Abstract No. 142, Revenue Arrangements with Multiple Deliverables,
and had determined that all deliverables and performance obligations
contemplated by the Agreement should be accounted for as a single unit of
accounting, limited to amounts that were not
contingent upon the delivery of additional items or the meeting of other
specified performance conditions which were not known, probable or estimable at
the time at which the Agreement was entered into.
On
December 18, 2009, and following the Companys announcement that its second
Phase 3 study with cetrorelix in BPH did not reach its primary endpoint, the
Company disclosed that it had received notice from sanofi to terminate the
Agreement. As a result, the Company fully recognized the aforementioned upfront
payment, as the culmination of the earnings process was deemed to be complete.
135
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
The
Agreement also stipulated that certain development expenses incurred by the
Company, including those costs associated with an open label extension study
and with the establishment of a supply arrangement, were reimbursable, up to
predetermined maximum amounts or limits, by sanofi. Total revenues were
recognized on a gross basis and as corresponding reimbursable costs were
incurred. During the year ended December 31, 2009, revenues recognized in
connection with the reimbursable development activities amounted to
approximately $2,135,000, and corresponding expenses totalled approximately
$2,814,000 for the same period.
As
a result of entering into the Agreement with sanofi, the Company paid a royalty
to the Tulane Educational Fund (Tulane) pursuant to a license agreement
whereby the Company obtained licenses to use Tulanes patents to develop,
manufacture, market and distribute various compounds, including cetrorelix.
This royalty, amounting to $3,000,000, was charged in full to selling expenses
during the year ended December 31, 2009 as a result of sanofis decision
to terminate the Agreement.
5
Sale of Cetrotide
®
royalty stream
In
June 2003, the Company amended certain provisions of a license and supply
agreement with ARES Trading S.A. (Merck Serono) in which the latter was
granted worldwide marketing, distribution and selling rights, except in Japan,
for Cetrotide
®
, a compound used for
in vitro
fertilization (referred to as the
License Agreement). Under the License
Agreement, Merck Serono agreed to pay certain lump-sum payments to the Company
each calendar year up to and including December 31, 2010 as well as
certain variable royalties through the expiry date of the Companys underlying
patent rights.
In November 2008, the Company entered into a
purchase and sale agreement (
PSA) with Cowen
Healthcare Royalty Partners L.P. (Cowen) relating to the Companys rights to royalties on
future sales of Cetrotide
®
covered by the License Agreement.
In connection with the PSA, which was effective for
royalty determination purposes on October 1, 2008 and finalized in December 2008,
the Company received $52,500,000 from Cowen, less certain transaction costs of
$1,000,000 that had been advanced by Cowen to certain third-party firms and
institutions on the Companys behalf, resulting in net proceeds of $51,500,000. Under the terms of the PSA, the Company is
entitled to an additional payment of $2,500,000 contingent on 2010 net sales of
Cetrotide
®
reaching a specified level.
Per the PSA, if cetrorelix, the active compound in
Cetrotide
®
, is approved for sale by European regulatory authorities in an
indication other than
in vitro
fertilization, the Company has agreed to make a one-time cash payment to Cowen
in an amount ranging from $5,000,000 up to a maximum of $15,000,000. The amount which may be due to Cowen will be
higher in proportion to the timing of the products receiving European
regulatory approval; that is, the earlier the product receives regulatory
approval, the higher the amount payable to Cowen will be. No payment was made
or became payable during 2009.
Also per the PSA, for each calendar quarter in
which a royalty rate reductiondefined as the actual reduction by Merck Serono,
for any calendar quarter(s), of the rate applied in calculating variable
royalties under the License Agreement, to amounts less than pre-established percentageshas
occurred or is continuing, the Company will pay Cowen a quarterly make-whole
payment in an amount equal to the lesser of (i) the variable royalties in
respect of such quarter that would have been received by Cowen if the
aforementioned royalty rate reduction had not occurred or been continuing, and (ii) the
difference of $15,000,000 less Cowens net reduction payments, as defined. No
make-whole payments were paid or became payable during 2009.
Pursuant to the aforementioned transactions, the
Company has certain obligations in the royalty arrangement, including the
supply of Cetrotide
®
to
Merck Serono, the payment of royalties to a third party under the License
Agreement, overseeing Merck-Seronos compliance with the License Agreement,
cooperation in handling any adverse claims or litigation involving the License
Agreement and monitoring and defending any patent or trademark infringement.
136
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Æterna Zentaris Inc.
Notes
to Consolidated Financial Statements
December
31, 2009, 2008 and 2007
(tabular
amounts in thousands of US dollars, except share/option/warrant and per
share/option/warrant data and as otherwise noted)
The Company has recorded the proceeds, as per the
provisions of guidance now codified as the United States Financial Accounting
Standards Boards (FASB)
Accounting Standards
Codification
(ASC)
Topic 470
, Debt
, as deferred revenues, which are recognizable as
royalty revenues over the life of the License Agreement under the
units-of-revenue method. Under that method, periodic royalty revenues are calculated by
multiplying the ratio of the remaining deferred revenue amount to the total
estimated remaining royalties that Merck Serono is expected to pay to Cowen
over the term of the underlying arrangement by the royalty payments due to
Cowen for the period.
The Company has recognized and will continue to
recognize royalty expenses in each period based on the transaction costs, which
have been capitalized as deferred charges in the accompanying balance sheets
(see note 12), in the same manner and over the same period in which the related
deferred revenues are recognized as royalty revenues.
During the years ended December 31, 2009 and
2008, the Company recorded approximately $5,686,000 and $1,355,000,
respectively as royalty revenues. During the years ended December 31, 2009
and 2008, the Company recorded $522,000 and $124,000, respectively, as royalty
expense, which is included in selling, general and administrative expenses in
the accompanying consolidated statements of operations.
6
Distribution
of the remaining interest in Atrium Biotechnologies Inc.
On October 18, 2006, the Company closed a Secondary Offering in
connection with its divestiture of Atrium Biotechnologies Inc., now Atrium
Innovation Inc. (Atrium), and on December 15, 2006, the Companys
shareholders approved a reduction in the stated capital of the Company in an
amount equal to the fair market value of its remaining interest in Atrium for
the purpose of effecting a special distribution in kind of all subordinate
voting shares of Atrium held by the Company.
On January 2, 2007, the Companys shareholders received
approximately 0.2079 of an Atrium subordinate voting share for each one of
their common shares. This special distribution was accounted for as a
nonreciprocal transfer to shareholders measured at the carrying value of the
investment in Atrium on that date. As the special distribution was considered
as a taxable transaction for the Company and treated as a reduction of the
stated capital for tax purposes, the share capital of the Company was reduced
by the fair value of the Atrium shares distributed of $137,959,000, the
long-term investment in Atrium of $57,128,000 was removed from the balance
sheet, and the difference, taking into account the related income taxes of
$15,333,000 and cumulative translation adjustment of $5,624,000, was recorded
as Other Capital in the amount of $71,122,000.
7
Disposal
of Echelon Biosciences Inc.
On
November 30, 2007, the Company sold all issued and outstanding shares of
Echelon Biosciences Inc. (Echelon) to Frontier Scientific, Inc. for an
upfront payment of $2,600,000 and $600,000 of contingent consideration. From
that date, Echelon was excluded from the consolidation, and all historical
operations and cash flows recorded through the consolidation of Echelon until
that date have been reported as discontinued operations. The contingent
consideration was based on Echelon achieving specific sales levels in 2008 and
2009, though no contingent consideration is payable relative to either of those
years.
137
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
For the
year ended December 31, 2007, consolidated revenues and expenses of
Echelon have been reclassified from continuing operations to discontinued
operations, as follows:
|
|
$
|
|
Revenues
|
|
2,358
|
|
Net loss before the following
items
|
|
(206
|
)
|
|
|
|
|
Goodwill impairment
|
|
(500
|
)
|
Loss on disposal of Echelon shares, net of
cumulative translation adjustment
|
|
(44
|
)
|
Income tax recovery
|
|
491
|
|
Net loss from discontinued
operations
|
|
(259
|
)
|
8
Long-lived
assets held for sale
In September 2007, as part of its non-dilutive financing strategy
using non-core assets, the Company decided to dispose of its building and land
located in Quebec City, as well as certain equipment and its rights to
intangible property, Impavido
®
(miltefosine).
In December 2007, management evaluated the net realizable value of
the Quebec City building and land based on certain preliminary offers received
from third parties. That evaluation resulted in the determination that the
assets held for sale were impaired, and, accordingly, the Company recorded an
impairment charge of $735,000 against the assets held for sale.
On March 1,
2008, the Company entered into a definitive purchase and sale agreement with
respect to all rights related to the manufacture, production, distribution,
marketing, sale and/or use of Impavido
®
(miltefosine)
with Paladin Labs Inc., for an aggregate purchase price of approximately
$9,200,000, payable in cash, subject to certain post-closing purchase price
adjustments. The transaction, which closed on March 31, 2008, generated
net cash proceeds of $8,309,000, resulting in a gain of $775,000.
On June 26, 2008, the Company sold the Quebec City building and
land for a gross amount of $7,061,000, payable in cash. The net proceeds
received amounted to $6,545,000, resulting in an additional loss on sale of
$810,000.
In connection with the sale of the Quebec City building and land, the
Company entered into a long-term lease agreement with the principal tenant of
the building. As part of the agreement,
the Company agreed to pay the principal tenant CAN$300,000 (approximately
$285,000) as an incentive and service fee.
This fee is included in the additional loss on sale, and the resulting
payable is non interest-bearing and is due in bi-annual instalments of
CAN$30,000 (approximately $28,500) through January 2013.
9
Inventory
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Raw materials
|
|
2,998
|
|
2,367
|
|
Work in progress
|
|
1,417
|
|
682
|
|
Finished goods
|
|
|
|
336
|
|
|
|
4,415
|
|
3,385
|
|
138
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
For
the years ended December 31, 2009, 2008 and 2007, cost of sales, as
presented in the accompanying consolidated statements of operations, represents
almost exclusively the amount of inventory recognized as an expense during the
year.
In
December 2008, the Company wrote down certain inventory items, consisting
predominantly of raw materials, to their estimated net realizable values. The
adjustment, which amounted to approximately $726,000, was recorded as an
additional cost of sales in the accompanying consolidated statement of
operations.
10
Restricted cash
In
July 2009, following a mutual agreement between landlord and tenant, in
replacement of a related bank guarantee, the Company transferred approximately
$866,000 to a restricted cash account in support of its long-term lease
obligation in Germany (see also note 24). The fixed amount, including
any interest earned thereon, is restricted for as long as the underlying lease
arrangement has not expired and therefore cannot be utilized for current
purposes as at December 31, 2009.
11
Property,
plant and equipment
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Cost
|
|
Accumulated
depreciation
|
|
Cost
|
|
Accumulated
depreciation
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
9,941
|
|
6,831
|
|
9,384
|
|
4,737
|
|
Furniture and fixtures
|
|
1,653
|
|
1,382
|
|
1,394
|
|
410
|
|
Computer equipment
|
|
1,851
|
|
1,678
|
|
1,071
|
|
874
|
|
Leasehold improvements
|
|
1,232
|
|
428
|
|
1,139
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,677
|
|
10,319
|
|
12,988
|
|
6,306
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
10,319
|
|
|
|
6,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount
|
|
4,358
|
|
|
|
6,682
|
|
|
|
Following
the Companys announcement that its second Phase 3 study with cetrorelix in BPH
did not reach its primary endpoint and the subsequent termination of the
Agreement with sanofi, as discussed in note 4, the Company determined that
certain items of property, plant and equipment, utilized exclusively in the
development activities related to cetrorelix, were no longer recoverable. As a
result, an impairment charge, which was determined by applying a present value
model, representing the full remaining carrying value of these assets, as
summarized below, was recorded as additional depreciation expense in December 2009
in the accompanying consolidated statement of operations.
|
|
$
|
|
Equipment
|
|
1,044
|
|
Furniture and fixtures
|
|
900
|
|
Total impairment charge
|
|
1,944
|
|
139
Table
of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
12
Deferred
charges and other long-term assets
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Royalty sale transaction expenses (note 5)
|
|
4,205
|
|
4,655
|
|
Deferred charges
|
|
|
|
929
|
|
Other
|
|
528
|
|
375
|
|
|
|
4,733
|
|
5,959
|
|
Included
in the above deferred charges as at December 31, 2008 is $680,111 of costs
related to the filing of a shelf prospectus. These charges were subsequently
reclassified as a reduction of share capital and warrants in connection with the
First Offering, as defined and discussed in note 17.
13
Intangible
assets
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Cost
|
|
Accumulated
amortization
|
|
Cost
|
|
Accumulated
amortization
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
In-process research and development, patents and
trademarks
|
|
41,715
|
|
24,681
|
|
42,146
|
|
18,391
|
|
Technology and other
|
|
|
|
|
|
767
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,715
|
|
24,681
|
|
42,913
|
|
19,019
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
24,681
|
|
|
|
19,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount
|
|
17,034
|
|
|
|
23,894
|
|
|
|
Following
the Companys announcement that its second Phase 3 study with cetrorelix in BPH
did not reach its primary endpoint and the subsequent termination of the
Agreement with sanofi, as discussed in note 4, the Company determined that the
carrying value of cetrorelix was no longer recoverable. As a result, an
impairment charge, representing the full remaining carrying value of the
intangible asset, or approximately $3,854,000, was recorded as additional
amortization expense in December 2009 in the accompanying consolidated
statement of operations.
Management
also determined that ozarelixanother luteinizing hormone-releasing (LHRH)
antagonist that, despite its different formulation, works on the same mechanism
of action as cetrorelixwas impaired. Additionally, on January 27, 2010,
Spectrum Pharmaceuticals, Inc. (Spectrum), to whom the Company had
granted an exclusive license to develop and commercialize ozarelix for all
potential indications in North America and India, announced that it had
terminated its development program with ozarelix in BPH. Consequently, an
impairment loss of approximately $1,422,000 was recorded as part of
amortization expense, and all corresponding unamortized deferred revenues
related to the use of ozarelix, totalling approximately $1,606,000, were fully
recognized in the 2009 consolidated statement of operations.
In June 2008,
Ardana Bioscience Ltd. (Ardana), to whom the Company had
granted an exclusive license for the development and commercialization of
teverelix, an LHRH antagonist, communicated that
it was entering into voluntary administration, and, consequently, clinical
studies and future development efforts were suspended. The Company subsequently
terminated the aforementioned agreement, upon which the cash recoverability of
teverelix exclusively had depended. Given these facts, the Company determined that teverelix was
impaired, and consequently, an impairment
140
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial
Statements
December 31, 2009, 2008 and
2007
(tabular amounts in thousands
of US dollars, except share/option/warrant and per share/option/warrant data
and as otherwise noted)
charge
to amortize the full remaining carrying value of the intangible asset, or
approximately $2,362,000, was recorded as additional amortization expense in
the 2008 consolidated statement of operations, and the asset was written off.
Additionally, the remaining balance of deferred revenues related to the use of
teverelix, amounting to approximately $1,047,000, was fully recognized in the
2008 consolidated statement of operations.
Amortization
expense for intangible assets in each of the next four fiscal years, excluding
any impairment charges, is expected to amount to approximately $1,694,000 and
to approximately $1,357,000 in 2014.
14
Goodwill
The
change in the carrying value is as follows:
|
|
$
|
|
|
|
|
|
Balance as at December 31,
2007
|
|
10,492
|
|
|
|
|
|
Impact of foreign exchange rate changes
|
|
(409
|
)
|
|
|
|
|
Balance as at December 31,
2008
|
|
10,083
|
|
|
|
|
|
Impact of foreign exchange rate changes
|
|
163
|
|
|
|
|
|
Balance as at December 31,
2009
|
|
10,246
|
|
15
Accounts
payable and accrued liabilities
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Trade payables
|
|
8,152
|
|
10,256
|
|
Salaries and employee benefits
|
|
587
|
|
899
|
|
Other accrued liabilities
|
|
3,180
|
|
2,535
|
|
|
|
11,919
|
|
13,690
|
|
16
Employee
future benefits
The
Companys subsidiary in Germany provides unfunded defined benefit pension plans
and unfunded postemployment benefit plans for some groups of employees.
Provisions for pension obligations are established for benefits payable in the
form of retirement, disability and surviving dependent pensions.
141
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except share/option/warrant
and per share/option/warrant data and as otherwise noted)
The
following table provides a reconciliation of the changes in the plans accrued
benefit obligations:
|
|
Pension benefit plans
|
|
Other benefit plans
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
Beginning of year
|
|
9,177
|
|
8,390
|
|
7,547
|
|
915
|
|
794
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
service cost
|
|
205
|
|
216
|
|
352
|
|
51
|
|
47
|
|
29
|
|
Interest
cost
|
|
507
|
|
473
|
|
269
|
|
50
|
|
44
|
|
52
|
|
Actuarial
loss (gain)
|
|
773
|
|
544
|
|
(490
|
)
|
(19
|
)
|
230
|
|
104
|
|
Benefits
paid
|
|
(102
|
)
|
(89
|
)
|
(70
|
)
|
(140
|
)
|
(163
|
)
|
(81
|
)
|
Effect
of foreign currency exchange rate changes
|
|
208
|
|
(357
|
)
|
782
|
|
15
|
|
(37
|
)
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation
End of year
|
|
10,768
|
|
9,177
|
|
8,390
|
|
872
|
|
915
|
|
794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
recognized
|
|
1,485
|
|
1,233
|
|
131
|
|
82
|
|
321
|
|
185
|
|
The significant actuarial
assumptions adopted to determine the Companys accrued benefit obligations are
as follows:
|
|
Pension benefit plans
|
|
Other benefit plans
|
|
Actuarial
assumptions
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate for expenses
|
|
5.30
|
|
5.60
|
|
4.50
|
|
5.30
|
|
5.60
|
|
4.50
|
|
Discount
rate for liabilities
|
|
5.30
|
|
5.60
|
|
5.70
|
|
5.30
|
|
5.60
|
|
5.70
|
|
Pension
benefits increase
|
|
2.00
|
|
2.00
|
|
2.00
|
|
2.00
|
|
2.00
|
|
2.00
|
|
Rate
of compensation increase
|
|
2.75
|
|
2.75 to 3.75
|
|
2.75 to 3.75
|
|
2.75
|
|
2.75
|
|
2.75
|
|
The
last actuarial reports give effect to the pension and postemployment benefit
obligations as at December 31, 2009. The next actuarial reports are
planned for December 2010.
In
accordance with the assumptions used as at December 31, 2009, the future
benefits expected to be paid can be presented as follows:
|
|
$
|
|
2010
|
|
327
|
|
2011
|
|
368
|
|
2012
|
|
505
|
|
2013
|
|
532
|
|
2014
|
|
538
|
|
2015 through 2019
|
|
3,161
|
|
|
|
5,431
|
|
Cash
required in the next year to fund the plans will approximate the amount of
expected benefits.
142
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Defined
contribution plans
Total expenses for the
Companys defined contribution plan in its German subsidiary amounted to
approximately $334,400 for the year ended December 31, 2009 ($344,237 for
2008 and $285,824 in 2007).
The
Company sponsors a matching defined benefit plan in its Canadian headquarters.
Under this plan, the Company may contribute amounts equal to a percentage of
employee contributions to the plan. During the years ended December 31,
2009 and 2008, matching contributions to the plan totalled $59,039 and $67,184,
respectively. For the year ended December 31, 2007, the Company did not
record any contributions.
The
Company also sponsors a 401(k) plan in its US subsidiary. Under this plan,
the Company may contribute a discretionary amount equal to a percentage of
employee contributions to the plan and may also make discretionary profit
sharing contributions. During the years ended December 31, 2009 and 2008,
matching contributions to the plan amounted to $42,128 and $69,155,
respectively. During the year ended December 31, 2007, the Company did not
record any contributions.
17 Share capital
The Company has
authorized an unlimited number of common, voting (one vote per share) and
participating shares with no par value, as well as an unlimited number of
preferred, first and second ranking shares, issuable in series, with rights and
privileges specific to each class.
Common shares issued in connection with registered direct offerings
On
June 23, 2009, the Company completed a registered direct offering of
5,319,149 units, with each unit consisting of one common share and a
warrant to purchase 0.35 of a common share at a price of $1.88 per unit
(the First Offering). The related warrants represent the right to acquire an
aggregate of 1,861,702 common shares, as discussed below. The Company also
granted warrants to the sole placement agent engaged in connection with the
First Offering, as discussed below.
Total
proceeds raised through the First Offering amounted to $10,000,000, less cash
and non-cash transaction costs of $1,554,000. The purchasers in this offering
were comprised of institutional investors, and the securities described above
were offered by the Company pursuant to a shelf prospectus dated September 27,
2007 and a prospectus supplement dated June 18, 2009.
The
Company granted a total of 5,319,149 warrants (the First Investor Warrants)
to the institutional investors who participated in the First Offering. Each
First Investor Warrant entitles the holder to purchase 0.35 of a common share
at an exercise price of $2.06 per share. The First Investor Warrants are
exercisable between September 23, 2009 and December 23, 2011, and,
upon complete exercise, would result in the issuance of an aggregate of
1,861,702 common shares of the Company.
The Company
estimated the fair value attributable to the First Investor Warrants of
$1,620,998 as of the date of grant by applying the Black-Scholes pricing model,
to which the following additional assumptions were applied: a risk-free annual interest rate of 1.74%,
expected volatility of 90.6%, an expected term of 2.5 years, dividend
yield of 0.0% and an issue-date market share price of $1.75. Transaction costs
allocated to the First Investor Warrants amounted to approximately $247,000.
The
First
Investor
Warrants may be exercised
, at the option of the holder, by cash payment of the exercise price
or, upon the existence of certain conditions, by cashless exercise, which
means that in lieu of paying the aggregate exercise price for the shares being
purchased upon exercise of the warrants in cash, the holder would receive the
number of shares underlying the warrants equal to the quotient obtained by
applying a formula, as defined by the terms of each First Investor Warrant. The
Company will not receive additional proceeds to the extent that warrants are
exercised by cashless exercise.
143
Table of Contents
Æterna Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except share/option/warrant
and per share/option/warrant data and as otherwise noted)
The exercise price and
number of common shares issuable on exercise of the First Investor Warrants may
be adjusted in certain circumstances, including stock dividends or splits,
subsequent rights offerings, pro-rata distributions and pursuant to
transactions involving the merger or consolidation of the Company with another
entity or other Fundamental Transaction, as defined in the warrant.
Additionally, and
notwithstanding anything to the contrary, in the event of any type of
Fundamental Transaction, as defined in the warrant, the Company or any
successor entity shall, at the Companys option, have the right to require the
holders thereof to exercise the First Investor Warrants, or, at the holders
option, purchase the First Investor Warrants from the holders by paying the
holders an amount of cash equivalent to the Black-Scholes value, as defined, of
the remaining unexercised portion of the Investor warrant on the date of the
consummation of an aforementioned Fundamental Transaction.
The Company
granted a total of 820,668 warrants (the First Compensation Warrants) to the
sole placement agent and its designated representatives engaged in connection
with the First Offering. Each First
Compensation Warrant entitles the holder to purchase 0.35 of a common share at
an exercise price of $2.35 per share.
The First Compensation Warrants are exercisable between December 23,
2009 and December 23, 2011, and, upon complete exercise, would result in
the issuance of 287,234 common shares of the Company.
The Company
estimated the fair value attributable to the First Compensation Warrants of
$234,251 as of the date of grant by applying the Black-Scholes pricing model,
to which the following additional assumptions were applied: a risk-free annual interest rate of 1.74%,
expected volatility of 90.6%, an expected term of 2.5 years, an expected
dividend yield of 0.0% and an issue-date market share price of $1.75. The initial fair value of the First
Compensation Warrants has been accounted for as additional transaction costs,
since the instruments were granted to the sole placement agent as part of the
terms of the underlying engagement and in recognition of the efforts made in
connection with the First Offering.
The terms of the
First Compensation Warrants, with the exception of the exercise price and
period of exercise, are substantially the same as those contained in the First
Investor Warrants discussed above.
On October 23, 2009,
the Company completed a second registered direct offering of
4,583,335 units, with each unit consisting of one common share and a
warrant to purchase 0.40 of a common share, at a price of $1.20 per unit
(the Second Offering). The related warrants represent the right to acquire an
aggregate of 1,833,334 common shares, as discussed below. The Company also
granted warrants to the sole placement agent engaged in connection with the
Second Offering, as discussed below.
Total proceeds raised
through the Second Offering amounted to $5,500,002, less cash transaction costs
of approximately $410,000. The purchasers in this offering were new and
existing institutional investors, and the securities described above were
offered by the Company pursuant to a shelf prospectus dated September 27,
2007 and a prospectus supplement dated October 19, 2009.
The Company granted a
total of 4,583,335 warrants (the Second Investor Warrants) to the
institutional investors who participated in the Second Offering. Each Second Investor Warrant entitles the
holder to purchase 0.40 of a common share at an exercise price of $1.25 per
share. The Second Investor Warrants are
exercisable between October 23, 2009 and October 23, 2014, and, upon
complete exercise, would result in the issuance of an aggregate of 1,833,334
common shares.
The Company estimated the
fair value attributable to the Second Investor Warrants of $1,302,259 as of the
date of grant by applying the Black-Scholes pricing model, to which the
following additional assumptions were applied:
a risk-free annual interest rate of 2.46%, expected volatility of 84.3%,
an expected term of 5 years, dividend yield of 0.0% and an issue-date
market share price of $1.09. Transaction
costs allocated to the Second Investor Warrants amounted to approximately
$97,000.
144
Table of Contents
Æterna Zentaris
Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
The Second Investor Warrants may be exercised
, at the option of the holder, by cash payment of the
exercise price or, upon the existence of certain conditions, by cashless
exercise, as defined and discussed above. The Company will not receive
additional proceeds to the extent that warrants are exercised by cashless
exercise.
The exercise price and
number of common shares issuable on exercise of the Second Investor Warrants
may be adjusted in certain circumstances, including stock dividends or splits,
subsequent rights offerings, pro-rata distributions and pursuant to
transactions involving the merger or consolidation of the Company with another
entity or other Fundamental Transaction, as defined in the warrant.
Additionally, and
notwithstanding anything to the contrary, in the event of any type of
Fundamental Transaction, as defined in the warrant, the Company or any
successor entity shall, at the Companys option, have the right to require the
holders thereof to exercise their Second Investor Warrants, or, at the holders
option, purchase the Second Investor Warrants from the holders by paying the
holders an amount of cash equivalent to the Black-Scholes value, as defined, of
the remaining unexercised portion of the Second Investor Warrant on the date of
the consummation of an aforementioned Fundamental Transaction.
The Company granted a
total of 320,832 warrants (the Second Compensation Warrants) to the sole
placement agent engaged in connection with the Second Offering. Each Second Compensation Warrant entitles the
holder to purchase 0.40 of a common share at an exercise price of $1.50 per
share. The Second Compensation Warrants
are exercisable between April 23, 2010 and October 23, 2012, and,
upon complete exercise, would result in the issuance of 128,333 common shares.
The Company estimated the
fair value attributable to the Second Compensation Warrants of $86,653 as of
the date of grant by applying the Black-Scholes pricing model, to which the
following additional assumptions were applied:
a risk-free annual interest rate of 1.57%, expected volatility of
103.4%, an expected term of 3 years, dividend yield of 0.0% and an
issue-date market share price of $1.09.
The initial fair value of the Second Compensation Warrants has been
accounted for as additional transaction costs, since the instruments were
granted to the sole placement agent as part of the terms of the underlying
engagement and in recognition of the efforts made in connection with the Second
Offering.
The terms of the Second
Compensation Warrants, with the exception of the exercise price and period of
exercise, are substantially the same as those contained in the Second Investor
warrants discussed above.
The Black-Scholes pricing
model referred to above uses Level 2 inputs in calculating fair value, as
defined by CICA Handbook Section 3862, which establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurement) and the lowest priority
to unobservable inputs (Level 3 measurement). Level 2 inputs are those which
are either directly or indirectly observable as of the reporting date and
include financial instruments that are valued using models or other valuation methodologies,
such as the Black-Scholes pricing model.
145
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Share
purchase warrants
Information
that summarizes the activity related to the Companys share purchase warrants
for the year ended December 31, 2009 is provided below.
|
|
Number
|
|
Weighted average
exercise price
(US$)
|
|
|
|
|
|
|
|
Balance
Beginning of year
|
|
|
|
|
|
Granted
|
|
4,110,603
|
|
1.70
|
|
Balance
End of year
|
|
4,110,603
|
|
1.70
|
|
|
|
|
|
|
|
Share
purchase warrants exercisable End of year
|
|
3,982,270
|
|
1.71
|
|
The following tables
summarize the share purchase warrants outstanding and exercisable as at December 31,
2009:
|
|
Warrants outstanding
|
|
Exercise
price
(US$)
|
|
Number
|
|
Weighted average
remaining contractual
life (years)
|
|
Weighted average
exercise price
(US$)
|
|
Global
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
1.25
|
|
1,833,334
|
|
4.81
|
|
1.25
|
|
|
|
1.50
|
|
128,333
|
|
2.81
|
|
1.50
|
|
|
|
2.06
|
|
1,861,702
|
|
1.98
|
|
2.06
|
|
|
|
2.35
|
|
287,234
|
|
1.98
|
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,110,603
|
|
3.27
|
|
1.70
|
|
|
|
|
|
Warrants currently exercisable
|
|
Exercise
price
(US$)
|
|
Number
|
|
Weighted average
remaining contractual
life (years)
|
|
Weighted average
exercise price
(US$)
|
|
Global
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
1.25
|
|
1,833,334
|
|
4.81
|
|
1.25
|
|
|
|
1.50
|
|
|
|
|
|
|
|
|
|
2.06
|
|
1,861,702
|
|
1.98
|
|
2.06
|
|
|
|
2.35
|
|
287,234
|
|
1.98
|
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,982,270
|
|
3.28
|
|
1.71
|
|
|
|
Shareholder rights plan
On March 29,
2004, the Company adopted a shareholder rights plan (the Rights Plan). The
continuation of the Rights Plan and its amendments and restatements were
approved by the Board of Directors on March 5, 2007 and ratified on May 2,
2007 by the Companys shareholders. The rights issued to the shareholders under
the Rights Plan will be exercisable, under certain conditions, only when a
person or entity, including related parties, acquires or announces his/her or
its intention to acquire more than twenty (20) percent of the outstanding
common shares of the Company (as
146
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except share/option/warrant
and per share/option/warrant data and as otherwise noted)
such
shares may be redesignated or reclassified) without complying with the permitted
bid provisions of the Rights Plan or without approval of the Companys Board
of Directors. Should such an acquisition occur, each right would, upon
exercise, entitle a holder, other than the person pursuing the acquisition
together with any related parties, to purchase common shares of the Company at
a fifty (50) percent discount to the market price of the Companys shares at
that time.
Stock option plan
In
December 1995, the Companys Board of Directors adopted a stock option
plan (the Stock Option Plan) for its directors, senior executives, employees
and other collaborators who provide services to the Company. The total number
of common shares that may be issued under the Stock Option Plan cannot exceed
11.4% of the total number of issued and outstanding common shares at any given
time.
In
December 2009, 1,448,422 options were granted in Canadian dollars, and no
options were granted in US dollars. Options granted under the Stock Option Plan
expire after a maximum period of ten years following the date of grant. Options
granted under the Stock Option Plan generally vest over a three-year period.
However, most of the options granted in December 2009 vest over a period
of 18 months.
Information
that summarizes the activity under the Stock Option Plan is provided below.
Canadian
dollar denominated awards
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Number
|
|
Weighted
average
exercise
price
(CAN$)
|
|
Number
|
|
Weighted
average
exercise
price
(CAN$)
|
|
Number
|
|
Weighted
average
exercise
price
(CAN$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Beginning of year (*)
|
|
4,490,759
|
|
3.28
|
|
4,136,092
|
|
3.83
|
|
3,490,092
|
|
4.00
|
|
Granted
|
|
1,448,422
|
|
0.95
|
|
735,000
|
|
0.59
|
|
815,000
|
|
3.24
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
(18,000
|
)
|
1.96
|
|
Forfeited
|
|
(15,000
|
)
|
0.55
|
|
(165,000
|
)
|
3.41
|
|
(151,000
|
)
|
4.93
|
|
Expired
|
|
(3,593
|
)
|
1.73
|
|
(215,333
|
)
|
4.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
End of year
|
|
5,920,588
|
|
2.72
|
|
4,490,759
|
|
3.28
|
|
4,136,092
|
|
3.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable End of year
|
|
3,898,844
|
|
3.66
|
|
3,462,441
|
|
3.91
|
|
3,300,593
|
|
4.02
|
|
(*)
Following the one-time
distribution of the Companys remaining interest in Atrium on January 2,
2007 (see note 6), as contemplated under the Stock Option Plan, the Companys
Board of Directors approved an equitable adjustment to all unexercised options
outstanding. The adjustment was a reduction in the exercise price of all
outstanding stock options of CAN$2.02 per common share. Furthermore, in 2007 the Board of Directors
approved the extension of the option period from one month to three years with
respect to 875,000 options in connection with the departure of certain members
of executive management.
The total intrinsic value
for stock options exercised in 2007 was CAN$24,040. There is no tax benefit
realized by the Company, since the compensation cost related to stock options
is not deductible for income tax purposes.
147
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
The
following tables summarize the stock options outstanding and exercisable as at December 31,
2009:
|
|
Options outstanding
|
|
Exercise
price
(CAN$)
|
|
Number
|
|
Weighted average remaining
contractual life (years)
|
|
Weighted average
exercise price
(CAN$)
|
|
Global
intrinsic
value
(CAN$)
|
|
|
|
|
|
|
|
|
|
|
|
0.55
to 1.72
|
|
2,168,422
|
|
9.59
|
|
0.83
|
|
184
|
|
1.73
to 1.82
|
|
1,014,500
|
|
5.05
|
|
1.77
|
|
|
|
1.83
to 3.54
|
|
863,500
|
|
4.24
|
|
3.22
|
|
|
|
3.55
to 4.92
|
|
790,333
|
|
4.04
|
|
4.09
|
|
|
|
4.93
to 8.88
|
|
1,083,833
|
|
3.77
|
|
5.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,920,588
|
|
6.23
|
|
2.72
|
|
184
|
|
|
|
Options currently exercisable
|
|
Exercise
price
(CAN$)
|
|
Number
|
|
Weighted average
remaining
contractual life (years)
|
|
Weighted average
exercise price
(CAN$)
|
|
Global
intrinsic
value
(CAN$)
|
|
|
|
|
|
|
|
|
|
|
|
0.55
to 1.72
|
|
240,008
|
|
8.90
|
|
0.59
|
|
61
|
|
1.73
to 1.82
|
|
921,170
|
|
4.76
|
|
1.76
|
|
|
|
1.83
to 3.54
|
|
863,500
|
|
4.24
|
|
3.22
|
|
|
|
3.55
to 4.92
|
|
790,333
|
|
4.04
|
|
4.09
|
|
|
|
4.93
to 8.88
|
|
1,083,833
|
|
3.77
|
|
5.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,898,844
|
|
4.48
|
|
3.66
|
|
61
|
|
US dollar
denominated awards
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
Number
|
|
Weighted
average
exercise
price
(US$)
|
|
Number
|
|
Weighted
average
exercise
price
(US$)
|
|
Number
|
|
Weighted
average
exercise
price
(US$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Beginning of year
|
|
313,334
|
|
2.76
|
|
870,000
|
|
2.79
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
870,000
|
|
2.79
|
|
Forfeited
|
|
(20,000
|
)
|
1.78
|
|
(556,666
|
)
|
2.80
|
|
|
|
|
|
Balance
End of year
|
|
293,334
|
|
2.83
|
|
313,334
|
|
2.76
|
|
870,000
|
|
2.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable End of year
|
|
233,336
|
|
2.93
|
|
176,669
|
|
3.08
|
|
|
|
|
|
148
Table of
Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except share/option/warrant
and per share/option/warrant data and as otherwise noted)
|
|
Options outstanding
|
|
Exercise
price
(US$)
|
|
Number
|
|
Weighted average
remaining contractual
life (years)
|
|
Weighted average
exercise price
(US$)
|
|
Global
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
1.82
to 1.87
|
|
115,000
|
|
7.94
|
|
1.82
|
|
|
|
1.88
to 3.96
|
|
178,334
|
|
7.33
|
|
3.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
293,334
|
|
7.57
|
|
2.83
|
|
|
|
|
|
Options currently exercisable
|
|
Exercise
price
(US$)
|
|
Number
|
|
Weighted average
remaining contractual
life (years)
|
|
Weighted average
exercise price
(US$)
|
|
Global
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
1.82
to 1.87
|
|
78,335
|
|
7.94
|
|
1.82
|
|
|
|
1.88
to 3.96
|
|
155,001
|
|
7.31
|
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,336
|
|
7.52
|
|
2.93
|
|
|
|
As at December 31, 2009, the total
compensation cost related to unvested stock options not yet recognized amounted
to $853,924 ($347,390 in 2008). This amount is expected to be recognized over a
weighted average period of 1.44 years (1.56 years in 2008).
The Company settles stock options exercised through
the issuance of common shares from treasury.
The factors considered in developing the
assumptions used in the Black-Scholes option pricing model are the following:
a)
The risk-free interest rate is based on Canadian Government Bond
constant maturity interest rate whose term is consistent with the expected life
of the stock options.
b)
The historical volatility of the Companys stock price as well as future
expectations are used to establish the expected stock price volatility.
c)
The Company estimates the expected life of stock options based upon
employees historical data related to the exercise of stock options and
post-vesting employment terminations.
149
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Assumptions
used in determining stock-based compensation costs
The
table below shows the assumptions used in determining stock-based compensation
costs under the Black-Scholes option pricing model:
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Expected
dividend yield
|
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
Expected
volatility
|
|
130.9
|
%
|
60.0
|
%
|
57.2
|
%
|
Risk-free
annual interest rate
|
|
1.2
|
%
|
1.98
|
%
|
3.88
|
%
|
Expected
life (years)
|
|
1.50
|
|
3.04
|
|
4.62
|
|
Weighted
average grant date
fair value
|
|
CAN$0.55
|
|
CAN$0.25
|
|
US$1.93 and
CAN$2.25
|
|
The Black-Scholes pricing
model referred above uses Level 2 inputs in calculating fair value, as
defined by CICA Handbook Section 1862, except for options granted in 2009,
to which the Company estimated the expected life using a Level 3 input.
18 Supplemental disclosure of cash flow
information
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
1,098
|
|
4,353
|
|
1,371
|
|
Inventory
|
|
(864
|
)
|
1,171
|
|
148
|
|
Prepaid
expenses and other current assets
|
|
(14,478
|
)
|
(10,234
|
)
|
(9,340
|
)
|
Deferred
charges and other long-term assets
|
|
(472
|
)
|
(4,689
|
)
|
|
|
Accounts
payable and accrued liabilities
|
|
(1,969
|
)
|
(1,089
|
)
|
5,340
|
|
Other
long-term liability
|
|
66
|
|
|
|
|
|
Income
taxes
|
|
123
|
|
775
|
|
(1,250
|
)
|
Deferred
revenues
|
|
|
|
58,058
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
(16,496
|
)
|
48,345
|
|
(3,087
|
)
|
150
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
19 Income taxes
The
reconciliation of the combined Canadian federal and Quebec provincial income
tax rate to the income tax (expense) recovery from continuing operations is as
follows:
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Combined
federal and provincial statutory income tax rate
|
|
30.90
|
%
|
30.90
|
%
|
32.02
|
%
|
|
|
|
|
$
|
|
$
|
|
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
Income
tax recovery based on statutory income tax rate
|
|
7,640
|
|
18,120
|
|
10,886
|
|
Change
in valuation allowance
|
|
(9,959
|
)
|
(17,554
|
)
|
(6,963
|
)
|
Permanent
difference attributable to the use of local currency for tax reporting
|
|
1,727
|
|
|
|
|
|
Minimum
tax attributable to German subsidiary
|
|
|
|
(1,175
|
)
|
|
|
Stock-based
compensation costs
|
|
(85
|
)
|
(112
|
)
|
(635
|
)
|
Share
issue expenses not affecting earnings
|
|
354
|
|
|
|
|
|
Difference
in statutory income tax rate of foreign subsidiaries
|
|
222
|
|
576
|
|
(16
|
)
|
Permanent
difference attributable to unrealized foreign exchange gain/loss
|
|
(291
|
)
|
494
|
|
|
|
Change
in enacted rates used
|
|
(89
|
)
|
(985
|
)
|
(1,345
|
)
|
Other
|
|
481
|
|
(539
|
)
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,175
|
)
|
1,961
|
|
Loss
before income taxes
The
loss before income taxes from continuing operations is allocated as follows:
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Germany
|
|
(20,335
|
)
|
(52,730
|
)
|
(23,276
|
)
|
Canada
|
|
(4,200
|
)
|
(5,103
|
)
|
(10,556
|
)
|
United
States
|
|
(189
|
)
|
(809
|
)
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
(24,724
|
)
|
(58,642
|
)
|
(33,998
|
)
|
151
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Income
tax recovery (expense) is
represented by:
|
|
|
|
|
|
|
|
Current
|
|
|
|
(1,175
|
)
|
93
|
|
Future
|
|
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,175
|
)
|
1,961
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
(1,175
|
)
|
93
|
|
|
|
|
|
|
|
|
|
Future:
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
(284
|
)
|
Foreign
|
|
|
|
|
|
2,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,175
|
)
|
1,961
|
|
Foreign
operations are predominantly in Germany.
152
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Significant components of
future income tax assets and liabilities are as follows:
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
$
|
|
$
|
|
Future
income tax assets
|
|
|
|
|
|
Current
|
|
|
|
|
|
Deferred
revenues
|
|
713
|
|
2,459
|
|
Inventory
|
|
73
|
|
526
|
|
Other
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
894
|
|
2,985
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
Operating
losses carried forward
|
|
27,461
|
|
15,543
|
|
Intangible
assets
|
|
12,328
|
|
10,817
|
|
Research
and development costs
|
|
10,484
|
|
8,961
|
|
Employee
future benefits
|
|
1,014
|
|
747
|
|
Property,
plant and equipment
|
|
702
|
|
576
|
|
Share
issue expenses
|
|
374
|
|
129
|
|
|
|
|
|
|
|
|
|
52,363
|
|
36,773
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
(50,350
|
)
|
(36,581
|
)
|
|
|
|
|
|
|
|
|
2,013
|
|
192
|
|
|
|
|
|
|
|
|
|
2,907
|
|
3,177
|
|
|
|
|
|
|
|
Future
income tax liabilities
|
|
|
|
|
|
Current
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
Deferred
charges and other long-term assets
|
|
1,343
|
|
1,566
|
|
Deferred
revenues
|
|
1,089
|
|
528
|
|
Property,
plant and equipment
|
|
262
|
|
330
|
|
Accounts
receivable
|
|
|
|
65
|
|
Intangible
assets
|
|
|
|
|
|
Investment
tax credits
|
|
|
|
|
|
Other
|
|
38
|
|
688
|
|
|
|
|
|
|
|
|
|
2,732
|
|
3,177
|
|
|
|
|
|
|
|
|
|
2,907
|
|
3,177
|
|
|
|
|
|
|
|
Future income
tax assets (liabilities), net
|
|
|
|
|
|
153
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
As at December 31,
2009, the Company has estimated non-refundable research and development tax
credits of $6,737,658 which can be carried forward to reduce Canadian federal
income taxes payable and which expire at dates ranging from 2011 to 2028. No
tax benefit has been accounted for in connection with those credits.
As at December 31,
2009, the Company had available operating losses in Canada. The following table
summarizes the year of expiry of these operating losses by tax jurisdiction:
|
|
Canada
|
|
|
|
Federal
|
|
Provincial
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
2010
|
|
7,343
|
|
|
|
2014
|
|
9,245
|
|
|
|
2015
|
|
6,542
|
|
30
|
|
2028
|
|
13,147
|
|
10,823
|
|
2029
|
|
6,309
|
|
6,285
|
|
|
|
|
|
|
|
|
|
42,586
|
|
17,138
|
|
Furthermore,
the Company has available operating losses in Germany, amounting to
approximately $60,421,000, for which there is no expiry date, as well as in the
United States, totalling $968,102 and expiring as follows:
|
|
United States
|
|
|
|
$
|
|
|
|
|
|
2027
|
|
175
|
|
2028
|
|
616
|
|
2029
|
|
177
|
|
|
|
|
|
|
|
968
|
|
The
carryforwards and the tax credits claimed could be subjected to a review and a
possible adjustment by tax authorities.
20 Segment information for continuing
operations
Subsequent to the divestiture of Atrium (see note
6), the Company operates in one single operating segment, being the
biopharmaceutical segment.
154
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Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except share/option/warrant
and per share/option/warrant data and as otherwise noted)
Information by geographic region
Revenues
by geographic region are detailed as follows:
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
United
States
|
|
41,434
|
|
2,987
|
|
5,911
|
|
Europe
|
|
|
|
|
|
|
|
Switzerland
|
|
12,728
|
|
24,928
|
|
25,347
|
|
United
Kingdom
|
|
35
|
|
3,823
|
|
5,343
|
|
Other
|
|
743
|
|
874
|
|
70
|
|
Japan
|
|
4,717
|
|
4,029
|
|
1,862
|
|
Other
|
|
3,580
|
|
1,837
|
|
3,535
|
|
|
|
|
|
|
|
|
|
|
|
63,237
|
|
38,478
|
|
42,068
|
|
Revenues
have been allocated to geographic regions based on the country of residence of
the Companys customers or partners.
Companies
representing 10% or more of the Companys revenues are as follows:
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
Company
1
|
|
54
|
|
|
|
|
|
Company
2
|
|
21
|
|
66
|
|
59
|
|
Company
3
|
|
|
|
10
|
|
13
|
|
Net
long-lived assets by geographic region are detailed as follows:
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Germany
|
|
31,016
|
|
39,934
|
|
United
States
|
|
551
|
|
615
|
|
Canada
|
|
71
|
|
110
|
|
|
|
|
|
|
|
|
|
31,638
|
|
40,659
|
|
Long-lived
assets consist of property, plant and equipment, intangible assets and
goodwill.
155
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
21 Loss per share
The
information utilized in the computation of net loss per share, as presented in
the accompanying consolidated statements of operations, is as follows:
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,037
|
)
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
|
|
|
(259
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,296
|
)
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares
outstanding
|
|
56,864,484
|
|
53,187,470
|
|
53,182,803
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock options
|
|
310,556
|
|
18,315
|
|
500,171
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares
outstanding
|
|
57,175,040
|
|
53,205,785
|
|
53,682,974
|
|
|
|
|
|
|
|
|
|
Items excluded from the calculation of diluted
net loss per share because the exercise price was greater than the average
market price of the common shares or due to their anti-dilutive effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
5,493,922
|
|
4,069,093
|
|
3,164,499
|
|
Warrants
(number of equivalent shares)
|
|
4,110,603
|
|
|
|
|
|
|
|
9,604,525
|
|
4,069,093
|
|
3,164,499
|
|
For the
years ended December 31, 2009, 2008 and 2007, the diluted net loss per
share was the same as the basic net loss per share since the effect of the
assumed exercise of stock options and warrants (2009 only) to purchase common
shares is anti-dilutive. Accordingly, the diluted net loss per share for the
years presented was calculated using the basic weighted average number of
shares outstanding.
22 Capital disclosures
The Companys objective in
managing capital, composed of shareholders equity and cash and cash
equivalents, is to ensure sufficient liquidity to fund research and development
activities, general and administrative expenses, working capital and capital
expenditures.
The Company has endeavoured
to optimize its liquidity needs by non-dilutive sources, including the sale of
non-core assets and rights to future royalties, investment tax credits and
grants, interest income, licensing, service and royalties. More recently,
however, the Company has raised additional capital via the registered direct
offerings discussed in note 17.
156
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
The
capital management objective of the Company remains the same as that of
previous years. The policy on dividends
is to retain cash to keep funds available to finance the activities required to
advance the Companys product development pipeline.
The
Company is not subject to any capital requirements imposed by any regulators or
by any other external source.
23 Financial instruments and financial
risk management
Fair
value
The Company has established the following
classifications for its financial instruments in accordance with CICA Handbook Section 3862:
·
cash and cash equivalents and restricted cash (2009
only) are classified under Assets Held for Trading;
·
short-term investments (2008 only) are classified
under Available-for-Sale Assets;
·
accounts receivable are classified under Loans and
Receivables; and
·
accounts payable and accrued liabilities, long-term
payable and other long-term liability are classified under Other Financial
Liabilities.
The carrying values of all of the aforementioned
financial instruments approximate their fair values due to their short-term
maturity or to the prevailing interest rates of these instruments, which are
comparable to those of the market.
Financial risk management
Disclosures relating to
the nature and extent of the Companys exposure to risks arising from financial
instruments, including credit risk, liquidity risk, foreign currency risk and
interest rate risk, and how the Company manages those risks, are presented
below.
a)
Credit risk
Credit risk is the risk
of an unexpected loss if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. The Company regularly monitors its
credit risk exposure and takes steps to mitigate the likelihood of these
exposures from resulting in actual loss.
Financial instruments
that potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents, restricted cash, short-term investments
and accounts receivable. Cash and cash
equivalents and restricted cash balances are maintained with high-credit
quality financial institutions. Short-term investments (2008 only) consist of
notes issued by high-credit quality corporations and institutions. Also, any
accounts receivable balances due to the Company that are past due as at December 31,
2009 are insignificant, both individually and in the aggregate. Consequently,
management considers the risk of non-performance related to cash and cash
equivalents, restricted cash, short-term investments and accounts receivable to
be minimal.
157
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except share/option/warrant
and per share/option/warrant data and as otherwise noted)
b)
Foreign Currency Risk
Since the Company
operates on an international scale, it is exposed to currency risks as a result
of potential exchange rate fluctuations related to non-intragroup transactions.
Fluctuations in the US dollar (US$) and the EUR exchange rates could have a
potentially significant impact on the Companys results of operations.
The following variations are reasonably possible over a 12-month period:
·
Foreign exchange rate variation of -5%
(depreciation of the EUR) and +5%
(appreciation of the EUR) against the US$, from a period-end rate of EUR1.00 =
US$1.4272.
If these variations were
to occur, the impact on the Companys consolidated net loss for each category
of financial instruments held at December 31, 2009 would be as follows:
|
|
|
|
Balances denominated
in US$
|
|
|
|
Carrying
amount
|
|
-5%
|
|
+5%
|
|
|
|
$
|
|
$
|
|
$
|
|
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
27,244
|
|
1,362
|
|
(1,362
|
)
|
Total impact on consolidated net loss -
(increase)/decrease
|
|
|
|
1,362
|
|
(1,362
|
)
|
c) Liquidity risk
Liquidity risk is the
risk that the Company will not be able to meet its financial obligations as
they become due. The Company manages liquidity risk through the management of
its capital structure and financial leverage, as outlined in note 22. The
Company also manages liquidity risk by continuously monitoring actual and
projected cash flow (note 2). The Board of Directors reviews and approves the
Companys operating and capital budgets, and reviews any material transactions
outside of the normal course of business.
The Companys investment
policy ensures the safety and preservation of its principal, as outlined above,
to ensure the Companys liquidity needs are met.
d)
Financial liabilities as at December 31, 2009
|
|
Carrying
Amount
|
|
2010
|
|
2011-2012
|
|
After 2012
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Accounts
payable and accrued liabilities
|
|
11,919
|
|
11,919
|
|
|
|
|
|
Long-term
payable
|
|
200
|
|
57
|
|
114
|
|
29
|
|
Other
long-term liability
|
|
66
|
|
|
|
|
|
66
|
|
|
|
12,185
|
|
11,976
|
|
114
|
|
95
|
|
158
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
24 Commitments, contingencies and
guarantee
In
addition to the long-term payable discussed in note 8, the Company is committed
to various operating leases for its premises plus service and manufacturing
contracts, as follows:
Year
|
|
Minimum Lease
Commitments
|
|
Service &
Manufacturing
Commitments
|
|
Total Commitments
|
|
|
|
$
|
|
$
|
|
$
|
|
2010
|
|
2,008
|
|
5,256
|
|
7,264
|
|
2011
|
|
2,015
|
|
1,545
|
|
3,560
|
|
2012
|
|
2,023
|
|
|
|
2,023
|
|
2013
|
|
1,973
|
|
|
|
1,973
|
|
2014
|
|
1,921
|
|
|
|
1,921
|
|
Thereafter
|
|
2,781
|
|
|
|
2,781
|
|
Total
|
|
12,721
|
|
6,801
|
|
19,522
|
|
As
discussed in note 5, in connection with the PSA entered into with Cowen, the
Company has agreed to make a one-time cash payment to Cowen in the event that
cetrorelix is approved for sale by European regulatory authorities in an
indication other than
in vitro
fertilization. Such a payment, which is not probable or reasonably estimable as
at December 31, 2009, could range from $5,000,000 to a maximum of
$15,000,000. Also as discussed in note 5, the Company could also be required to
pay Cowen a quarterly make-whole payment.
Rent
expense for operating leases, which may have escalating rentals over the term
of the lease, are recorded on a straight-line basis over the term of the lease.
The rent expense under the operating leases for the periods ended December 31,
2009, 2008 and 2007 was approximately $2,133,000, $1,700,647 and $1,937,000,
respectively.
In October 2007,
the Company entered into a $100,000 letter of credit agreement in favour of its
landlord in the United States with respect to the Companys long-term lease
obligation. The amount of the letter of credit was reduced, in August 2009,
to $75,000, as per the original landlord-tenant agreement, and is payable to
the landlord in the event that the Company fails to perform any of its
obligations under the related lease agreement.
Contingencies
In the
normal course of operations, the Company may become involved in various claims
and legal proceedings mainly related to contract terminations, employee
lay-offs and other employee-related matters. As at December 31, 2009,
there are no known or anticipated contingencies or disputes pending against the
Company.
25
Comparative
figures
To
conform to the presentation adopted in the current year, certain amounts from
the prior year have been reclassified.
159
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
26 Differences between Canadian and US
GAAP
The
Company is required to reconcile its financial statements for significant
measurement differences between Canadian GAAP and US GAAP. Furthermore,
additional significant disclosures required under US GAAP and Regulation S-X of
the Securities and Exchange Commission in the United States (SEC) are also
provided in the accompanying consolidated financial statements and notes. The
following summarizes the significant quantitative differences between Canadian
and US GAAP, as well as other significant disclosures required under US GAAP
and Regulation S-X of the SEC not already provided in the accompanying
consolidated financial statements.
The
following summary sets out the material adjustments to the Companys reported
net loss, net loss per share and shareholders equity that would be made to
conform with US GAAP:
Reconciliation
of net loss to US GAAP
|
|
Years ended December 31,
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
Net
loss for the year under Canadian GAAP
|
|
(24,724
|
)
|
(59,817
|
)
|
(32,296
|
)
|
Variation
in warrant liability, including amortization of transaction costs
|
(a)
|
1,557
|
|
|
|
|
|
Amortization
of in-process research and development costs
|
(b)
|
6,373
|
|
3,747
|
|
1,546
|
|
Deferred
taxes
|
(c)
|
|
|
|
|
(5,430
|
)
|
Reclassification
adjustment related to the sale of Echelon
|
(d)
|
|
|
|
|
(754
|
)
|
Income
tax effects of the above adjustments
|
|
|
|
|
|
(494
|
)
|
|
|
|
|
|
|
|
|
Net
loss for the year under US GAAP
|
|
(16,794
|
)
|
(56,070
|
)
|
(37,428
|
)
|
|
|
|
|
|
|
|
|
Of
which:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
(16,794
|
)
|
(56,070
|
)
|
(36,415
|
)
|
Net
loss from discontinued operations
|
|
|
|
|
|
(1,013
|
)
|
|
|
|
|
|
|
|
|
Basic
net loss per share
|
|
(0.30
|
)
|
(1.05
|
)
|
(0.70
|
)
|
From
continuing operations
|
|
(0.30
|
)
|
(1.05
|
)
|
(0.68
|
)
|
From
discontinued operations
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
Diluted
net loss per share
|
|
(0.30
|
)
|
(1.05
|
)
|
(0.70
|
)
|
From
continuing operations
|
|
(0.30
|
)
|
(1.05
|
)
|
(0.68
|
)
|
From
discontinued operations
|
|
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (note 21)
under US GAAP
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
56,864,484
|
|
53,187,470
|
|
53,182,803
|
|
160
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Reconciliation
of shareholders equity to conform to US GAAP
The
following summary sets out the significant differences between the Companys
reported shareholders equity under Canadian GAAP as compared to US GAAP.
|
|
|
As at
December 31, 2009
|
|
As at
December 31, 2008
|
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
Shareholders
equity in accordance with Canadian GAAP
|
|
|
9,226
|
|
21,475
|
|
Net
impact of liability accounting for warrants
|
(a)
|
|
(1,351
|
)
|
|
|
In-process
research and development
|
(b)
|
|
(2,146
|
)
|
(8,341
|
)
|
|
|
|
|
|
|
|
Shareholders
equity in accordance with US GAAP
|
|
|
5,729
|
|
13,134
|
|
Balance
sheets
The following table summarizes
the significant differences between pertinent additional balance sheet items
under Canadian GAAP as compared to US GAAP as at December 31, 2009 and
2008:
|
|
|
|
As at
December 31, 2009
|
|
As at
December 31, 2008
|
|
|
|
|
|
As
Reported
|
|
US
GAAP
|
|
As
Reported
|
|
US
GAAP
|
|
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
(a)
|
|
|
|
1,351
|
|
|
|
|
|
Intangible assets
|
|
(b)
|
|
17,034
|
|
14,888
|
|
23,894
|
|
15,553
|
|
Statements
of cash flows
For each of the years ended December 31, 2009,
2008 and 2007, there are no significant differences between the statements of
cash flows under Canadian GAAP as compared to US GAAP.
a)
Warrants
Under Canadian GAAP, the
Company has classified and is accounting for all of its outstanding common
share purchase warrants (see note 17) as equity, on the basis that these
warrants do not embody a contractual obligation on the Company to deliver cash
or another financial asset to the holder of these warrants. The conditional
written put option that arises upon the occurrence of a Fundamental Transaction,
as defined in all outstanding warrants and including a change in control, was
not considered to be probable under the CICAs Emerging Issues Committee
Abstract No. 70,
Presentation of a
Financial Instrument Labelled as a Share When a Future Event or Circumstance May Affect
the Issuers Obligations
. Under US GAAP, the Company has determined
that the common share purchase warrants are within the scope of guidance now
codified as the FASBs ASC Topic 480,
Distinguishing
Liabilities from Equity
(Topic 480), and as such has classified
and is accounting for these instruments as a liability. Topic 480 states that
financial instruments which contain a written put option, even if that
repurchase feature is conditional on a defined contingency, should be
classified as a liability if such contingency ultimately could result in the
transfer of assets by the issuer.
The total warrant
liability would be included for US GAAP purposes within the long-term
liabilities section of the consolidated balance sheet and carried at fair
value, less unamortized transaction costs. Any changes to the fair value
161
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except share/option/warrant
and per share/option/warrant data and as otherwise noted)
of the warrant liability
would be reflected within other income (expenses) in the consolidated statement
of operations. There were no common share purchase warrants issued or
outstanding during 2008 or 2007.
The table presented below
shows the assumptions applied to the Black-Scholes pricing model in order to
determine the fair value of all outstanding warrants as at December 31,
2009.
|
|
First Investor Warrants and
First Compensation Warrants
|
|
Second Investor
Warrants
|
|
Second
Compensation
Warrants
|
|
|
|
|
|
|
|
|
|
Market-value
per share price
|
|
$
|
0.81
|
|
$
|
0.81
|
|
$
|
0.81
|
|
Risk-free
annual interest rate
|
|
1.14
|
%
|
2.59
|
%
|
1.46
|
%
|
Expected
volatility
|
|
119.0
|
%
|
83.7
|
%
|
101.5
|
%
|
Expected
life (years)
|
|
2.0
|
|
4.8
|
|
2.8
|
|
Expected
dividend yield
|
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the
Companys warrant liability was determined using the Black-Scholes pricing
model. The valuation methodology uses Level 2 inputs in calculating fair
value, as defined in guidance now codified as ASC Topic 820,
Fair Value Measurements and Disclosures
(Topic
820), which establishes a fair value hierarchy that prioritizes the inputs
used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3
measurement). Level 2 inputs are those which are either directly or indirectly
observable as of the reporting date and include financial instruments that are
valued using models or other valuation methodologies, such as the Black-Scholes
pricing model.
b)
Research
and development costs
Under
US GAAP, prior to the issuance of Topic 805, as defined and discussed below,
in-process research and development acquired in a business combination was
required to be written off at the time of acquisition. Under Canadian GAAP,
in-process research and development acquired in a business combination is
capitalized and amortized over its estimated useful life.
c)
Deferred
income taxes
This
adjustment reflects differences related to the accounting for valuation
allowance for US GAAP purposes that arise from timing differences.
d)
Cumulative
translation adjustment related to the sale of Echelon
Under
Canadian GAAP, a gain or loss equivalent to a proportionate amount of the
exchange gain or loss accumulated in the translation adjustment is recognized
in income when there has been a reduction of a net investment in a foreign
operation. Under US GAAP, a gain or loss should only be recognized in income in
the case of a substantial or complete liquidation of a net investment in a
foreign operation, being the substantial or complete liquidation of the
Company.
162
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Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
New accounting standards and
pronouncements
The
FASBs ASC became effective July 1, 2009, and is now the single official
source of authoritative, non-governmental, US GAAP. As a result, most
references appearing below conform to the ASC.
i) Adopted in 2009
ASC Topic
808,
Collaborative Arrangements
(Topic 808)
Topic 808 provides
guidance for accounting for arrangements under which companies participate in
the development and commercialization of intellectual property into
commercially viable products. Topic 808 defines a collaborative arrangement as
a contractual arrangement that involves a joint operating activity. These arrangements involve two or more
parties that are both (a) active participants in the activity and (b) exposed
to significant risks and rewards dependent on the commercial success of the
activity. A company may receive revenues and incur costs under such
arrangements as well as make or receive payments from the other participant in
the arrangement. Topic 808 concludes that revenues earned and costs incurred by
a company should be presented gross or net depending on whether the company is
the principal participant in the arrangement. Topic 808 is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company adopted the
provisions of Topic 808 on January 1, 2009, and such adoption has not had
any impact on the Companys consolidated financial statements.
ASC Topic
805,
Business Combinations
(Topic 805)
In December 2007,
the FASB issued guidance now codified as Topic 805, which is a revision of
previously existing guidance on accounting for business combinations. Topic 805
retains the fundamental concept of the purchase method of accounting and
introduces new requirements for the recognition and measurement of assets
acquired, liabilities assumed and non-controlling interests. Topic 805 is
effective for fiscal years beginning after December 15, 2008. The Company
will apply the provisions of Topic 805 to any business combinations entered
into in the future.
ASC Topic
810,
Consolidation
(Topic 810)
In December 2007,
the FASB issued guidance now codified as Topic 810, which changes the
accounting and reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of equity. This new
consolidation method significantly changes the accounting for transactions with
minority interest holders. Topic 810 is effective prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
Company will apply the provisions of Topic 810 to any business combinations
entered into, where applicable, in the future.
ASC Topic
815,
Derivatives and Hedging
(Topic 815)
In March 2008,
the FASB issued guidance now codified as Topic 815, which amends and expands
the disclosure requirements outlined in previous authoritative literature.
Topic 815 is effective for financial statements issued for periods beginning
after November 15, 2008. The Company adopted Topic 815 on January 1,
2009, and there has been no impact on the Companys consolidated financial
statements.
163
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
ASC Topic
105,
Generally Accepted Accounting Principles
In June 2009, the FASB
issued guidance now codified as Topic 105, as the single source of
authoritative non-governmental US GAAP. Topic 105 does not change current US
GAAP, but is intended to simplify user access to all authoritative US GAAP by
providing all authoritative literature related to a particular topic in one
place. All existing accounting standard documents will be superseded and all
other accounting literature not included in the ASC will be considered
non-authoritative. These provisions of Topic 105 are effective for interim and
annual periods ending after September 15, 2009 and, accordingly, are
effective for the Company for the current fiscal reporting period. The adoption
of this pronouncement did not have an impact on the Companys financial
condition or results of operations, but has and will continue to impact the
Companys financial reporting process by eliminating all references to
pre-codification standards. On the effective date of Topic 105, the ASC
superseded all then-existing non-SEC accounting and reporting standards, and
all other non-grandfathered non-SEC accounting literature not included in the
ASC became non-authoritative.
ASC Topic
855,
Subsequent Events
(Topic 855)
In May 2009, the
FASB issued guidance now codified as Topic 855, which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. The Company adopted Topic 855 in May 2009. Subsequently, in February 2010,
the FASB amended this guidance in order to remove potential conflicts with
corresponding literature issued by the SEC.
The Company adopted the amendments upon issuance.
ASC Topic
350,
Intangibles-Goodwill and Other
(Topic
350)
On April 25, 2008,
the FASB issued guidance now codified as Topic 350, which amends the factors
that should be considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset. The intent of
this guidance is to improve the consistency between the useful life of a
recognized intangible asset and the period of expected cash flows used to
measure the fair value of the asset under Topic 805. Topic 350 is effective for
financial years beginning after December 15, 2008 and interim periods
within those fiscal years. The guidance for determining the useful life of a
recognized intangible asset shall be applied prospectively to intangible assets
acquired after the effective date. The disclosure requirements shall be applied
prospectively to all intangible assets recognized as of, and subsequent to, the
effective date. The Company adopted Topic 350 on January 1, 2009, and
there has been no impact on the Companys consolidated financial statements.
ASC Topic
825,
Financial Instruments
(Topic 825)
In April 2009, the
FASB issued guidance now codified as Topic 825, which requires disclosures
about fair value of financial instruments for annual and interim reporting
periods of publicly traded companies and requires those disclosures in
summarized financial information at interim reporting periods. The Company
adopted Topic 825 in April 2009, and such adoption has not had a
significant impact on the Companys consolidated financial statements.
Topic 805
On April 1, 2009,
the FASB issued guidance now codified as Topic 805, which addresses application
issues raised with respect to initial recognition and measurement, subsequent
measurement and accounting and disclosure of assets and liabilities arising
from contingencies in a business combination. Topic 805 is effective for
business combinations with an acquisition date on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
Company will adopt Topic 805, where relevant, for any future business
combinations entered into.
164
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Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Topic 820
In April 2009, the FASB issued guidance now
codified as Topic 820, which provides additional guidance for estimating fair
value when the volume and level of activity for the asset or liability have
significantly decreased. Topic 820 also includes guidance on identifying
circumstances that indicate a transaction is not orderly. Topic 820 is
effective for interim and annual reporting periods ending after June 15,
2009, and shall be applied prospectively. Early adoption is permitted for
periods ending after March 15, 2009, while earlier adoption for periods
ending before March 15, 2009, is not permitted. The Company adopted Topic
820 on April 1, 2009, and there has been no significant impact on the
Companys consolidated financial statements.
Topic 350
Topic 350 now includes implementation guidance in
determining whether a component of an operating segment is a reporting unit and applies to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company will apply the provisions of Topic
350, where
applicable, to any future business combinations entered into.
ASC Topic 715,
Compensation-Retirement
Benefits
(Topic 715)
On December 30,
2008, the FASB issued guidance now codified as Topic 715, which significantly expands the disclosures required by
employers for postretirement plan assets. Topic 715 requires plan sponsors to
provide extensive new disclosures about assets in defined benefit
postretirement benefit plans as well as any concentrations of associated risks.
Topic 715 also requires new
disclosures similar to those in Topic 820, in terms of the three-level fair
value hierarchy, including a reconciliation of the beginning and ending
balances of plan assets that fall within Level 3 of the hierarchy. This new
guidance contained in Topic 715 is effective for periods ending after December 15,
2009, and the pertinent disclosure requirements are annual and do not apply to
interim financial statements. The Company adopted these amendments in December 2009,
and such adoption has not resulted in any impact on the Companys consolidated
financial statements.
Topic 820
In August 2009, the
FASB amended Topic 820 to provide clarification as to how to measure the fair
value of liabilities in circumstances when a quoted price in an active market
for the identical liability is not available. These amendments are effective
for the first reporting period, including interim periods, beginning after the
issuance of this guidance. Adoption of this guidance has not had a significant
impact on the Companys consolidated financial statements.
ii) Not yet adopted
ASC Topic
860,
Transfers and Servicing
(Topic 860)
In June 2009, the FASB issued guidance now
codified as Topic 860, which removes the concept of a qualifying
special-purpose entity and the exception from applying Topic 810 to qualifying
special-purpose entities. This guidance contained in Topic 860 must be applied
as of the beginning of each reporting entitys first annual reporting period
that begins after November 15, 2009, for interim periods within that first
annual reporting period and for interim and annual reporting periods
thereafter. Earlier application is prohibited. Topic 860 must be applied to
transfers occurring on or after the effective date. The Company does not expect
that adoption of this guidance will have a significant impact on its
consolidated financial statements.
165
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Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Topic 810
In June 2009, the
FASB issued guidance now codified as Topic 810, which amends the consolidation
guidance for variable interest entities. Amendments include the elimination of
the exemption for qualifying special purpose entities, a new approach for
determining who should consolidate a variable-interest entity and changes to
when it is necessary to reassess who should consolidate a variable-interest
entity. This guidance is effective for years beginning after November 15,
2009, for interim periods within those years, and for interim and annual
reporting periods thereafter. The Company does not believe that adoption of
this guidance will have a significant impact on its consolidated financial
statements.
SEC Staff
Accounting Bulletin (SAB) No. 112 (SAB 112)
In June 2009, the
SEC issued SAB 112, which amends or rescinds portions of the interpretive
guidance included in the Staff Accounting Bulletin Series in order to make
the relevant interpretive guidance consistent with current authoritative
accounting and auditing guidance and SEC rules and regulations, and in
order to bring existing guidance into conformity with recent pronouncements by
the FASB, namely, Topic 805 and Topic 810. SAB 112 will be effective upon
publication in the Federal Register. The Company does not expect that adoption
of this SAB will have a significant impact on its consolidated financial
statements.
ASC Topic
605,
Revenue Recognition
(Topic 605)
In October 2009,
the FASB amended Topic 605 to
include a consensus ratified by the FASBs Emerging Issues Task Force relating
to multiple-deliverable revenue arrangements. These amendments significantly
change certain guidance pertaining to revenue arrangements with multiple deliverables
and modify the separation criteria of Topic 605 by eliminating the criterion
for objective and reliable evidence of fair value for the undelivered products
or services. The
amendments also eliminate the use of the residual method of allocation
and requires, instead, that arrangement consideration be allocated, at the
inception of the arrangement, to all deliverables based on their relative
selling price. This
guidance is effective for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. Management is currently evaluating the impact that
this guidance may have on the Companys consolidated financial statements.
Other disclosures
Research and development tax credits
Under
Canadian GAAP, all research and development tax credits are recorded as a
reduction of costs in the consolidated statements of operations. Under US GAAP,
tax credits that reduce current income taxes payable are recorded in income
taxes. These tax credits amounted to $nil in 2009, $nil in 2008 and $1,862,000
in 2007. This accounting difference has no impact on the net loss and the net
loss per share figures for the reporting years.
Furthermore,
under US GAAP, the future income tax assets related to the unrecognized tax
credits totalled approximately $6,738,000 in 2009, $5,742,000 in 2008 and
$7,004,000 in 2007. However, a valuation allowance corresponding to the same
amounts has been accounted for in each of these years.
166
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Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Long-lived
assets
Under
US GAAP, long-lived assets by geographic region only consist of property, plant
and equipment which are detailed as follows:
|
|
As at December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Germany
|
|
3,736
|
|
5,968
|
|
United
States
|
|
551
|
|
615
|
|
Canada
|
|
71
|
|
99
|
|
|
|
|
|
|
|
|
|
4,358
|
|
6,682
|
|
Research
and collaboration agreements
As part of its strategy
to enhance development capabilities and to partially fund capital requirements,
the Company has entered into research and development collaboration agreements
with several pharmaceutical companies. Pursuant to these collaboration
arrangements, the Company often receives upfront payments, license fees and
milestone payments and has the potential to receive royalty payments in the
future. Upfront payments are typically non-refundable, received upon the
signature of an agreement, or shortly thereafter, and are amortized over the
estimated corresponding research and development period. License fees typically
are contractually obligated payments that the Company receives and uses to fund
research and development activities over the term of collaboration and include
milestone payments, as well as contract services. Milestone payments are
contingent payments that are made upon the achievement of specified milestones,
such as at the time of selection of candidates for drug development, the
commencement or termination of clinical trials or the receipt of regulatory
approvals and achievement of a certain level of sales. If drugs are
successfully developed and commercialized as a result of collaboration
agreements, the Company will receive royalty payments based upon a percentage
of net sales of those drugs developed under the collaboration. Finally,
contract service fees relate to research and development activities performed
by the Company on behalf of the counterparty to the related arrangement and for
which the Company has the right to receive compensation.
With the exception of the
Agreement with sanofi, which is discussed in note 4, all other significant
collaboration agreements are discussed below.
Ardana
In 2002, the Company had
entered into a license and collaboration agreement with Ardana, a subsidiary of
Ardana plc. Ardana was granted an exclusive worldwide license to develop and
commercialize a growth hormone (GH) secretagogue. In light of Ardanas having
entered into voluntary administration, as discussed in note 13, the Company
signed, in June 2009, an agreement with Ardanas administrators to acquire
all assets, including the rights previously transferred in 2002, related to the
GH secretagogue.
Revenues recognized under
the agreement with Ardana for the years ended December 31, 2009, 2008 and
2007 were $nil, approximately $197,000 and $3,000,000, respectively. No
corresponding research and development costs were incurred by the Company under
the agreement for any of the three years ended December 31, 2009.
167
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Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
In 2002, the Company
granted an exclusive license to Ardana for the development and
commercialization of teverelix, an LHRH antagonist, for all therapeutic uses
worldwide with the exception of Japan, Korea and Taiwan. On April 2, 2004,
Ardana acquired full worldwide rights and was assigned the intellectual property
rights relating to teverelix and the underlying microcrystalline suspension
technology for the use thereof. As discussed in note 13, this agreement was
terminated by the Company in light of Ardanas having entered into voluntary
administration.
Revenues recognized under
this agreement with Ardana for the years ended December 31, 2009, 2008 and
2007 were $nil, approximately $3,621,000 and $3,500,000, respectively.
Corresponding research and development costs incurred under the agreement for
the years ended December 31, 2009, 2008 and 2007 were $nil, approximately
$61,000 and $100,000, respectively.
Keryx
Biopharmaceuticals, Inc.
The Company is party to a
license and collaboration agreement with Keryx Biopharmaceuticals, Inc.
(Keryx). Under the terms of this agreement, Keryx undertakes, at its own
cost, all development activities necessary to obtain regulatory and marketing
approvals of perifosine, a signal transduction inhibitor, for all uses in the
United States, Canada and Mexico. The agreement provides for, among other
things, the availability of data generated by both parties free of charge. In September 2002,
the Company received an upfront payment of approximately $500,000 and is
eligible to receive payments of up to an aggregate of $18,300,000 upon Keryxs
successful achievement of clinical development and regulatory milestones, in
addition to scale-up royalties (from high single to low double-digit) on future
net sales in the United States, Canada and Mexico.
Revenues recognized under
the agreement with Keryx for the years ended December 31, 2009, 2008 and
2007 were approximately $128,000, $410,000 and $1,700,000, respectively.
Corresponding research
and development costs incurred under the agreement for the years ended December 31,
2009, 2008 and 2007 were approximately $154,000, $448,000 and $900,000,
respectively.
Nippon
Kayaku Co. Ltd.
In 2006, the Company
entered into a licensing and collaboration agreement with Nippon Kayaku Co.
Ltd. (Nippon Kayaku). Under the terms of the agreement, Nippon Kayaku was
granted an exclusive license to develop and market ozarelix, an LHRH
antagonist, for all potential oncological indications in Japan. In return, the
Company received approximately $1,900,000 as an upfront payment upon signature.
The agreement provides for, among other things, the availability of data
generated by both parties free of charge. The Company is entitled to receive
payments of up to an aggregate of approximately $23,800,000 upon Nippon
Kayakus successful achievement of clinical development, regulatory milestones
and a certain level of sales, in addition to low double-digit royalties on
potential net sales. In turn, as indicated below regarding the related
agreement, Spectrum is entitled to receive fifty percent of any upfront, milestone
payments and royalties received from any research and collaboration agreement
signed by the Company for the development and commercialization of ozarelix in
Japan.
Revenues recognized under
the agreement for the years ended December 31, 2009, 2008 and 2007 were
approximately $882,000, $445,000 and $500,000, respectively. Corresponding
research and development costs incurred under the agreement for the years ended
December 31, 2009, 2008 and 2007 were approximately $397,000, $nil and
approximately $100,000, respectively.
Shionogi
and Co.
In 1995, the Company
entered into a research and collaboration agreement with Shionogi and Co.
(Shionogi). The Company granted Shionogi a license to develop, use,
commercialize and manufacture cetrorelix in Japan and for all human
indications. Under the agreement, Shionogi is responsible, at its own cost, for
all activities necessary to obtain regulatory and marketing approvals for
cetrorelix. The agreement provides, among other things, availability of data
generated by both parties free of charge. Upon signature of this agreement, the
Company received approximately
168
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
$1,400,000 as an upfront
payment and was eligible to receive milestone payments of up to an aggregate of
approximately $7,100,000 upon Shionogis successful achievement of clinical
development and regulatory milestones. To date, the Company has received
approximately $5,800,000 of these milestone payments. Since the development of
cetrorelix is completed in
in vitro
fertilization (IVF), Control Ovarian Stimulation (COS) and Assisted
Reproductive Technology (ART) in Japan, and given the other events related to
cetrorelix in BPH, discussed in notes 4 and 13, the Company does not expect to
receive any additional milestone payments or any other development revenues
under this agreement.
Revenues recognized under
the agreement with Shionogi for the years ended December 31, 2009, 2008 and
2007 were approximately $2,262,000, $1,000 and $nil, respectively.
Corresponding research
and development costs incurred under the agreement for the years ended December 31,
2009, 2008 and 2007 were approximately $838,000, $13,000 and $nil, respectively.
Solvay
Pharmaceuticals BV
In 2002, the Company
entered into a research and collaboration agreement with Solvay Pharmaceuticals
BV, a subsidiary of Solvay SA (Solvay). The Company granted Solvay an
exclusive license to develop, use, commercialize and manufacture cetrorelix
worldwide (ex-Japan) and for all indications excluding IVF/COS/ART. This
agreement, as subsequently amended, was terminated in May 2007.
Revenues recognized under
the agreement with Solvay for the year ended December 31, 2007 were approximately
$2,000,000, and corresponding research and development costs incurred for the
same period were approximately $1,900,000.
Spectrum
In 2004, the Company
entered into a licensing and collaboration agreement with Spectrum for
ozarelix, an LHRH antagonist. Under the terms of the agreement, the Company
granted Spectrum an exclusive license to develop and commercialize ozarelix for
all potential indications in North America and India. The agreement provides,
among other things, availability of data generated by both parties free of
charge. Upon signature of this agreement, the Company received approximately
$2,400,000 as an upfront payment, of which approximately $1,200,000 was paid in
cash and the balance paid through the issuance of shares of the capital of
Spectrum. The Company is entitled to receive payments of up to an aggregate of
approximately $24,400,000 upon Spectrums successful achievement of clinical
development and regulatory milestones, in addition to royalties (scale-up
royalties from high single to low double-digit) on potential net sales. In
consideration of the amounts paid by Spectrum under this agreement, Spectrum is
entitled to receive fifty percent of any upfront, milestone payments and
royalties received from any research and collaboration agreement signed by the
Company for the development and commercialization of ozarelix in Japan.
As discussed in note 13,
on January 27, 2010, Spectrum announced that it had terminated its
development program with ozarelix in BPH. Also as discussed in note 13,
management determined that ozarelix was fully impaired, and, consequently, all
remaining deferred revenues related to the use of ozarelix, including those
deferred revenues related to the agreement with Spectrum, were fully recognized
in the Companys 2009 consolidated statement of operations.
Revenues recognized under
the agreement with Spectrum for the years ended December 31, 2009, 2008
and 2007 were approximately $860,000, $678,000 and $1,900,000, respectively.
Corresponding research and development costs incurred under the agreement for
the years ended December 31, 2009, 2008 and 2007 were approximately
$109,000, $255,000 and $600,000, respectively.
169
Table of Contents
Æterna
Zentaris Inc.
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(tabular amounts in thousands of US dollars, except
share/option/warrant and per share/option/warrant data and as otherwise noted)
Tulane
In 2002, the Company
signed license agreements with Tulane with regard to various compounds,
including cetrorelix. Under the agreements, the Company obtained exclusive
worldwide licenses to use Tulanes patents to develop, manufacture, market and
distribute these compounds.
The agreements provide
for the payment by the Company of single-digit royalties on future worldwide
net sales for all indications except BPH, for which the payment of low
single-digit royalties is required. Tulane is entitled to receive a low
double-digit royalty on any lump sum, periodic or other cash payments received
by the Company from sub-licensees.
Costs incurred under the
agreements with Tulane for the years ended December 31, 2009, 2008 and
2007 were approximately $4,703,000, $311,000 and $100,000, respectively. The
expense recognized in 2009 notably includes the royalty paid by the Company in
connection with the Agreement entered into with, and subsequently terminated
by, sanofi (see note 4).
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Table of Contents
Item 19. Exhibits
Exhibit Index
1.1
|
|
Restated Certificate of
Incorporation and Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 4.1 of the Registrants
registration statement on Form F-3 filed with the Commission on
February 23, 2010, File No. 333-165037)
|
1.2
|
|
Code of General By-Laws
adopted by the Registrant on November 29, 1995 (incorporated by
reference to Exhibit 1.2 of the Registrants annual report on
Form 20-F for the financial year ended December 31, 2007 filed with
the Commission on March 28, 2008)
|
2
|
|
Amended and Restated
Shareholder Rights Plan Agreement between the Registrant and Computershare
Trust Company of Canada dated as of March 29, 2010 (incorporated by
reference to Exhibit 99.1 to the Registrants report on Form 6-K
furnished to the Commission on March 29, 2010)
|
4.1
|
|
Stock Option Plan of
the Registrant (incorporated by reference to Exhibit 4.1 of the
Registrants annual report on Form 20-F for the financial year ended
December 31, 2008 filed with the Commission on March 30, 2009)
|
4.2
|
|
Employment Agreement
dated July 18, 2007 between Paul Blake, M.D. and the Registrant
(incorporated by reference to Exhibit 4.2 of the Registrants annual
report on Form 20-F for the financial year ended December 31, 2007
filed with the Commission on March 28, 2008)
|
4.3
|
|
Service Contract dated
December 5, 2007 between Æterna Zentaris GmbH and Prof. Juergen Engel,
Ph.D.
Consent of the Registrants Independent Registered Public Accounting
Firm
(incorporated
by reference to Exhibit 4.3 of the Registrants annual report on
Form 20-F for the financial year ended December 31, 2007 filed with
the Commission on March 28, 2008)
|
4.4
|
|
Amendment #1 to Service
Contract dated September 1, 2008 between Æterna Zentaris GmbH and Prof.
Juergen Engel, Ph.D. (incorporated by reference to Exhibit 4.4 of the
Registrants annual report on Form 20-F for the financial year ended
December 31, 2008 filed with the Commission on March 30, 2009)
|
4.5
|
|
Employment Agreement
dated September 1, 2008 between the Registrant and Prof. Juergen Engel,
Ph.D. (incorporated by reference to Exhibit 4.5 of the Registrants
annual report on Form 20-F for the financial year ended
December 31, 2008 filed with the Commission on March 30, 2009)
|
4.6
|
|
Employment Agreement
dated May 7, 2007 between the Registrant and Nicholas J. Pelliccione
(incorporated by reference to Exhibit 4.7 of the Registrants annual
report on Form 20-F for the financial year ended December 31, 2007
filed with the Commission on March 28, 2008)
|
4.7
|
|
Service Contract dated
May 18, 2006 among Æterna Zentaris GmbH, the Registrant and Matthias
Seeber (incorporated by reference to Exhibit 4.7 of the Registrants
annual report on Form 20-F for the financial year ended
December 31, 2008 filed with the Commission on March 30, 2009)
|
4.8
|
|
Amendment #1 to Service
Contract dated December 9, 2008 among Æterna Zentaris GmbH, the
Registrant and Matthias Seeber (incorporated by reference to Exhibit 4.8
of the Registrants annual report on Form 20-F for the financial year
ended December 31, 2008 filed with the Commission on March 30,
2009)
|
4.9
|
|
Amendment to Amended
Employment Agreement dated as of June 20, 2007 among the Registrant,
Æterna Zentaris, Inc. and Dennis Turpin (incorporated by reference to
Exhibit 4.8 of the Registrants annual report on Form 20-F for the
financial year ended December 31, 2007 filed with the Commission on
March 28, 2008)
|
4.10
|
|
Purchase Agreement by
and among Æterna Zentaris IVF GmbH, Æterna Zantaris GmbH, the Registrant and
Cowen Healthcare Royalty Partners L.P. dated November 11, 2008
(incorporated by reference to the Registrants report on Form 6-K
furnished to the Commission on November 24, 2008)
|
4.11
|
|
License and Cooperation
Agreement for Perifosine by and between Zentaris AG and AOI Pharma, Inc.
dated September 18, 2002 (incorporated by reference to Exhibit 99.1
to the Registrants report on Form 6-K furnished to the Commission on
March 30, 2010).
|
4.12
|
|
Addendum agreement to
License and Cooperation Agreement for Perifosine by and between Zentaris AG
and AOI Pharma, Inc. dated December 3, 2003 (incorporated by
reference to Exhibit 99.2 to the Registrants report on Form 6-K
furnished to the Commission on March 30, 2010).
|
4.13
|
|
First Amendment to
License and Cooperation Agreement for Perifosine by and between Æterna
Zentaris GmbH and AOI Pharma Inc., dated November 29, 2007 (incorporated by
reference to Exhibit 99.3 to the Registrants report on Form 6-K
furnished to the Commission on March 30, 2010)
|
8.1
|
|
Subsidiaries of the
Registrant
|
11.1
|
|
Code of Ethical Conduct
of the Registrant (incorporated by reference to Exhibit 11.1 of the
Registrants annual report on Form 20-F for the financial year ended
December 31, 2008 filed with the Commission on March 30, 2009)
|
11.2
|
|
Audit Committee Charter
of the Registrant
|
12.1
|
|
Certification of the
Principal Executive Officer pursuant to §302 of the Sarbanes-Oxley Act of
2002
|
12.2
|
|
Certification of the
Principal Financial Officer pursuant to §302 of the Sarbanes-Oxley Act of
2002
|
13.1
|
|
Certification of the
Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
13.2
|
|
Certification of the
Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
15.1
|
|
Consent of the
Independent Auditors
|
171
Table of
Contents
SIGNATURES
The registrant hereby
certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
|
ÆTERNA ZENTARIS INC.
|
|
|
|
/s/
Dennis Turpin
|
|
|
|
Dennis Turpin
|
|
Senior Vice President
and Chief Financial Officer
|
Date: March 30, 2010
172
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