As filed with the U.S. Securities
and Exchange Commission on April 14, 2022
Registration No.
333-262878
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_FORM
F-1/A
___________________________________________________
(Amendment No. 3)
REGISTRATION
STATEMENT
UNDER THE SECURITIES ACT OF 1933
____________________________________________________
ALGERNON PHARMACEUTICALS INC.
(Exact name of
registrant as specified in its charter)
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British Columbia
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2834
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N/A
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(State
or other jurisdiction of incorporation or organization)
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(Primary
Standard Industrial
Classification Code Number)
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(I.R.S.
Employer Identification Number)
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Suite 1500 - 1055 West Georgia Street
Vancouver, British Columbia, Canada, V6E 4N7
Telephone: (604) 398-4175 ext. 701
(Address of principal executive offices, including zip code, and
telephone number, including area code)
Corporation Service Company
19
West 44th Street, Suite 200
New
York, NY 10036
Tel: 1-800-927-9800
(Name, address, including zip code, and telephone number, including
area code, of agent of service)
_________________________________________________
Copies to:
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Michael Shannon, Esq.
McMillan LLP
Suite 1500 - 1055 West Georgia Street
Vancouver, British Columbia, Canada V6E 4N7
Telephone: (604) 689-9111
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Michael F. Nertney, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
11th Floor
New York, New York 10105
Telephone: (212) 370-1300
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__________________________________
Approximate date of commencement
of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being
registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. ☒
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under
the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering.
☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act of
1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act of
1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. ☐
Indicate by check mark whether the
registrant is an emerging growth company as defined in Rule 405 of
the Securities Act of 1933. Emerging growth company ☒
If an emerging
growth company that prepares its financial statements in accordance
with U.S. GAAP, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
__________________________________
The Registrant
hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
this Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information in this preliminary prospectus
is not complete and may be changed. We may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the
offer or sale is not permitted.
PROSPECTUS
Subject to Completion: Preliminary Prospectus
Dated [●], 2022
$[●]
ALGERNON
PHARMACEUTICALS INC.
[●] Units, each Unit Consisting
of One Common Share and one Warrant to Purchase one Common
Share
[●] Pre-funded Units, each
Pre-funded Unit Consisting of one Pre-Funded Warrant to Purchase
one Common Share and one Warrant to Purchase one Common
Share
This prospectus relates to an
underwritten public offering of [●] units (the "Units") of
Algernon Pharmaceuticals Inc., each Unit consisting of one Class A
Common Share (the "Common Shares") and one warrant (the
"Warrants"), based on the last reported price of our Common
Shares as reported on the OTC Market Group Inc.'s Venture Market
(the "OTCQB") on [●], 2022, which was $[●] per Common Share.
Each Warrant will entitle the holder to purchase one Common Share
at an exercise price of [●]% of the price of the Units in this
offering, or US$[●] per Common Share. The Warrants will expire 5
years after the date they are issued. The Units will not be issued
or certificated. Instead, the Common Shares and the Warrants
underlying the Units will be issued separately and may be resold
separately, although they will have been purchased together in this
offering. We will sell these Units at a public offering price of
US$[●] per Unit.
We are also offering to those
purchasers, if any, whose purchase of Units in this offering would
otherwise result in such purchaser, together with its affiliates
and certain related parties, beneficially owning more than 4.99%
(or, at the election of the purchaser, 9.99%) of our outstanding
Common Shares immediately following the consummation of this
offering, the opportunity to purchase, if any such purchaser so
chooses, pre-funded units, each pre-funded unit consisting of one
pre-funded warrant to purchase one Common Share (the "Pre-Funded
Warrants") and one Warrant to purchase one Common Share, in
lieu of Units that would otherwise result in such purchaser's
beneficial ownership exceeding 4.99% (or, at the election of the
purchaser, 9.99%) of our outstanding Common Shares. The purchase
price of each pre-funded unit will be equal to the price per Unit
being sold to the public in this offering, minus $0.0001, and the
exercise price of each Pre-Funded Warrant included in the
pre-funded units will be $0.0001 per Common Share. The Pre-Funded
Warrants included in the pre-funded units will be certificated and
will be immediately exercisable and will be exercisable until
exercised in full.
For each pre-funded unit we sell,
the number of Units we are offering will be decreased on a
one-for-one basis. The Units and the pre-funded units will not be
issued or certificated. The Common Shares and Warrants comprised in
the Units and the Pre-funded Warrants and Warrants comprised in the
pre-funded units, respectively, can only be purchased together in
this offering, but the securities contained in the Units or
pre-funded units will be immediately separable upon issuance and
will be issued separately. The Common Shares issuable from time to
time upon exercise of the Warrants and the Pre-funded Warrants are
also being offered by this prospectus.
Our Common Shares are quoted on the
OTCQB, and listed for trading on the Canadian Securities Exchange
(the “CSE”) and the Frankfurt Stock Exchange (the
“XFRA”) under the symbols “AGNPF”, “AGN” and “AGWO”,
respectively. On April 13, 2022, the closing price of our Common
Shares was US$4.685 CAD$5.93 and €4.30 respectively. As of April
13, 2022, the last reported sales price of our Common Shares on the
OTCQB was US$4.685 per share, and on April 13, 2022 we had
1,674,868 Common Shares outstanding. We intend on applying to have
our Common Shares and Warrants listed on the Nasdaq Capital Market
under the symbols “[●]” and “[●]”, respectively, which listing is a
condition to this offering. Our application might not be approved.
There is no established public trading market for the Warrants
included in the Units, and such a market might never develop. We do
not intend to apply for the listing of the Pre-Funded Warrants on
the Nasdaq Capital Market or any other national securities exchange
or other trading market. Without an active trading market, the
liquidity of the Pre-Funded Warrants will be limited.
We completed a 100-for-1 reverse
stock split on November 23, 2021. All share and per share
information in this prospectus, including the financial statements
and the notes thereto, has been adjusted to reflect this reverse
stock split.
We are an "emerging growth company"
as defined in section 3(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and are therefore eligible
for certain exemptions from various reporting requirements
applicable to reporting companies under the Exchange Act. (See
"Exemptions Under The Jumpstart Our Business Startups
Act")
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Per
Unit(2) |
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Per
Pre-
Funded
Unit(3) |
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Total(1) |
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Public offering price(2) |
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US$[●] |
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US$[●] |
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US$[●] |
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Underwriters' discounts and commissions |
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US$[●] |
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US$[●] |
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US$[●] |
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Proceeds to us, before expenses(4)(5) |
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US$[●] |
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US$[●] |
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US$[●] |
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(1) Assumes
that the underwriters do not exercise any portion of their
over-allotment option.
(2) The
public offering price and underwriting discount in respect of each
Unit corresponds to: (i) a public offering price per Common Share
of US$[●]; and (ii) a public offering price per Warrant of
US$[●].
(3) The
public offering price and underwriting discount in respect of each
pre-funded unit corresponds to: (i) a public offering price per
Pre-Funded Warrant of US$[●]; and (ii) a public offering price per
Warrant of US$[●].
(4) We
will pay the underwriters a cash success fee of 8.0% of the total
gross proceeds of the offering. In addition, we will pay a
management fee to the Representative of 1.0% of the gross proceeds,
which is not included in this table. See "Underwriting" in
this prospectus for more information regarding our arrangements
with the underwriters. This table sets out the maximum possible
underwriting discounts and commissions.
(5) The
total estimated expenses related to this offering are set forth in
the section entitled "Expenses Relating To This
Offering".
In addition to the fees discussed
above, we have agreed to issue to Ladenburg Thalmann & Co.
Inc., as representative (the "Representative") of the
underwriters in this offering, Warrants ("Compensation
Warrants") each exercisable to purchase up to a total of [●]
Common Shares (which final amount shall be equal to 5.0% of the
Common Shares and/or Pre-Funded Warrants sold in this offering)
assuming a public offering price of $[●] per Unit, which is the
last reported price of our Common Shares on the OTCQB on April [●],
2022. The Compensation Warrants will be immediately exercisable
from time to time, in whole or in part, commencing on the date of
issuance and expiring 5 years from the commencement of sales of
this offering. The Compensation Warrants are exercisable at a per
share price of US$[●]. The Compensation Warrants are also
exercisable on a cashless basis in certain circumstances. We also
have agreed to reimburse the Representative for certain of its
out-of-pocket expenses. See "Underwriting" for a description
of these arrangements.
We expect our total cash expenses
for this offering to be approximately US$[●]. The underwriters have
agreed to purchase the securities from us on a firm commitment
basis. We have granted the underwriters a 45-day option (commencing
from the date of this Prospectus) to purchase up to an additional
[●] Common Shares and/or Pre-Funded Warrants and/or up to an
additional [●] Warrants at the public offering price per Common
Share and/or Pre-Funded Warrant and per Warrant respectively, as
set forth on the cover page of this prospectus, less the
underwriting discount and commissions, solely to cover
over-allotments, if any, in each instance assuming a public
offering price of [●] per Unit, US$[●] of which is allocated to the
Common Shares and US$[●] of which is allocated to the Warrants.
The underwriters expect to deliver
the Common Shares and/or Pre-Funded Warrants and Warrants against
payment in U.S. dollars in New York, New York on or about [●],
2022.
In reviewing this prospectus
you should carefully consider the matters described under the
caption "Risk Factors" beginning on page 12. This investment
involves a high degree of risk. You should purchase units only if
you can afford a complete loss.
Neither the Securities and
Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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The Canadian and United States federal governments regulate
drugs through the Controlled Drugs and Substances Act (Canada) (the
"CDSA") and the Controlled Substances Act (21 U.S.C. § 811) (the
"CSA"), respectively, which place controlled substances in a
schedule. Under the CDSA, N,N
Dimethyltryptamine ("DMT") is currently a Schedule III drug. The
CDSA generally prohibits all uses of controlled substances unless
an exemption is granted under section 56 of the CDSA or the
regulations allow otherwise. The Minister of Health can grant
exemptions under section 56 of the CDSA to use controlled
substances if it is deemed to be necessary for a medical or
scientific purpose or is otherwise in the public interest. Under
the CSA, DMT is currently a Schedule I drug. Health Canada and the
United States Food and Drug Administration (the "FDA") have not
approved DMT as a drug for any indication. If the Company is found
to be in violation of the CSA or any of the requirements of the
United States Drug Enforcement Administration (the "DEA"), the DEA
may seek civil penalties, refuse to renew necessary registrations,
or initiate proceedings to revoke any registrations once granted,
which could have a material adverse effect on the Company's
business, operations and financial condition. Certain states of the
United States also maintain separate controlled substance laws and
regulations, including licensing, recordkeeping, security,
distribution, and dispensing requirements. State authorities,
including boards of pharmacy, regulate use of controlled substances
in each state. Failure to maintain compliance with applicable
requirements, particularly as manifested in the loss or diversion
of controlled substances, can result in enforcement action that
could have a material adverse effect on the Company's business,
operations and financial condition. |
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In the United States, DMT is
classified as Schedule I drug under the CSA and the Controlled
Substances Import and Export Act (the "CSIEA") and as such, medical
and recreational use is illegal under the United States federal
laws. The Company's program involving a Schedule I drug is
conducted in strict compliance with the laws and regulations
regarding the production, storage and use of Schedule I drugs. As
such, all facilities engaged with such substances by or on behalf
of the Company do so under current licenses and permits issued by
appropriate federal, state and local governmental agencies. The
Company does not advocate for the legalization of psychedelic
substances and does not deal with psychedelic substances except
within laboratory or clinical trial settings conducted within
approved regulatory frameworks. The Company currently sponsors and
works with licensed third parties in the United States to conduct
any clinical trials and research relating to psychedelics and
currently does not handle controlled or restricted substances under
the CDSA or CSA. If the Company were to conduct this work without
reliance on third parties, it would need to obtain the required
licenses, approvals and authorizations from Health Canada, the FDA
or other applicable regulatory bodies. The Company does not have
any direct or indirect involvement with the illegal selling,
production or distribution of any substances in the jurisdictions
in which it operates and does not intend to have any such
involvement. It is a criminal offence to possess substances under
the CDSA and the CSA without a prescription.
In the United States, the
Company's activities are potentially subject to additional
regulation by various federal, state, and local authorities in
addition to the FDA, including, among others, the Centers for
Medicare and Medicaid Services, other divisions of Health and Human
Services, or HHS, (for example, the Office of Inspector General),
the Department of Justice, and individual U.S. Attorney offices
within the Department of Justice, and state and local governments.
In addition, all psychedelic research being conducted must have
authorization by the DEA. In Canada, the Company's activities are
potentially subject to additional regulation by various federal and
provincial authorities, including, among others, Health
Canada.
Although the
Company is in compliance with all applicable laws (and intends to
continue to comply), there can be no assurance that new laws,
regulations, and guidelines will not be enacted, or that existing
or future laws and regulations will not be changed. Any
introduction of new (or changes to existing) laws, regulations, and
guidelines, or other unanticipated events could, among other
things, (a) require the Company to implement extensive changes to
its operations (which could, among other things increase compliance
costs, and give rise to material liabilities), and (b) subject the
Company to heightened scrutiny by regulators, stock exchanges,
clearing agencies and other authorities.
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Sole Book-Running Manager
Ladenburg Thalmann
The date of this Prospectus is
April [●], 2022
Table of Contents
You should rely only on the
information contained in this prospectus, any amendment or
supplement to this prospectus or any free writing prospectus
prepared by or on our behalf. Neither we, nor the underwriters have
authorized any other person to provide you with different or
additional information. Neither we, nor the underwriters, take
responsibility for, nor can we provide assurance as to the
reliability of, any other information that others may provide. The
underwriters are not making an offer to sell these securities in
any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is accurate only as of the
date of this prospectus or such other date stated in this
prospectus, and our business, financial condition, results of
operations and/or prospects may have changed since those
dates.
Except as otherwise set forth in
this prospectus, neither we nor the underwriters have taken any
action to permit a public offering of these securities outside the
United States or to permit the possession or distribution of this
prospectus outside the United States. Persons outside the United
States who come into possession of this prospectus must inform
themselves about and observe any restrictions relating to the
offering of these securities and the distribution of this
prospectus outside the United States.
Unless the context otherwise
requires, in this prospectus, the term(s) "we", "us", "our",
"Company", "our company", "Algernon" and "our business" refer to
Algernon Pharmaceuticals Inc.
We completed a 100-for-1 reverse
stock split in connection with our application to list on the
Nasdaq Capital Market.
PRESENTATION OF FINANCIAL
INFORMATION
The Company reports under
International Financial Reporting Standards as issued by the
International Accounting Standards Board, referred to as "IFRS".
None of the financial statements were prepared in accordance with
generally accepted accounting principles in the United States. The
Company presents its financial statements in Canadian dollars.
CURRENCY AND EXCHANGE
RATES
All dollar amounts in this
prospectus are expressed in Canadian dollars unless otherwise
indicated. Our accounts are maintained in Canadian dollars, and our
financial statements are prepared in accordance with International
Financial Reporting Standards as issued by the International
Accounting Standards Board. All references to "U.S. dollars",
"USD", or to "US$" are to United States dollars.
The following table sets forth, for
each period indicated, the high and low exchange rate for U.S.
dollars expressed in Canadian dollars, and the average exchange
rate for the periods indicated. Averages for year-end periods are
calculated by using the exchange rates on the last day of each full
month during the relevant period. These rates are based on the
noon-buying rate certified for custom purposes by the U.S. Federal
Reserve Bank of New York set forth in the H.10 statistical release
of the Federal Reserve Board. These rates are provided solely for
your convenience and are not necessarily the exchange rates that we
used in preparation of our consolidated financial statements, pro
forma financial statements or elsewhere in this prospectus or will
use in the preparation of our periodic reports or any other
information to be provided to you. We make no representation that
any Canadian dollar or U.S. dollar amounts referred to in this
prospectus could have been or could be converted into U.S. dollars
or Canadian dollars, as the case may be, at any particular rate or
at all.
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Year Ended
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Period
End
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Period
Average
Rate
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High Rate
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Low Rate
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August 31, 2021
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$1.2629
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$1.3075
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$1.4539
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$1.2031
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August 31, 2020
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$1.3034
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$1.3461
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$1.4539
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$1.2962
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Last Six Months
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| March 2022 |
$1.2482 |
$1.2660 |
$1.2806 |
$1.2482 |
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February 2022
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$1.2662
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$1.2711
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$1.2840
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$1.2647
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January 2022
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$1.2694
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$1.2622
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$1.2757
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$1.2462
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December 2021
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$1.2777
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$1.2796
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$1.2941
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$1.2651
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November 2021
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$1.2812
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$1.2567
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$1.2812
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$1.2355
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October 2021
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$1.2397
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$1.2434
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$1.2657
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$1.2328
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Certain conversions from U.S.
dollars into Canadian dollars have been made for your convenience
at US$1.00 = $1.2777, the noon-buying price on (December 31,
2021).
MARKET, INDUSTRY AND OTHER
DATA
Projections, assumptions and
estimates of our future performance and the future performance of
the industry in which we operate is necessarily subject to a high
degree of uncertainty and risk due to a variety of factors,
including those described in the sections entitled "Risk
Factors", "Special Note Regarding Forward Looking
Statements", and elsewhere in this prospectus. These and other
factors could cause results to differ materially from those
expressed in the estimates made by the independent parties and
us.
SPECIAL NOTE REGARDING FORWARD
LOOKING STATEMENTS
This prospectus contains statements
that constitute "forward-looking statements". Any statements that
are not statements of historical facts may be deemed to be
forward-looking statements. These statements appear in a number of
different places in this prospectus and, in some cases, can be
identified by words such as "anticipates", "estimates", "projects",
"expects", "contemplates", "intends", "believes", "plans", "may",
"will", or their negatives or other comparable words, although not
all forward-looking statements contain these identifying words.
Forward-looking statements in this prospectus may include, but are
not limited to, statements and/or information related to:
• uncertainties
with respect to the effects of COVID-19 will directly and
indirectly have on the Company;
• the Company's
plans to develop, obtain regulatory approval for and commercialize
its lead product candidates;
• the Company's
ability to conduct successful clinical trials for its product
candidates;
• the perceived
benefits of the Company's product candidates over other treatments
for NASH (as defined herein), IBS (as defined herein) and CKD (as
defined herein);
• the Company's
expectations regarding its revenue, expenses and research and
development operations;
• the Company's
anticipated cash needs and its need for additional financing;
• the Company's
intention to grow the business and its operations;
• expectations
with respect to future production costs and capacity;
• expectations
regarding the Company's growth rates and growth plans and
strategies;
• expectations
with respect to the approval of the Company's license
applications;
• the Company's
ability to expand into international markets;
• the potential
size of markets for the Company's product candidates;
• the Company's
ability to partner with other pharmaceutical companies to develop,
obtain regulatory approval and commercialize its product
candidates;
• expectations
regarding regulatory requirements and developments for its product
candidates;
• the Company's
competitive position and the regulatory environment in which the
Company operates;
• the Company's
expected business objectives for the next twelve months;
• the Company's
plans with respect to the payment of dividends;
• the Company's
ability to obtain additional funds through the sale of equity or
debt commitments; and
• the ability of
the Company's products to access markets.
Forward-looking statements are
based on certain assumptions and analyses made by the Company in
light of the Company's experience and perception of historical
trends, current conditions and expected future developments and
other factors it believes are appropriate and are subject to risks
and uncertainties. In making the forward‐looking statements
included in this Prospectus, the Company has made various material
assumptions, including but not limited to, the following: (i) the
Company obtaining the necessary regulatory approvals; (ii) that
regulatory requirements will be maintained; (iii) general business
and economic conditions; (iv) the Company's ability to successfully
execute its plans and intentions; (v) the availability of financing
on reasonable terms; (vi) the Company's ability to attract and
retain skilled staff; (vii) market competition; (viii) the products
and technology offered by the Company's competitors; (ix) the
maintenance of the Company's current good relationships with its
suppliers, service providers and other third parties; (x) financial
results, future financial position and expected growth of cash
flows; (xi) business strategy, including budgets, projected costs,
projected capital expenditures, taxes, plans, objectives, potential
synergies and industry trends; (xii) research and development;
(xiii) expectations concerning the size and growth of the global
medical technology market; and (xiv) the effectiveness of the
Company's products compared to its competitors' products. Although
the Company believes that the assumptions underlying these
statements are reasonable, they may prove to be incorrect, and the
Company cannot assure that actual results will be consistent with
these forward‐looking statements. Given these risks, uncertainties
and assumptions, investors should not place undue reliance on these
forward‐looking statements. Whether actual results, performance or
achievements will conform to the Company's expectations and
predictions is subject to a number of known and unknown risks,
uncertainties, assumptions and other factors, including those
listed under "Risk Factors", which include:
Risks related to our business
and industry
• DMT is
classified as a Schedule III drug in Canada and as such, medical
and recreational use is illegal in Canada and certain other
jurisdictions including Finland and the U.K. where we have engaged
third party contractors, which are required to conduct programs
involving DMT in strict compliance under licenses and permits
issued by federal, state and local governmental agencies. Violation
of any applicable laws could result in the loss of the necessary
licenses and permits for Schedule III drugs by our third party
contractors which could have an adverse effect on our
operations.
• We rely on third
parties for the execution of a significant portion of our
regulatory, pharmacovigilance medical information, and logistical
responsibilities. Failure of third party providers to meet
regulatory requirements could result in repeat pre‐clinical and
clinical trials, which would delay the regulatory approval process
or result in termination of pre‐clinical and clinical trials. Any
of the foregoing could have a material adverse effect on our
business, prospects, results of operations and financial
condition.
• Regulatory
approvals are required prior to each clinical trial and we and our
contract research organizations may fail to obtain the necessary
approvals to commence or continue clinical testing in one or more
jurisdictions. We and our contract research organizations could
fail to receive regulatory approval for our planned research for
many reasons which could have an adverse effect on our
business.
• Psychedelic
therapy is a new and emerging industry with ambiguous existing
regulations and uncertainty as to future regulations. As such, new
risks may emerge, and management may not be able to predict all
such risks or be able to predict how such risks may result in
actual results differing from the results contained in any
forward‐looking statements.
• The market for
psychedelic inspired medicines is uncertain, and any adverse or
negative publicity, scientific research, limiting regulations,
medical opinion and public opinion relating to the consumption of
psychedelic inspired medicines may have a material adverse effect
on our operational results, consumer base and financial
results.
• None of the
Company's product candidates have to date received regulatory
approval for their intended commercial sale, which if not obtained
would prevent us from being able to market a pharmaceutical
product.
• Failure to
follow applicable regulatory requirements will have a materially
negative impact on our business. Furthermore, future changes in
legislation cannot be predicted and could irreparably harm our
business.
• There can be no
assurance that the steps taken by us to protect proprietary rights
will be adequate or that third parties will not infringe or
misappropriate our copyrights, trademarks and similar proprietary
rights, or that we will be able to detect unauthorized use and take
appropriate steps to enforce rights, which could have a material
adverse effect on our business and results of operations.
• Our clinical
trials for each product candidate may fail to adequately
demonstrate the safety and efficacy of that candidate, which could
force us to abandon our product development plans for that product
candidate.
• Pre-clinical and
clinical trials are lengthy and expensive and any delays could
result in increased costs to us and jeopardize or delay our ability
to obtain regulatory approval and commence product sales;
• We may be
required to suspend or discontinue clinical trials of a proposed
product because of adverse side effects or other safety risks that
could preclude approval of a drug candidate, which would harm our
ability to generate product revenue, which could have a material
adverse effect on our business.
• We may face
product liability exposure from our products that may cause injury,
which, if not covered by insurance, could result in significant
financial liability that could have a material adverse effect on
our business and results of operations.
• In light of our
current resources and limited experience, we may need to establish
successful third party relationships to successfully commercialize
our future product candidates, which failure to do so may prevent
us from generating sufficient revenue to fund further research and
development efforts.
• There can be no
assurance that contractual arrangements or other steps taken by us
to protect our intellectual property will prove sufficient to
prevent misappropriation of our technology or to deter independent
third-party development of similar technologies.
• Other companies
may claim that we infringe their intellectual property, whether
meritorious or not, could be time consuming and result in costly
litigation, which could have a material adverse effect upon our
business, prospects, results of operations and financial
condition.
• It is difficult
and costly to protect our proprietary rights, and we may not be
able to ensure their protection. If our patent position does not
adequately protect our product candidates, others could compete
against us more directly, which could materially harm our
business.
• Even if patents
are issued based on patent applications to which we have filed or
have been granted a license, because the patent positions of
pharmaceutical products are complex and uncertain, we cannot
predict the scope and extent of patent protection for our product
candidates, which if insufficient could have a material adverse
effect on our business and continued operations.
• The life of
patent protection is limited, and third parties could develop and
commercialize products and technologies similar or identical to
ours and compete directly with us after the patent licensed to us
expires, which could materially and adversely affect our ability to
commercialize our products and technologies.
• Our intellectual
property may not be sufficient to protect our product candidates
from competition, which may negatively affect our business as well
as limit our partnership or acquisition appeal.
• We may not be
able to access currently available and approved finished product
for our lead compounds, and/or may not able to gain approval to
conduct any Phase 2 trials in markets where the current
product is approved due to supply issues, which could have a
material adverse effect on our business and results of
operations.
General Risk
Factors:
• An investment in
our securities is speculative and involves a high degree of risk
and should be undertaken only by investors whose financial
resources are sufficient to enable them to assume such risks and
who have no need for immediate liquidity in their investment.
• We anticipate
that we will have negative cash flow from operating activities in
future periods. To the extent that we have negative cash flow in
any future period, certain of the net proceeds from any offering we
undertake may be used to fund such negative cash flow from
operating activities, if any.
• The impact of
the novel coronavirus (COVID-19) pandemic on the global economy and
our operations remains uncertain, could have a material adverse
impact on our business, financial condition and results of
operations.
• We are subject
to many risks common to a development stage company, including
under‐capitalization, cash shortages, limitations with respect to
personnel, financial and other resources and lack of revenues.
• Our future
operations are dependent upon the identification and successful
completion of equity or debt financing and the achievement of
profitable operations at an indeterminate time in the future.
• The market price
of the Common Shares may be subject to wide fluctuations in
response to many factors and other events and outside of our
control.
• We may become
party to litigation from time to time in the ordinary course of
business which could adversely affect our business.
• There is high
potential that we will face intense competition from other
companies, some of which can be expected to have longer operating
histories and more financial resources and research and
manufacturing than us. Increased competition by larger and better
financed competitors could materially and adversely affect our
business, financial condition and results of operations.
• Our success is
dependent upon the ability, expertise, judgment, discretion and
good faith of our senior management.
• There can be no
assurance that an active and liquid market for the Common Shares
will be maintained and an investor may find it difficult to resell
any of our securities.
• Our operations
may require licenses and permits from various governmental
authorities.
• Our business may
not be insurable or the insurance may not be purchased due to high
cost.
• If we cannot
successfully develop, manufacture and distribute our products, or
if we experience difficulties in the development process, such as
capacity constraints, quality control problems or other
disruptions, we may not be able to develop market‐ready commercial
products at acceptable costs, which would adversely affect our
ability to effectively enter the market.
• We may pursue
additional strategic transactions in the future, which could be
difficult to implement, disrupt our business or result in dilution
for existing shareholders.
• We are subject
to global economy risk resulting in liquidity risks in meeting our
development and future operating cost requirements in instances
where cash positions are unable to be maintained or appropriate
financing is unavailable.
• Our consolidated
financial statements contain an explanatory paragraph regarding
substantial doubt about our ability to continue as a going concern,
which could prevent us from obtaining new financing on reasonable
terms or at all.
• We expect that
the Common Share or Warrant price may continue to be more volatile
than that of a seasoned issuer for the indefinite future which may
subject the Company to securities litigation.
• Future sales may
affect the market price of the Common Shares as we may determine
there is a need to raise funds through the issuance of additional
Common Shares or the issuance of debt instruments or other
securities convertible into Common Shares.
• We incur
significant costs as a result of being a public company listed on
Nasdaq and these costs will grow after we cease to qualify as an
"emerging growth company."
• Because the
price per Common Share being offered is substantially higher than
our net tangible book value per Common Share, you will experience
immediate dilution in the net tangible book value of any Common
Share you purchase in this offering.
• The exercise of
Warrants offered hereby will cause significant dilution to holders
of our equity securities.
Although management has attempted
to identify important factors that could cause actual results to
differ materially from those contained in forward-looking
statements, there may be other factors that cause results not to be
as anticipated, estimated or intended. Forward-looking statements
might not prove to be accurate, as actual results and future events
could differ materially from those anticipated in such
forward-looking statements. Accordingly, readers should not place
undue reliance on forward-looking statements. We wish to advise you
that these cautionary remarks expressly qualify, in their entirety,
all forward-looking statements attributable to our company or
persons acting on our company's behalf. We do not undertake to
update any forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
statements, except as, and to the extent required by, applicable
securities laws. You should carefully review the cautionary
statements and risk factors contained in this prospectus and other
documents that we may file from time to time with the securities
regulators.
PROSPECTUS SUMMARY
The following summary highlights,
and should be read in conjunction with, the more detailed
information contained elsewhere in this prospectus. You should read
carefully the entire document, including our historical and pro
forma financial statements and related notes, to understand our
business, the Units, the pre-funded units, the Common Shares, the
Warrants, the Pre-funded Warrants and the other considerations that
are important to your decision to invest in the offering. You
should pay special attention to the "Risk Factors" section
beginning on page 12. Unless otherwise indicated, all information
in this prospectus assumes no exercise of the underwriters'
over-allotment option.
All references to "$" or "dollars",
are expressed in Canadian dollars unless otherwise indicated.
Our Company
Algernon Pharmaceuticals Inc.
("Algernon" or the "Company") is a clinical stage
drug re-purposing company that investigates already approved drugs,
and naturally occurring compounds, for new disease applications,
moving them efficiently and safely into new human trials,
developing new formulations and seeking new regulatory approvals.
The Company specifically investigates compounds that have never
been approved in the U.S. or Europe to avoid off label prescription
writing. Off label prescription writing can interfere with the
normal economic pricing models and revenue potential of newly
approved drug treatments and may make them less attractive targets
for licensing or acquisition.
Algernon's drug discovery program
is based on the concept of drug repurposing. Drug repurposing is
the process of discovering new therapeutic uses for existing drugs.
Repurposing offers several benefits over traditional drug
development including a reduction in investment and risk, shorter
research periods and as a result, a longer active patent life.
Drug Compound Legend
NP-120 ("Ifenprodil")
Ifenprodil is an
N-methyl-D-aspartate (NMDA) receptor antagonist specifically
targeting the NMDA-type subunit 2B (GluN2B). Ifenprodil prevents
glutamate signalling. The NMDA receptor is found on many tissues
including lung cells, T-cells, and neutrophils.
Ifenprodil was developed in France
and introduced into the Japanese market in 1982 by a global
pharmaceutical company.
AP-188 ("DMT")
DMT also known as
N,N-Dimethyltryptamine, is a known psychedelic compound that
is part of the tryptamine family (other drugs in the tryptamine
family include psilocybin and psilocin). DMT occurs naturally in
many plant species and animals and has been used in religious
ceremonies as a traditional spiritual medicine by indigenous people
in the Amazonian basin. DMT can also be synthesised in a
laboratory.
DMT is a highly regulated substance
globally, falling under various restrictions and classifications.
Provided DMT is proven to be efficacious in a Phase 3 clinical
trial, prior to its approval, in multiple jurisdictions, certain
applications and process will need to be engaged in in order to
commercialize the product which depends on the occurrence of
regulatory changes for psychedelic-based products, that
Health Canada and the FDA have not approved for any indication.
Additionally, in the United States, DMT is a Schedule I Controlled
Substances under the CSA and as such we are dependent on the FDA
rescheduling DMT.
NP-251 ("Repirinast")
Repirinast was developed in Japan
and approved in 1987. Repirinast is no longer available in Japan
where it was initially approved as an anti-allergy medication. It
was withdrawn from the market in 2013 for sales reasons.
Intellectual Property
With the exception of DMT, all of
the Company's lead compounds are older than 20 years and the
original composition of matter patents have expired. Since DMT is
naturally occurring, a composition of matter patent was never
filed. In order to build an intellectual property position around
its discoveries, Algernon has filed new method of use patents for
each of its lead compounds in the above stated disease areas, in
addition to dosing and formulation patents. For example, and as it
pertains to the treatment of kidney diseases, the Company is the
owner of United States patent application 17/255,364 (published as
United States publication number 2021/0260000) and its related
counterpart applications in Canada, China, the European Union, and
Japan, Where Algernon deemed it necessary, the Company has also
filed patent applications in respect of chemical modifications and
derivatives of certain of its lead compounds (see, for example,
international patent applications PCT/CA2020/050407,
PCT/CA2020/050408, and PCT/CA2020/050409).
The Company signed a license
agreement relating to its Ifenprodil cancer program with Dartmouth
College for the rights to U.S. Pat. No. 9,084,775 that covers,
methods for diagnosing and treating neuroendocrine cancer, specific
to NMDA receptors. This exclusive agreement gives the Company
control over the intellectual property licensed, until the date on
which the last of the valid claims under the licensed patents in
the licensed territory expires, lapses or is declared invalid,
provided Dartmouth and the U.S. government retains certain standard
rights under the Bayh-Dole Act 35 U.S.C. §200-212 (the "Bayh-Dole
Act") and all regulations promulgated thereunder, as amended, and
any successor statutes and regulations, specifically, under the
"march-in" provisions of the Bayh-Dole Act, the U.S. government may
have the right under limited circumstances to require the patent
owners to grant exclusive, partially exclusive or non-exclusive
rights to third parties for intellectual property discovered
through the government-funded program. The Bayh-Dole Act is United
States legislation that deals with inventions that arise from
federal government funded research, including the patent licensed
from Dartmouth College. The agreement provided for an upfront
payment and reimbursement for patent costs incurred, along with
milestones and a low single digit royalty in the event the drug is
commercialized within the United States prior to the expiry of the
patent. To date, the Company has made payments totaling $37,358
under this license agreement. The aggregate amount of all
development, regulatory and milestones under the agreement are not
known at this time, however are not expected to exceed
US$300,000.
Incorporation
The Company was incorporated
pursuant to the laws of the Province of British Columbia, Canada,
on April 10, 2015 as "PBA Acquisitions Corp.", a wholly-owned
subsidiary of Petro Basin Energy Corp. ("Algernon Parent").
On July 23, 2015, the Company changed its name to "Breathtec
Biomedical, Inc.". The Company entered into an arrangement
agreement with Algernon Parent and the plan of arrangement was
completed on September 23, 2015. On February 19, 2019, the Company
changed its name to "Algernon Pharmaceuticals Inc.". The Company
has an August 31, fiscal year end. As of August 31, 2021, the
Company had 1,674,868 Common Shares outstanding.
The Company's principal executive
offices are located at Suite 1500 - 1055 West Georgia Street,
Vancouver, British Columbia, Canada, V6E 4N7. Our telephone number
is (604) 398-4175 ext 701. The Company's website address is
http://algernonpharmaceuticals.com. Information on our website
does not constitute part of this Prospectus. The Company's
registered and records office is also located at Suite 1500 - 1055
West Georgia Street, Vancouver, British Columbia, V6E 4N7.
Implications of Being a Foreign
Private Issuer
We are considered a foreign private
issuer as defined in Rule 3b-4(c) under the U.S. Securities
Exchange Act of 1934, as amended or the Exchange Act. In our
capacity as a foreign private issuer, we are exempt from certain
rules under the Exchange Act that impose certain disclosure
obligations and procedural requirements for proxy solicitations
under Section 14 of the Exchange Act. In addition, our officers,
directors and principal shareholders are exempt from the reporting
and "short-swing" profit recovery provisions of Section 16 of the
Exchange Act and the rules under the Exchange Act with respect to
their purchases and sales of our securities. Moreover, we are not
required to file periodic reports and financial statements with the
SEC as frequently or as promptly as U.S. companies whose securities
are registered under the Exchange Act. In addition, we are not
required to comply with Regulation FD, which restricts the
selective disclosure of material information.
We may take advantage of these
exemptions until such time as we are no longer a foreign private
issuer. We would cease to be a foreign private issuer at such time
as more than 50% of our outstanding voting securities are held by
U.S. residents and any of the following three circumstances
applies: (i) the majority of our executive officers or
directors are U.S. citizens or residents, (ii) more than 50% of our
assets are located in the United States or (iii) our business is
administered principally in the United States.
We have taken advantage of certain
reduced reporting and other requirements in this prospectus.
Accordingly, the information contained herein may be different than
the information you receive from other public companies in which
you hold equity securities.
Implications of Being an
Emerging Growth Company
We qualify as an "emerging growth
company" as defined in the Jumpstart Our Business Startups Act of
2012, or the "JOBS Act". An emerging growth company may take
advantage of specified reduced reporting and other burdens that are
otherwise applicable generally to public companies. These
provisions include:
• the
ability to include only two years of audited financial statements
and only two years of related management's discussion and analysis
of financial condition and results of operations disclosure;
and
• an
exemption from the auditor attestation requirement in the
assessment of our internal control over financial reporting
pursuant to the Sarbanes-Oxley Act of 2002.
We may take advantage of these
provisions for up to five years or such earlier time that we are no
longer an emerging growth company. We would cease to be an emerging
growth company if we have more than US$1.07 billion in annual
revenue, have more than US$700 million in market value of our
Common Shares held by non-affiliates or issue more than US$1
billion of non-convertible debt over a three-year period.
Strategy
The Company is currently
investigating a number of its repurposed drug compounds in both
preclinical and clinical studies for the global disease areas of
idiopathic pulmonary fibrosis (IPF) and chronic cough, stroke,
pancreatic cancer (PC), small cell lung cancer (SCLC) and chronic
kidney disease (CKD).
The Company is currently conducting
a Phase 2 clinical trial for Ifenprodil for IPF and Chronic Cough,
and is in the planning stages of a DMT Phase 1 clinical trial for
stroke. The Company is also in the planning stages of a Phase 1
clinical trial for Ifenprodil for PC and SCLC and is engaged in
preclinical studies for Repirinast for CKD.
The compounds being advanced by the
Company have all been tested in disease-specific pre-clinical in
vivo animal research studies, using either the leading approved
drug for the indication or an advanced clinical candidate as a
positive control in cases where no appropriate approved drug was
available. The decision to advance candidates for further
investigation is based on a number of factors including their
performance in the preclinical studies. The Company is currently
conducting a Phase 2 study in Australia in idiopathic pulmonary
fibrosis and chronic cough, and early in 2021 completed a Phase 2
Ifenprodil study in COVID-19. On July 6, 2021, the Company
announced that based on the results of the data from the Phase 2
study that it would not be advancing Ifenprodil in a Phase 3
COVID-19 study. The Company's other programs have yet to begin
human trials for the Company's target indications.
Algernon's business strategy is to
advance a number of its lead compounds into human clinical trials
as efficiently and as cost-effectively as possible by leveraging
the currently existing regulatory approval and finished product
supply in the country of origin where the drugs were originally
approved. Conducting off label Phase 2 trials in the drugs'
currently approved market would save the Company from having to
synthesize the compounds and conduct all of the preclinical
toxicology work. This additional work would in comparison, add
significant time and costs to the Company's development timeline
and budget.
Under some conditions, if a
repurposed drug is being currently manufactured, it may be possible
to access this supply in order to conduct early-stage clinical
trials, so that the Company may not need to manufacture its own
supply. However, there may be other conditions where the
Company may also choose to engage in its own manufacture. This
would include conducting multiple trials for different diseases
with the same lead compound. A final decision will be made on which
compounds, diseases and locations will be included in the phase 2
trials once all of the feasibility studies are completed.
The Company is planning to conduct
a minimum of two Phase 2 clinical trials simultaneously in order to
improve the Company's potential of success. Ensuring the Company is
not conducting and relying on a single Phase 2 clinical trial is
key part of the current strategy. In the United States, the
regulatory pathway is well established. A high-level synopsis of
the process is as follows: (i) preclinical research in animals
establishes toxicity and animal efficacy; synthesis and formulation
are also characterized - this process takes between 3-8 years; (2)
following preclinical work, an Investigational New Drug application
("IND") is filed, allowing use of the drug candidate in
humans; (3) Phase 1 first in human studies establish safety,
pharmacokinetics and preliminary dose information and takes
approximately one year - these Phase 2 studies test the drug for
safety in the target population and provide early efficacy signals
- one to two years is typical, and multiple phase 2 studies may be
required; (4) Phase 3 studies are large and used to support
registration, and provide confirmation of efficacy as well as
safety - these Phase 3 studies can take multiple years to complete;
and (5) following completion of clinical work, a New Drug
Application (NDA) is filed; after one year review, marketing
authorization may be granted. All new chemical entities must follow
this path. See chart on page 35 for more details.
Subject to the success of the Phase
2 trials, the Company plans to engage in licensing, partnership and
or acquisition (as the target) discussions with a number of larger
pharmaceutical partners. If for whatever reason, a partnership,
license or acquisition opportunities do not materialize, the
Company will explore moving all successful Phase 2 compounds
forward into Phase 3 clinical trials.
At present, the Company does not
plan to develop a sales team to advance the marketing sales and
distribution of any of its lead compounds if such compounds achieve
regulatory approval in any given market. The Company's strategy is
to look for moments of inflection where the potential exists to be
able to consummate the best possible licensing, partnership or
acquisition transaction.
Recent Developments
There have been no material
developments in the Company's business since [●], 2022 the date of
this Prospectus, which have not been disclosed in this
Prospectus.
OFFERING SUMMARY
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Units
Offered:
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[●]
Units (excluding the over-allotment discussed below), based on the
last reported price of our Common Shares as reported on the OTCQB
on [●], 2022, which was US$[●] per share.
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Pre-funded units Offered:
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We are
also offering to those purchasers, if any, whose purchase of Units
in this offering would otherwise result in the purchaser, together
with its affiliates and certain related parties, beneficially
owning more than 4.99% (or, at the election of the purchaser,
9.99%) of our outstanding Common Shares immediately following the
consummation of this offering, the opportunity to purchase, if such
purchasers so choose, pre-funded units (each pre-funded unit
consisting of one Pre-Funded Warrant and one Warrant), in lieu of
Units that would otherwise result in any such purchaser's
beneficial ownership exceeding 4.99% (or, at the election of the
purchaser, 9.99%) of our outstanding Common Shares. The purchase
price of each pre-funded unit will equal the public offering price
at which Units are being sold to the public in this offering, minus
US$0.0001. For each pre-funded unit we sell, the number of Units we
are offering will be decreased on a one-for-one basis.
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Separability of Common Shares and Warrants:
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Neither
the Units nor pre-funded units will be issued or certificated.
Instead, the Common Shares and the Warrants underlying the Units
and the Pre-Funded Warrants and Warrants underlying the pre-funded
units will be issued separately and may be resold separately,
although they will have been purchased together in this
offering.
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Shares Offered:
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[●]
Common Shares are included in the Units (excluding the
over-allotment discussed below), assuming a public offering price
of US$[●] per Unit, which is the last reported sale price of our
Common Shares on the OTCQB on [●], 2022.
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Warrants Offered:
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[●]
Warrants are included in the Units and the pre-funded units
(excluding the over-allotment discussed below), assuming a public
offering price of US$[●] per Unit, which is the last reported sale
price of our Common Shares on the OTCQB on [●], 2022. Each Warrant
will entitle the holder to purchase one Common Share at an exercise
price of [●]% of the price of the Units in this offering, or US$[●]
per share. The Warrants shall be exercisable from the date of
issuance, which is the closing date of this offering, and expire on
the 5 year anniversary thereof. If, upon exercise of the Warrants,
a holder would be entitled to receive a fractional interest in a
share, we will, at our election, upon exercise, either pay a cash
adjustment in respect of such fraction (in an amount equal to such
fraction multiplied by the exercise price) or round the number of
shares to be received by the holder up to the next whole
number.
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Pre-Funded Warrants Offered:
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[●]
Pre-Funded Warrants are included in the pre-funded units (excluding
the over-allotment discussed below), assuming a public offering
price of US$[●] per pre-funded unit, which is the last reported
sale price of our Common Shares on the OTCQB on [●], 2022 minus
$0.0001. Each Pre-Funded Warrant will have an exercise price of
$0.0001 per Common Share and will be immediately exercisable. This
prospectus also relates to the offering of the Common Shares
issuable upon exercise of the Pre-Funded Warrants.
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Offering Price:
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US$[●]
per Unit and US$[●] per pre-funded unit.
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Over-allotment:
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We have
granted the underwriters a 45-day option (commencing from the date
of this Prospectus) to purchase up to an additional [●] Common
Shares and/or up to an additional [●] Warrants at the public
offering price per Common Share and per Warrant, respectively, as
set forth on the cover page of this prospectus, less the
underwriting discount and commissions, solely to cover
over-allotments, if any, in each instance assuming a public
offering price of [●] per Unit, US$[●] of which is allocated to the
Common Shares and US$[●] or which is allocated to the Warrants.
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Shares Outstanding Prior to the Offering:
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[●]
Common Shares as of [●], 2022.
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Shares Outstanding After the Offering:
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[●] Common Shares
will be outstanding immediately after the offering (or [●] Common
Shares if the underwriters exercise their over-allotment option in
full) assuming: (i) a public offering price of US$[●] per Unit,
which is the last reported sale price of our Common Shares on the
OTCQB on [●], 2022; (ii) no sale of pre-funded units; and (iii) no
exercise of Warrants.
Assuming: (i)
that all of the Warrants sold in the offering are exercised; (ii)
we issue no additional Common Shares; and (iii) that no pre-funded
units are sold [●] Common Shares will be outstanding after the
offering (or [●] if the underwriters exercise their over-allotment
option in full) assuming a public offering price of US$[●] per
Unit, which is the last reported sale price of our Common Shares on
the OTCQB on [●], 2022.
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Gross Proceeds:
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We will
receive gross proceeds of approximately US$[●] (or US$[●] if the
underwriters exercise their over-allotment option in full). We
would receive additional gross proceeds of approximately US$[●] if
all of the Warrants included in the Units are exercised (or US$[●]
if the underwriters exercise their over-allotment option in full
and the Warrants included in the Units are exercised), in all
instances assuming no pre-funded units are issued.
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Use of Proceeds:
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We
intend to use the net proceeds from this offering to fund research
and development programs, general and administrative expenses and
for working capital purposes.
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Compensation Warrants:
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We have
agreed to issue to the Representative Compensation Warrants to
purchase up to a total of [●] Common Shares (equal to 5.0% of the
Common Shares and/or Pre-Funded Warrants sold in this offering).
The Compensation Warrants will be immediately exercisable from time
to time, in whole or in part, commencing on the date of issuance
until 5 years from the commencement of sales of this offering. The
Compensation Warrants are exercisable at a per share price of
US$[●]. The Compensation Warrants and the Common Shares underlying
the Compensation Warrants are being registered hereby.
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The Representative:
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Ladenburg Thalmann & Co. Inc.
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Market for our Common Shares:
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Our
Common Shares are currently quoted on the OTCQB, and listed for
trading on the CSE and the XFRA under the symbols “AGNPF”, “AGN”
and “AGWO”, respectively. On April 13, 2022, the closing price of
our Common Shares was US$4.685, CAD$5.93 and €4.30 respectively. As
of April 13, 2022, the last reported sale price of our Common Share
on the OTCBQ was US$4.685 per share, and on April 13, 2022 we had
1,674,868 Common Shares outstanding. We intend on applying to have
our Common Shares listed on the Nasdaq Capital Market under the
symbol “[●]”. The successful listing of our Common Shares and
Warrants on the Nasdaq Capital Market is a condition of this
offering. We do not intend to apply for listing of the Pre-Funded
Warrants on the Nasdaq Capital Market.
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Market
for our Warrants:
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Currently, there is no public trading market for the Warrants
included in the Units and there is no assurance such a market will
develop. We intend on applying to have the Warrants listed on the
Nasdaq Capital Market under the symbol "[●]W". The successful
listing of our Common Shares and Warrants on the Nasdaq Capital
Market is a condition of this offering. We do not intend to apply
for listing of the Pre-Funded Warrants on the Nasdaq Capital
Market. Without an active trading market, the liquidity of
the Pre-Funded Warrants will be limited.
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Risk
Factors:
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See
"Risk Factors" and the other information in this Prospectus
for a discussion of the factors you should consider before deciding
to invest in our securities.
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Except as otherwise indicated, all
information in this prospectus is based on 1,674,868 Common Shares
outstanding as of April 13, 2022 and excludes the Common Shares
being offered by this prospectus and issuable upon exercise of the
Warrants, the Pre-Funded Warrants and Compensation Warrants and
also excludes the following:
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144,250 Common Shares issuable upon the exercise of outstanding
options, with a weighted-average exercise price of $10.91 per
share;
-
356,587 Common Shares issuable upon the exercise of outstanding
warrants with a weighted-average exercise price of $44.98 per
share; and
-
15,433 Common Shares issuable upon the exercise of broker
warrant units, with a weighted-average exercise price of $34.35 per
broker warrant unit.
Summary Financial Data
The summary financial information
set forth below has been derived from our audited financial
statements for the fiscal year ended August 31, 2021 and 2020 and
from our unaudited financial statements for the three months ended
November 30, 2021, respectively. You should read the following
summary financial data together with our historical and pro forma
financial statements and the notes thereto included elsewhere in
this prospectus and with the information set forth in the section
titled "Management's Discussion And Analysis Of Financial
Conditions And Results Of Operations".
Consolidated Statements of
Financial Position
|
|
Three Months
Ended
November 30,
2021
|
Three Months
Ended
November 30,
2020
|
Year Ended
August 31,
2021
|
Year ended
August 31,
2020
|
|
Revenue
|
$Nil
|
$Nil
|
$Nil
|
$Nil
|
|
Net Loss
|
$1,200,560
|
$3,434,448
|
$7,734,080
|
$8,538,207
|
|
Comprehensive Loss
|
$1,222,326
|
$3,463,091
|
$7,869,089
|
$8,554,912
|
|
Loss per Common Share - Basic and Fully Diluted
|
$0.72
|
$2.46
|
$5.05
|
$9.71
|
|
|
November 30,
2021
|
August 31,
2021
|
August 31,
2020
|
|
Cash and Cash Equivalents
|
$2,697,056
|
$2,411,163
|
$6,121,424
|
|
Total Current Assets
|
$3,244,005
|
$4,909,261
|
$7,738,225
|
|
Total Assets
|
$8,517,930
|
$10,137,632
|
$12,823,968
|
|
Current Liabilities
|
$624,938
|
$1,022,314
|
$607,053
|
|
Total Liabilities
|
$624,938
|
$1,022,314
|
$607,053
|
|
Total Shareholders' Equity
|
$7,892,992
|
$9,115,318
|
$12,216,915
|
RISK FACTORS
An investment in our
securities carries a significant degree of risk. You should
carefully consider the following risks, as well as the other
information contained in this prospectus, including our financial
statements and related notes included elsewhere in this prospectus,
before you decide to purchase our securities. Any one of
these risks and uncertainties has the potential to cause material
adverse effects on our business, prospects, financial condition and
operating results which could cause actual results to differ
materially from any forward-looking statements expressed by us and
a significant decrease in the value of our securities. Refer
to "Special Note Regarding Forward Looking Statements".
There is no assurance that we
will be successful in preventing the material adverse effects that
any of the following risks and uncertainties may cause, or that
these potential risks and uncertainties are a complete list of the
risks and uncertainties facing us. Furthermore, there may be
additional risks and uncertainties that we are presently unaware
of, or presently consider immaterial, that may become material in
the future and have a material adverse effect on us. You
could lose all or a significant portion of your investment due to
any of these risks and uncertainties.
Risks Related to our Business
and Industry
Violations of laws and
regulations could result in repercussions, and psychedelic inspired
drugs may never be approved as medicines.
In Canada, under the CDSA, DMT is
classified as a Schedule III drug and as such, medical and
recreational use is illegal under the Canadian laws. Certain other
jurisdictions, including the jurisdictions in which we have engaged
third-party contractors, including Finland (EU) and the United
Kingdom, have similarly regulated DMT. There is no guarantee that
DMT will ever be approved as medicines in any jurisdiction in which
we or our third-party contractors operate. Our third party
contractors are required to conduct programs involving DMT in
strict compliance with the laws and regulations regarding the
production, storage and use of DMT. As such, all facilities engaged
with such substances by or on our behalf do so under current
licenses and permits issued by appropriate federal, state and local
governmental agencies. While a portion of our research programs
will be focused on using psychedelic inspired compounds, we do not
have any direct or indirect involvement with the illegal selling,
production or distribution of any substances in the jurisdictions
in which we operate and do not intend to have any such involvement.
However, a violation of any Canadian laws and regulations, such as
the CDSA, or of similar legislation in the other jurisdictions,
including Finland (EU) and the United Kingdom, could result in
significant fines, penalties, administrative sanctions, convictions
or settlements arising from civil proceedings initiated by either
government entities in the jurisdictions in which we or our third
party contractors operate, or by private citizens, or through
criminal charges. The loss of the necessary licenses and permits
for Schedule III drugs by our third party contractors could have an
adverse effect on our operations.
We rely on third parties for
the execution of a significant portion of our regulatory,
pharmacovigilance, medical information and logistical
responsibilities.
We rely on third parties for the
execution of a significant portion of our regulatory,
pharmacovigilance medical information, and logistical
responsibilities and such third parties may fail to meet their
obligations as a result of inadequacies in their systems and
processes or execution failure. We also rely on third parties to
perform critical services, including preclinical testing, clinical
trial management, analysis and reporting, regulatory,
pharmacovigilance, medical information and logistical services.
Outsourcing these functions
involves risk that third party providers may not perform to our
standards, may not produce results in a timely manner or may fail
to perform at all. If any contract research organization fails to
comply with applicable regulatory requirements, the research and
data generated may be deemed unreliable to regulatory authorities.
Additional pre‐clinical and clinical trials may be required before
approval of marketing applications will be given. We cannot provide
assurance that all third party providers will meet the regulatory
requirements for research and pre‐clinical trials. Failure of third
party providers to meet regulatory requirements could result in
repeat pre‐clinical and clinical trials, which would delay the
regulatory approval process or result in termination of
pre‐clinical and clinical trials. Any of the foregoing could have a
material adverse effect on our business, prospects, results of
operations and financial condition.
These third parties may not be
available on acceptable terms when needed or, if they are
available, may not comply with all regulatory and contractual
requirements or may not otherwise perform their services in a
timely or acceptable manner. This non-compliance may be due to a
number of factors, including inadequacies in third-party systems
and processes or execution failure. We may also experience
unexpected cost increases that are beyond our control. As a result,
we may need to enter into new arrangements with alternative third
parties that may be costly. The time that it takes us to find
alternative third parties may cause a delay, extension or
termination of its preclinical studies or clinical trials and we
may incur significant costs to replicate data that may be lost.
These third parties may also have relationships with other
commercial entities, some of which may compete with Algernon. In
addition, if such third parties fail to perform their obligations
in compliance with regulatory requirements and our protocols, our
preclinical studies or clinical trials may not meet regulatory
requirements or may need to be repeated and its regulatory filings,
such as marketing authorizations or new drug submissions, may not
be completed correctly or within the applicable deadlines. As a
result of Algernon's dependence on third parties, we may face
delays or failures outside of our direct control in our efforts to
develop product candidates.
We are subject to regulatory
approval risks.
Algernon's and its contract
research organizations' research and development activities are and
will be significantly regulated by a number of governmental
entities, including Health Canada, the European Medicines Agency
(the "EMA"), the Home Office in the U.K. and the FDA.
Regulatory approvals are required prior to each clinical trial and
we and our contract research organizations may fail to obtain the
necessary approvals to commence or continue clinical testing in one
or more jurisdictions. The time required to obtain approval by
regulatory authorities is unpredictable but typically takes many
years following the commencement of clinical trials. Any analysis
of data from clinical activities we and our contract research
organizations perform is subject to confirmation and interpretation
by regulatory authorities, which could delay, limit or prevent
regulatory approval. Approval policies, regulations, or the type
and amount of clinical data necessary to gain approval may change
during the course of a product candidate's clinical development and
may vary by jurisdiction. We and our contract research
organizations could fail to receive regulatory approval for our
planned research for many reasons, including but not limited
to:
• disagreement
with the design or implementation of clinical trials;
• failure to
demonstrate that a product candidate is safe and effective for its
proposed indication;
• failure of
clinical trials to meet the level of statistical significance
required for approval;
• failure to
demonstrate that a product candidate's clinical and other benefits
outweigh its safety risks;
• disagreement
with our interpretation of data from preclinical studies or
clinical trials;
• the
insufficiency of data collected from clinical trials to support the
submission and filing of a submission to obtain regulatory
approval;
• deficiencies in
the manufacturing processes or the failure of facilities of
collaborators with whom we contract for clinical supplies to pass a
pre-approval inspection; or
• changes in the
approval policies or regulations that render our preclinical and
clinical data insufficient for approval.
We are subject to psychedelic
regulatory risks.
Psychedelic therapy is a new and
emerging industry with ambiguous existing regulations and
uncertainty as to future regulations. Certain psychedelics may be
illegal substances other than when used for scientific or medical
purposes. As such, new risks may emerge, and management may not be
able to predict all such risks or be able to predict how such risks
may result in actual results differing from the results contained
in any forward‐looking statements. This industry is subject to
extensive controls and regulations, which may significantly affect
the financial condition of market participants. The marketability
of any product may be affected by numerous factors that are beyond
our control and cannot be predicted, such as changes to government
regulations, including those relating to taxes and other government
levies which may be imposed. Changes in government levies,
including taxes, could make future capital investments or
operations uneconomic. The psychedelic therapy industry is also
subject to numerous legal challenges, which may significantly
affect the financial condition of market participants and which
cannot be reliably predicted.
Our drug candidate DMT, is
currently a Schedule I controlled substance in the U.S. and has
similar classification in most global regulatory jurisdictions.
Commercial sales in any market where the drug is current restricted
will require new classification. We will formally apply using the
efficacy data from our human trials in order to seek
reclassification. There is no guarantee that even with positive
efficacy data from human trials that the drug will be rescheduled
and allowed to be sold in any market.
There is ongoing risk that new
restrictions may be issued that may negatively affect our current
planned preclinical and clinical studies. Specifically in the U.S.,
if the FDA does not reschedule the drug, we may be subject to
quotas (drug supply amounts), which could have a negative effect on
our ability to conduct preclinical and clinical research, which
could have an adverse effect on our business and results of
operation.
Decriminalization of
psychedelics.
Despite the current status of DMT
as a controlled substance in Canada, the European Union
("EU"), the United Kingdom and United States, there may be
changes in the status of DMT under the laws of certain
jurisdictions. Possession of psilocybin, for example, was voted to
be decriminalized in May 2019 in Denver and in November 2020,
voters in Oregon approved the legal medical use of "psilocybin
products", including magic mushrooms, to treat mental health
conditions in licensed facilities with registered therapists
(Measure 109). The legalization of psychedelics with inadequate
regulatory oversight may lead to the development of psychedelic
tourism in such states in clinics without proper therapeutic
infrastructure or adequate clinical research. While drug laws
pertaining to DMT are less likely to be as forthcoming, the
expansion of such an industry which could put patients at risk may
bring reputational and regulatory risk to the entire industry,
leading to challenges for Algernon to achieve regulatory approval.
The legalization of psilocybin, and potentially other psychedelic
compounds (including DMT) in the future may also impact commercial
sales for Algernon due to a reduced barrier to entry leading to a
risk of increasing competition.
We may face difficulties in
enforcing contracts.
Due to the nature of our business
and the fact that certain of our contracts involve the possession,
manufacture, production or supply of DMT, the use of which is not
legal under UK, EU, U.S. or Canadian law and in certain other
jurisdictions, we may face difficulties in enforcing our contracts
in the courts in the UK, EU, U.S. or Canada. The inability to
enforce any of our contracts could have a material adverse effect
on our business, operating results, financial condition or
prospects.
In order to manage our contracts
with contractors, we will ensure that such contractors are
appropriately licensed. Were such contractors to operate outside
the terms of these licenses, we may experience an adverse effect on
our business, including the pace of development of our product.
The success of the industry
in which we operate may be significantly influenced by the public's
perception of psychedelic inspired medicinal
applications.
The success of the industry in
which we operate may be significantly influenced by the public's
perception of psychedelic inspired medicinal applications. There is
no guarantee that future scientific research, publicity,
regulations, medical opinion, and public opinion relating to
psychedelic inspired medicine will be favourable. The industry in
which we operate is in its early stages and is constantly evolving,
with no guarantee of viability. The market for psychedelic inspired
medicines is uncertain, and any adverse or negative publicity,
scientific research, limiting regulations, medical opinion and
public opinion relating to the consumption of psychedelic inspired
medicines may have a material adverse effect on our operational
results, consumer base and financial results. While we are
undertaking research programs using psychedelic inspired compounds,
and does not advocate for the legalization of any psychedelic
substances or deal with psychedelic substances except within
laboratory and clinical trial settings conducted within approved
regulatory frameworks, any unfavourable publicity or consumer
perception regarding psychedelic substances (in addition to
psychedelic inspired medicines) could also have a material adverse
effect on our operational results, consumer base and financial
results.
The psychedelic therapy
industry is difficult to quantify and investors will be reliant on
their own estimates of the accuracy of market data.
Because the psychedelic therapy
industry is in a nascent stage with uncertain boundaries, there is
a lack of information about comparable companies available for
potential investors to review in deciding about whether to invest
in Algernon and, few, if any, established companies whose business
model we can follow or upon whose success we can build.
Accordingly, investors will have to rely on their own estimates in
deciding about whether to invest in Algernon. There can be no
assurance that our estimates are accurate or that the market size
is sufficiently large for our business to grow as projected, which
may negatively impact our financial results.
The success of our business
also depends in part upon our ability to identify, license or
discover additional product candidates.
Although a substantial amount of
our effort will focus on the continued research and preclinical and
clinical testing, potential approval and commercialization of our
existing product candidates, the success of our business also
depends in part upon our ability to identify, license or discover
additional product candidates. Our research programs or licensing
efforts may fail to yield additional product candidates for
clinical development for a number of reasons, including but not
limited to the following:
• our research or
business development methodology or search criteria and process may
be unsuccessful in identifying potential product candidates;
• we may not be
able or willing to assemble sufficient resources to acquire or
discover additional product candidates;
• our product
candidates may not succeed in pre‐clinical or clinical testing;
• our product
candidates may be shown to have harmful side effects or may have
other characteristics that may make the products unmarketable or
unlikely to receive marketing approval;
• competitors may
develop alternatives that render our product candidates obsolete or
less attractive;
• product
candidates we develop may be covered by third parties' patents or
other exclusive rights;
• the market for a
product candidate may change during our program so that such a
product may become unreasonable to continue to develop;
• a product
candidate may not be capable of being produced in commercial
quantities at an acceptable cost, or at all; and
• a product
candidate may not be accepted.
If any of these events occurs, we
may be forced to abandon our development efforts to identify,
license or discover additional product candidates, which could have
a material adverse effect on our business, prospects, results of
operations and financial condition and could potentially cause us
to cease operations. Research programs to identify new product
candidates require substantial technical, financial and human
resources. We may focus our efforts and resources on potential
programs or product candidates that ultimately prove to be
unsuccessful.
None of our product
candidates has to date received regulatory approval for their
intended commercial sale.
None of our product candidates has
to date received regulatory approval for their 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 jurisdiction's extensive regulatory approval
process. In general, significant research and development and
clinical studies are required to demonstrate the safety and
efficacy of a product candidate before it can be submitted for
regulatory approval. Even if a product candidate is approved by the
applicable regulatory authority, we may not obtain approval for an
indication whose market is large enough to recover 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.
Failure to follow regulatory
requirements will have a materially negative impact on our
business.
Our prospects must be considered in
light of the risks, expenses, shifts, changes and difficulties
frequently encountered with companies whose businesses are
regulated by various federal, state and local governments. The
health care, wellness, workers compensation and similar companies
are subject to a variety of regulatory requirements and the
regulatory environment is ever changing particularly with recent
legislation, the full impact of which is not yet understood as
regulations have not been issued. Failure to follow applicable
regulatory requirements will have a materially negative impact on
our business. Furthermore, future changes in legislation cannot be
predicted and could irreparably harm our business.
We will require equity and/or
debt financing to support on-going operations, to undertake capital
expenditures or to undertake acquisitions or other business
combination transaction. There can be no assurance that additional
financing will be available to us when needed or on terms which are
acceptable.
We will require equity and/or debt
financing to support on‐going operations, to undertake capital
expenditures or to undertake acquisitions or other business
combination transactions. There can be no assurance that additional
financing will be available to us when needed or on terms which are
acceptable. Our inability to raise financing to fund capital
expenditures or acquisitions could limit our growth and may have a
material adverse effect upon our business, prospects, results of
operations and financial condition.
If additional funds are raised
through further issuances of equity or convertible debt securities,
existing shareholders could suffer significant dilution, and any
new equity securities issued could have rights, preferences and
privileges superior to those of holders of Common Shares. Any debt
financing secured in the future could involve restrictive covenants
relating to capital raising activities and other financial and
operational matters, which may make it more difficult for us to
obtain additional capital and to pursue business opportunities,
including potential acquisitions.
Because of the early stage of the
industry in which we will operate, we expect to face additional
competition from new entrants. To become and remain competitive, we
will require research and development, marketing, sales and client
support. We may not have sufficient resources to maintain research
and development, marketing, sales and client support efforts on a
competitive basis which could materially and adversely affect our
business, financial condition and results of operations.
We could be adversely
affected if we do not adequately protect our intellectual property
rights.
We could be adversely affected if
we do not adequately protect our intellectual property rights. We
regard our marks, inventions, confidential information and trade
secrets and other intellectual property rights as critical to our
success. To protect our investments and our rights in these various
intellectual properties, we may rely on a combination of patents,
trademark and copyright law, trade secret protection and
confidentiality agreements and other contractual arrangements with
our employees, clients, strategic partners, acquisition targets and
others to protect proprietary rights. There can be no assurance
that the steps taken by us to protect proprietary rights will be
adequate or that third parties will not infringe or misappropriate
our copyrights, trademarks and similar proprietary rights, or that
we will be able to detect unauthorized use and take appropriate
steps to enforce rights. In addition, although we believe that our
proprietary rights do not infringe on the intellectual property
rights of others, there can be no assurance that other parties will
not assert infringement claims against us. Such claims, even if not
meritorious, could result in the expenditure of significant
financial and managerial resources.
We rely on trade secrets to protect
technology where we do not believe patent protection is appropriate
or obtainable. Trade secrets are difficult to protect. While
commercially reasonable efforts to protect trade secrets will be
used, strategic partners, employees, consultants, contractors or
scientific and other advisors may unintentionally or willfully
disclose information to competitors.
If we are not able to defend
patents or trade secrets, then we will not be able to exclude
competitors from developing or marketing competing products, and we
may not generate enough revenue from product sales to justify the
cost of development of products and to achieve or maintain
profitability.
Our clinical trials for each
product candidate may fail to adequately demonstrate the safety and
efficacy of that candidate, which could force us to abandon our
product development plans for that product candidate. We will rely
on third parties to conduct our product development, chemistry
activities, as well as pre‐clinical and clinical trials. If these
third parties do not perform as contractually required or as
otherwise expected we may not be able to obtain regulatory approval
for our product candidates, which may prevent us from becoming
profitable.
Our clinical trials for each
product candidate may fail to adequately demonstrate the safety and
efficacy of that candidate, which could force us to abandon our
product development plans for that product candidate. Before
obtaining regulatory approval for the commercial sale of any of our
product candidates, we must demonstrate, through lengthy, complex
and expensive pre‐clinical testing and clinical trials, that each
product is both safe and effective for use in each target
indication. Clinical trial results are inherently difficult to
predict, and the results we have obtained or may obtain from
third‐party trials or from our own trials may not be indicative of
results from future trials. We may also suffer significant setbacks
in advanced clinical trials even after obtaining promising results
in earlier studies.
Although we intend to modify any of
our protocols in ongoing studies or trials to address any setbacks,
there can be no assurance that these modifications will be adequate
or that these or other factors will not have a negative effect on
the results of our clinical trials. This could significantly
disrupt our efforts to obtain regulatory approvals and
commercialize our product candidates. Furthermore, we may
voluntarily suspend or terminate our clinical trials if at any time
we believe that they present an unacceptable safety risk to
patients, either in the form of undesirable side effects or
otherwise. If we cannot show that our product candidates are both
safe and effective in clinical trials, we may be forced to abandon
our business plan.
We will rely on third parties to
conduct our product development, chemistry activities, as well as
pre‐clinical and clinical trials. If these third parties do not
perform as contractually required or as otherwise expected we may
not be able to obtain regulatory approval for our product
candidates, which may prevent us from becoming profitable.
As part of the regulatory process,
we would need to conduct clinical trials for any drug candidate to
demonstrate safety and efficacy to the satisfaction of the
regulatory authorities, including the FDA for the U.S. and Health
Canada for Canada should we decide to seek approval in those
jurisdictions. Clinical trials are subject to rigorous regulatory
requirements and are expensive and time‐consuming to design and
implement. We may experience delays in clinical trials for any of
our drug candidates, and the projected timelines for continued
development of the technologies and related drug candidates by us
may otherwise be subject to delay or suspension. Any planned
clinical trials might not begin on time; may be interrupted,
delayed, suspended, or terminated once commenced; might need to be
redesigned; might not enroll a sufficient number of patients; or
might not be completed on schedule, if at all. Clinical trials can
be delayed for a variety of reasons, including the following:
• delays in
obtaining regulatory approval to commence a trial;
• imposition of a
clinical hold following an inspection of our clinical trial
operations or trial sites by the FDA or other regulatory
authorities;
• imposition of a
clinical hold because of safety or efficacy concerns by the FDA, a
data safety monitoring board or committee or by us;
• delays in
reaching agreement on acceptable terms with prospective contract
research organizations and clinical trial sites;
• delays in
obtaining required monitoring Board approval at each site for
clinical trial protocols;
• delays in
identifying, recruiting and training suitable clinical
investigators;
• delays in
recruiting suitable patients to participate in a trial;
• delays in having
patients complete participation in a trial or return for
post‐treatment follow‐up;
• clinical sites
dropping out of a trial to the detriment of enrollment;
• time required to
add new sites;
• delays in
obtaining sufficient supplies of clinical trial materials,
including comparator drugs;
• delays resulting
from negative or equivocal findings of a data safety monitoring
board for a trial; or
• adverse or
inconclusive results from pre‐clinical testing or clinical
trials.
Patient enrollment, a significant
factor in the timing of clinical trials, is affected by many
factors, including the size and nature of the patient population,
the proximity of patients to clinical sites, the eligibility
criteria for the trial, the design of the clinical trial, competing
clinical trials, and clinicians' and patients' perceptions as to
the potential advantages of the biologic being studied in relation
to other available therapies, including any new biologics that may
be approved for the indications we are investigating. Any of these
delays in completing our clinical trials could increase costs, slow
down the product development and approval process, and jeopardize
our ability to commence product sales and generate revenue.
Pre-clinical and clinical
trials will be lengthy and expensive.
Pre‐clinical and clinical trials
will be lengthy and expensive. Delays in clinical trials are common
for many reasons and any such delays could result in increased
costs to us and jeopardize or delay our ability to obtain
regulatory approval and commence product sales as currently
contemplated.
We may be required to suspend
or discontinue clinical trials because of adverse side effects or
other safety risks that could preclude approval of our drug
candidates.
Clinical trials may be suspended or
terminated at any time for a number of reasons. A clinical trial
may be suspended or terminated by us, our collaborators, the FDA,
or other regulatory authorities because of a failure to conduct the
clinical trial in accordance with regulatory requirements or our
clinical protocols, presentation of unforeseen safety issues or
adverse side effects, failure to demonstrate a benefit from using
the investigational biologic, changes in governmental regulations
or administrative actions, lack of adequate funding to continue the
clinical trial, or negative or equivocal findings of the data
safety monitoring board for a clinical trial. We may voluntarily
suspend or terminate our clinical trials if at any time we believe
that they present an unacceptable risk to participants. If we elect
or are forced to suspend or terminate any clinical trial of any
proposed product that we develop, the commercial prospects of such
proposed product will be harmed and our ability to generate product
revenue from such proposed product will be delayed or eliminated.
Any of these occurrences could have a materials adverse effect on
our business, prospects, results of operations and financial
condition.
We face product liability
exposure, which, if not covered by insurance, could result in
significant financial liability.
The risk of product liability is
inherent in the research, development, manufacturing, marketing and
use of pharmaceutical products. Product candidates and products
that we may commercially market in the future may cause, or may
appear to have caused, injury or dangerous drug reactions, and
expose us to product liability claims. These claims might be made
by patients who use the product, healthcare providers,
pharmaceutical companies, corporate collaborators or others selling
such products. If our product candidates during clinical trials
were to cause adverse side effects, we may be exposed to
substantial liabilities. Regardless of the merits or eventual
outcome, product liability claims or other claims related to our
product candidates may result in:
• decreased demand
for our products due to negative public perception;
• injury to our
reputation;
• withdrawal of
clinical trial participants or difficulties in recruiting new trial
participants;
• initiation of
investigations by regulators;
• costs to defend
or settle related litigation;
• a diversion of
management's time and resources;
• substantial
monetary awards to trial participants or patients;
• product recalls,
withdrawals or labeling, marketing or promotional restrictions;
• loss of revenues
from product sales; and
• the inability to
commercialize any of product candidates, if approved.
We intend to obtain clinical trial
insurance once a clinical trial is initiated. However, the
insurance coverage may not be sufficient to reimburse us for any
expenses or losses we may suffer. Insurance coverage is becoming
increasingly expensive, and, in the future, we, or any of our
collaborators, may not be able to maintain insurance coverage at a
reasonable cost or in sufficient amounts or at all to protect
against losses due to liability. Even if our agreements with any
future collaborators entitle us to indemnification against product
liability losses, such indemnification may not be available or
adequate should any claim arise. Our inability to obtain sufficient
product liability insurance at an acceptable cost to protect
against product liability claims could prevent or inhibit the
commercialization of our product candidates. If a successful
product liability claim or series of claims is brought against us
for uninsured liabilities or in excess of insured liabilities, our
assets may not be sufficient to cover such claims and our business
operations could be impaired.
Should any of the events described
above occur, this could have a material adverse effect on our
business, prospects, results of operations and financial
condition.
In light of our current
resources and limited experience, we may need to establish
successful third‐party relationships to successfully commercialize
our future product candidates.
The long‐term viability of our
future product candidates may depend, in part, on our ability to
successfully establish new strategic collaborations with
pharmaceutical and biotechnology companies, non‐profit
organizations and government agencies. Establishing strategic
collaborations and obtaining government funding is difficult and
time‐consuming. Potential collaborators may reject collaborations
based upon their assessment of our financial, regulatory or
intellectual property position or based on their internal pipeline;
government agencies may reject contract or grant applications based
on their assessment of public need, the public interest, the
ability of our products to address these areas, or other reasons
beyond our expectations or control. If we fail to establish a
sufficient number of collaborations or government relationships on
acceptable terms, we may not be able to commercialize any future
drug candidates or generate sufficient revenue to fund further
research and development efforts.
Even if we establish new
collaborations or obtains government funding, these relationships
may never result in the successful development or commercialization
of any drug candidates for several reasons, including the fact
that:
• we may not have
the ability to control the activities of our partners and cannot
provide assurance that they will fulfill their obligations to us,
including with respect to the license, development and
commercialization of drug candidates, in a timely manner or at
all;
• such partners
may not devote sufficient resources to our drug candidates or
properly maintain or defend our intellectual property rights;
• relationships
with collaborators could also be subject to certain fraud and abuse
laws if not structured properly to comply with such laws;
• any failure on
the part of our partners to perform or satisfy their obligations to
us could lead to delays in the development or commercialization of
drug candidates and affect our ability to realize product revenue;
and
• disagreements,
including disputes over the ownership of technology developed with
such collaborators, could result in litigation, which would be
time‐consuming and expensive, and may delay or terminate research
and development efforts, regulatory approvals and commercialization
activities.
If we or our collaborators fail to
maintain our existing agreements or in the event we fail to
establish agreements as necessary, we could be required to
undertake research, development, manufacturing and
commercialization activities solely at our own expense. These
activities would significantly increase capital requirements and,
given our lack of sales, marketing and distribution capabilities,
significantly delay the commercialization of future drug
candidates.
Our business is subject to
rapid technological changes.
Our business is subject to rapid
technological changes. Failure to keep up with such changes could
have a material adverse effect on our business, prospects, results
of operations and financial condition. We are subject to the risks
of companies operating in the medical and healthcare business.
The market in which we compete is
characterized by rapidly changing technology, evolving industry
standards, frequent new service and product announcements,
introductions and enhancements and changing customer demands. As a
result, an investment in the Common Shares is highly speculative
and is only suitable for investors who recognize the high risks
involved and can afford a total loss of investment.
There can be no assurance
that contractual arrangements or other steps taken by us to protect
our intellectual property will prove sufficient to prevent
misappropriation of our technology or to deter independent
third-party development of similar technologies.
We regard the protection of our
copyrights, service marks, trademarks, trade dress and trade
secrets as critical to our future success and rely on a combination
of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary
rights in products and services. We have entered into
confidentiality and invention assignment agreements with our
officers and contractors, and nondisclosure agreements with parties
with which we conduct business in order to limit access to and
disclosure of our proprietary information. There can be no
assurance that these contractual arrangements or the other steps
taken by us to protect our intellectual property will prove
sufficient to prevent misappropriation of our technology or to
deter independent third‐party development of similar
technologies.
Other companies may claim
that we infringe their intellectual property, which could have a
material adverse effect upon our business, prospectus, results of
operations and financial condition.
To date, we have not been notified
that our technologies infringe the proprietary rights of third
parties, but there can be no assurance that third parties will not
claim infringement by us with respect to past, current or future
technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of
services and competitors in our industry segment grows. Any such
claim, whether meritorious or not, could be time consuming, result
in costly litigation, cause service upgrade delays or require us to
enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to
us or at all. As a result, any such claim could have a material
adverse effect upon our business, prospects, results of operations
and financial condition.
It is difficult and costly to
protect our proprietary rights, and we may not be able to ensure
their protection. If our patent position does not adequately
protect our product candidates, others could compete against us
more directly, which would harm our business, possibly
materially.
Our commercial success will depend
in part on obtaining and maintaining patent protection for our
current product candidates and future product candidates, the
processes used to manufacture them and the methods for using them,
as well as successfully defending these patents against third-party
challenges.
Our ability to stop third parties
from making, using, selling, offering to sell or importing our
product candidates is dependent in part upon the extent to which we
have rights under valid and enforceable patents or trade secrets
that cover these activities.
The patent positions of
pharmaceutical companies can be highly uncertain and involve
complex legal and factual questions for which important legal
principles remain unresolved. No consistent policy regarding the
breadth of claims allowed in pharmaceutical patents has emerged to
date in the U.S. or in foreign jurisdictions outside of the U.S.
Changes in either the patent laws or interpretations of patent laws
in the U.S. and other countries may diminish the value of our
intellectual property. Accordingly, we cannot predict the breadth
of claims that may be enforced in the patents that may be issued
from the applications we have filed. Further, if any patents we
obtain or license are deemed invalid and unenforceable, our ability
to commercialize or license our product candidates or technology
could be adversely affected.
Others may file patent applications
covering products and technologies that are similar, identical or
competitive to ours or important to our business. We cannot be
certain that any patent application owned by a third party will not
have priority over patent applications filed or in-licensed by us,
or that we or our licensors will not be involved in interference,
opposition, reexamination, review, reissue, post grant review or
invalidity proceedings before U.S. or non-U.S. patent offices. Such
proceedings are also expensive and time consuming.
The degree of future protection for
our proprietary rights is uncertain because legal means afford only
limited protection and may not adequately protect our rights or
permit us to gain or keep our competitive advantage. For
example:
•
others will likely be able to make compounds that are
similar to our product candidates, but that are not covered by the
claims of our licensed patents;
•
any patents that we obtain from licensing or
otherwise may not provide us with any competitive advantages;
•
any granted patents that we rely upon may be held
invalid or unenforceable as a result of legal challenges by third
parties; and
•
the patents of others may have an adverse effect on
our business.
We are also dependent on licensed
intellectual property. If we were to lose our rights to that
licensed intellectual property, we may not be able to continue
developing or commercializing the product candidates for which we
need the license.
Even if patents are issued
based on patent applications to which we have filed or have been
granted a license, because the patent positions of pharmaceutical
products are complex and uncertain, we cannot predict the scope and
extent of patent protection for our product candidates.
Any patents that may be issued
based on patent applications that we have been granted licenses to
may not ensure sufficient protection with respect to our activities
for a number of reasons, including without limitation the
following:
•
any issued patents may not have valid claims drafted
broadly enough to prevent competition from developing other similar
products;
•
if patents are not issued or if issued patents
expire, there may be no protections against competitors from making
the same products or generic equivalents;
•
there may be prior art of which we are not aware that
may affect the validity or enforceability of a patent claim;
•
there may be other patents existing, now or in the
future, in the patent landscape for our product candidates that we
seek to commercialize or develop, if any, that may affect our
freedom to operate;
•
if patents that we have been granted licenses to are
challenged, a court could determine that such patents are not valid
or enforceable, thereby affecting any exclusivity granted to us
pursuant to the licenses;
•
a court could determine that a competitor's
technology or product does not infringe patents that we have been
granted licenses to;
•
patents to which we have been granted licenses could
irretrievably lapse due to failure to pay fees or otherwise comply
with regulations, or could be subject to compulsory licensing,
thereby affecting any exclusivity granted to us pursuant to the
licenses; and
•
if we encounter delays in our development or clinical
trials, the period of time during which we could market our
products under patent protection would be reduced.
Obtaining and maintaining
patent protection depends on compliance with various procedural,
document submission, fee payment and other requirements imposed by
governmental patent agencies, and patent protection could be
reduced or eliminated for noncompliance with these
requirements.
Periodic maintenance fees on any
issued patent are due to be paid to the United States Patent and
Trademark Office (USPTO) and foreign Intellectual Property Offices
in several stages over the term of the patent. Maintenance fees are
also due for pending patent applications in some countries. The
USPTO and various foreign governmental patent agencies require
compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process.
While an inadvertent lapse can in many cases be cured by payment of
a late fee or by other means in accordance with the applicable
rules, there are situations in which noncompliance can result in
abandonment or lapse of the patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. Noncompliance events that could result in abandonment
or lapse of a patent or patent application include, but are not
limited to, failure to respond to office actions within prescribed
time limits, non-payment of fees and failure to properly legalize
and submit formal documents. In such an event, our competitors
might be able to enter the market, which would have a material
adverse effect on our business.
The life of patent protection
is limited, and third parties could develop and commercialize
products and technologies similar or identical to ours and compete
directly with us after the patent licensed to us expires, which
could materially and adversely affect our ability to commercialize
our products and technologies.
The life of a patent and the
protection it affords is limited. For example, in the United
States, if all maintenance fees are timely paid, the natural
expiration of a patent is generally 20 years from its earliest U.S.
non-provisional filing date. In Europe, the expiration of an
invention patent is 20 years from its filing date. Even if we
successfully obtain patent protection for an approved candidate, it
may face competition from biosimilar medications. Manufacturers of
biosimilar drugs may challenge the scope, validity or
enforceability of the patents underlying our technology in court or
before a patent office, and the patent holder may not be successful
in enforcing or defending those intellectual property rights and,
as a result, we may not be able to develop or market the relevant
product candidate exclusively, which would materially adversely
affect any potential sales of that product.
Given the amount of time required
for the development, testing and regulatory review of product
candidates, patents protecting such candidates might expire before
or shortly after such candidates are commercialized. As a result,
the patents and patent applications licensed to us may not provide
us with sufficient rights to exclude others from commercializing
products similar or identical to ours. Even if we believe that the
patents involved are eligible for certain (and time-limited) patent
term extensions, there can be no assurance that the applicable
authorities, including the FDA and the USPTO, and any equivalent
regulatory authority in other countries, will agree with our
assessment of whether such extensions are available, and such
authorities may refuse to grant extensions to such patents, or may
grant more limited extensions than requested. For example,
depending upon the timing, duration and specifics of any FDA
marketing approval of any product candidates we may develop, one or
more of the U.S. patents licensed to us may be eligible for limited
patent term extension under the Drug Price Competition and Patent
Term Restoration Action of 1984, or Hatch-Waxman Amendments. The
Hatch-Waxman Amendments permit a patent extension term of up to
five years as compensation for patent term lost during the FDA
regulatory review process. A patent term extension cannot extend
the remaining term of a patent beyond a total of 14 years from the
date of product approval, only one patent may be extended and only
those claims covering the approved drug, a method for using it, or
a method for manufacturing it may be extended. However, we may not
be granted an extension because of, for example, failing to
exercise due diligence during the testing phase or regulatory
review process, failing to apply within applicable deadlines,
failing to apply prior to expiration of relevant patents, or
otherwise failing to satisfy applicable requirements. Moreover, the
applicable time period or the scope of patent protection afforded
could be less than requested. If we are unable to obtain patent
term extension or term of any such extension is less than
requested, our competitors may obtain approval of competing
products following our patent expiration, and our business could be
harmed. Changes in either the patent laws or interpretation of the
patent laws in the United States and other countries may diminish
the value of our patents or narrow the scope of our patent
protection.
The patents and pending patent
applications licensed to us for our product candidates are expected
to expire on various dates. Upon the expiration, we will not be
able to assert such licensed patent rights against potential
competitors, which may materially adversely affect our business,
financial condition, results of operations and prospects.
There may be intellectual property
rights existing now, or in the future, relevant to our product
candidates that we seek to commercialize or develop, if any, that
may affect our ability to commercialize such product candidates.
Although the Company is not aware of any such intellectual property
rights, a third-party may hold intellectual property rights,
including patent rights that are important or necessary to the
development or manufacture of our product candidates. Even if all
our main product candidates are covered by patents, it may be
necessary for us to use the patented or proprietary technology of
third parties to commercialize our product candidates, in which
case we would be required to obtain a license from these third
parties. Such a license may not be available on commercially
reasonable terms, or at all, and we could be forced to accept
unfavorable contractual terms. In that event, we may be required to
expend significant time and resources to redesign our technology,
product candidates, or the methods for manufacturing them or to
develop or license replacement technology, all of which may not be
feasible on a technical or commercial basis. If we are unable to do
so, our business could be harmed.
The licensing or acquisition of
third-party intellectual property rights is a competitive area, and
several more established companies may pursue strategies to license
or acquire third party intellectual property rights that we may
consider attractive or necessary. These established companies may
have a competitive advantage over us due to their size, capital
resources and greater clinical development and commercialization
capabilities. In addition, companies that perceive us to be a
competitor may be unwilling to assign or license rights to us. We
also may be unable to license or acquire third party intellectual
property rights on terms that would allow us to make an appropriate
return on our investment or at all. If we are unable to
successfully obtain rights to required third party intellectual
property rights or maintain the existing intellectual property
rights we have, we may have to abandon development of the relevant
program or product candidate, which could have a material adverse
effect on our business, financial condition, results of operations,
and prospects.
We may infringe the
intellectual property rights of others, which may prevent or delay
our product development efforts and stop us from commercializing or
increase the costs of commercializing our product
candidates.
Our success will depend in part on
our ability to operate without infringing the proprietary rights of
third parties. We are not aware of any third party proprietary
rights that our planned products will infringe or misappropriate,
but we have not conducted any freedom to operate study as we are in
the earliest stages of development. We thus cannot guarantee that
our product candidates, or manufacture or use of our product
candidates, will not infringe third-party patents. Furthermore, a
third party may claim that we are using inventions covered by the
third party's patent rights and may go to court to stop us from
engaging in our normal operations and activities, including making
or selling our product candidates. These lawsuits are costly and
could affect our results of operations and divert the attention of
managerial and scientific personnel. Some of these third parties
may be better capitalized and have more resources than us. There is
a risk that a court would decide that we are infringing the third
party's patents and would order us to stop the activities covered
by the patents. In that event, we may not have a viable way around
the patent and may need to halt commercialization of our product
candidates. In addition, there is a risk that a court will order us
to pay the other party damages for having violated the other
party's patents. In addition, we may be obligated to indemnify our
licensors and collaborators against certain intellectual property
infringement claims brought by third parties, which could require
us to expend additional resources. The pharmaceutical 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 or methods of use. The coverage of patents is
subject to interpretation by the courts, and the interpretation is
not always uniform.
If we are sued for patent
infringement, we would need to demonstrate that our product
candidates or methods either do not infringe the patent claims of
the relevant patent or that the patent claims are invalid, and we
may not be able to do this. Proving invalidity is difficult. For
example, in the U.S., proving invalidity requires a showing of
clear and convincing evidence to overcome the presumption of
validity enjoyed by issued patents. Even if we are successful in
these proceedings, we may incur substantial costs and diversion of
management's time and attention in pursuing these proceedings,
which could have a material adverse effect on us. If we are unable
to avoid infringing the patent rights of others, we may be required
to seek a license, which may not be available, defend an
infringement action or challenge the validity of the patents in
court. Patent litigation is costly and time consuming. We may not
have sufficient resources to bring these actions to a successful
conclusion. In addition, if we do not obtain a license, develop or
obtain non-infringing technology, fail to defend an infringement
action successfully or have infringed patents declared invalid, we
may incur substantial monetary damages, encounter significant
delays in bringing our product candidates to market and be
precluded from manufacturing or selling our product candidates.
Some of our competitors may be able
to sustain the costs of complex patent litigation more effectively
than us or the third parties from whom we license intellectual
property because they have substantially greater resources. In
addition, any uncertainties resulting from the initiation and
continuation of any litigation could have a material adverse effect
on our ability to raise the funds necessary to continue our
operations.
We may become involved in
lawsuits to protect or enforce our intellectual property, which
could be expensive, time consuming and unsuccessful.
In addition to the possibility of
litigation relating to infringement claims asserted against it, we
may become a party to other patent litigation and other
proceedings, including inter parties review proceedings, post-grant
review proceedings, derivation proceedings declared by the USPTO
and similar proceedings in foreign countries, regarding
intellectual property rights with respect to our current or future
technologies or product candidates or products. The cost to us of
any patent litigation or other proceeding, even if resolved in our
favor, could be substantial. Some of our competitors may be able to
sustain the costs of such litigation or proceedings more
effectively than we can because of their substantially greater
financial resources. Patent litigation and other proceedings may
also absorb significant management time. Uncertainties resulting
from the initiation and continuation of patent litigation or other
proceedings could impair our ability to compete in the
marketplace.
Competitors may infringe or
otherwise violate our intellectual property, including patents that
may issue to or be licensed by us. As a result, we may be required
to file claims in an effort to stop third-party infringement or
unauthorized use. Any such claims could provoke these parties to
assert counterclaims against us, including claims alleging that we
infringe their patents or other intellectual property rights,
and/or that any of our intellectual property, including licensed
intellectual property, is invalid and/or unenforceable. This can be
prohibitively expensive, particularly for a company of our size,
and time-consuming, and even if we are successful, any award of
monetary damages or other remedy we may receive may not be
commercially valuable. In addition, in an infringement proceeding,
a court may decide that our asserted intellectual property is not
valid or is unenforceable, or may refuse to stop the other party
from using the technology at issue on the grounds that our
intellectual property does not cover its technology. An adverse
determination in any litigation or defense proceedings could put
our intellectual property at risk of being invalidated or
interpreted narrowly and could put our patent applications at risk
of not issuing.
If the breadth or strength of our
patent or other intellectual property rights is compromised or
threatened, it could allow third parties to exploit and, in
particular, commercialize our technology or products or result in
our inability to exploit and/or commercialize our technology and
products without infringing third-party intellectual property
rights. Further, third parties may be dissuaded from collaborating
with us.
Interference or derivation
proceedings brought by the USPTO or its foreign counterparts may be
necessary to determine the priority of inventions with respect to
our patent applications, and we may also become involved in other
proceedings, such as re-examination proceedings, before the USPTO
or its foreign counterparts. Due to the substantial competition in
the pharmaceutical space, the number of such proceedings may
increase. This could delay the prosecution of our pending patent
applications or impact the validity and enforceability of any
future patents that we may obtain. In addition, any such
litigation, submission or proceeding may be resolved adversely to
us and, even if successful, may result in substantial costs and
distraction to our management.
If we are not able to
adequately prevent disclosure of trade secrets and other
proprietary information, the value of our technology and product
could be significantly diminished.
We also rely on trade secrets to
protect our proprietary technologies, especially where we do not
believe patent protection is appropriate or obtainable. However,
trade secrets are difficult to protect. We rely in part on
confidentiality agreements with our employees, consultants, outside
scientific collaborators, sponsored researchers and other advisors
to protect our trade secrets and other proprietary information.
These agreements may not effectively prevent disclosure of
confidential information and may not provide an adequate remedy in
the event of unauthorized disclosure of confidential information.
In addition, others may independently discover our trade secrets
and proprietary information. For example, the FDA, as part of its
transparency initiative, is currently considering whether to make
additional information publicly available on a routine basis,
including information that we may consider to be trade secrets or
other proprietary information, and it is not clear at the present
time how the FDA's disclosure policies may change in the future, if
at all. Costly and time-consuming litigation could be necessary to
enforce and determine the scope of our proprietary rights, and
failure to obtain or maintain trade secret protection could
adversely affect our competitive business position.
We may be subject to claims
that our employees or consultants have wrongfully used or disclosed
alleged trade secrets.
As is common in the pharmaceutical
industry, we employ individuals who were previously employed at
other pharmaceutical companies, including our competitors or
potential competitors. Although we try to ensure that our employees
and consultants do not use the proprietary information or know-how
of others in their work for us, we may be subject to claims that we
or our employees or consultants have inadvertently or otherwise
used or disclosed trade secrets or other proprietary information of
their former employers. Litigation may be necessary to defend
against these claims. If we fail in defending any such claims, in
addition to paying monetary damages, we could lose valuable
intellectual property rights or personnel, which could adversely
impact our business. Even if we are successful in defending against
these claims, litigation could result in substantial costs and be a
distraction to management.
Our intellectual property may
not be sufficient to protect our product candidates from
competition, which may negatively affect our business as well as
limit our partnership or acquisition appeal.
We may be subject to competition
despite the existence of intellectual property we license or may in
the future own. We can give no assurances that our intellectual
property claims will be sufficient to prevent third parties from
designing around patents we own or license and developing and
commercializing competitive products. The existence of competitive
products that avoid our intellectual property could materially
adversely affect our operating results and financial condition.
Furthermore, limitations, or perceived limitations, in our
intellectual property may limit the interest of third parties to
partner, collaborate or otherwise transact with us, if third
parties perceive a higher than acceptable risk to commercialization
of our product candidates or future product candidates.
We may elect to sue a third party,
or otherwise make a claim, alleging infringement or other violation
of patents, trademarks, trade dress, copyrights, trade secrets,
domain names or other intellectual property rights that we either
own or license from a third party. If we do not prevail in
enforcing our intellectual property rights in this type of
litigation, we may be subject to:
•
paying monetary damages related to the legal expenses
of the third party;
•
facing additional competition that may have a
significant adverse effect on our product pricing, market share,
business operations, financial condition, and the commercial
viability of our product; and
•
restructuring our company or delaying or terminating
select business opportunities, including, but not limited to,
research and development, clinical trial, and commercialization
activities, due to a potential deterioration of our financial
condition or market competitiveness.
A third party may also challenge
the validity, enforceability or scope of the intellectual property
rights that we license or own and the result of these challenges
may narrow the scope or claims of or invalidate patents that are
integral to our product candidates in the future. There can be no
assurance that we will be able to successfully defend patents we
own or license in an action against third parties due to the
unpredictability of litigation and the high costs associated with
intellectual property litigation, amongst other factors.
Changes to patent law, including
the Leahy-Smith America Invests Act of 2011 and the Patent Reform
Act of 2009 and other future article of legislation, may
substantially change the regulations and procedures surrounding
patent applications, issuance of patents and prosecution of
patents. We can give no assurances that the patents of our licensor
can be defended or will protect us against future intellectual
property challenges, particularly as they pertain to changes in
patent law and future patent law interpretations.
Circumstances may occur where
we are not able to access currently available and approved finished
product for any of its lead compounds, and/or may not be able to
gain approval to conduct any Phase 2 trials in markets where the
current drug is approved.
This could cause delays in our
product development pipeline, estimated to be approximately 24
months, in order to source and/or develop new approved finished
product of these compounds and to conduct any preclinical studies
required. However, the production of our own finished product and
preclinical data could allow us to potentially conduct clinical
trials in multiple regulatory jurisdictions other than where it is
currently approved.
There can be no assurances that our
current business partners will be able to meet our timetable and
requirements to meet our current development pipeline timeline. We
have not contracted with alternate suppliers for production of our
drug candidates in the event that the current provider is unable to
scale up production, or if it otherwise experiences any other
significant problems. If we are unable to arrange for alternative
third-party manufacturing sources on commercially reasonable terms
or in a timely manner, we may be delayed in the development of our
product candidates. Further, our business partners must operate in
compliance with GMP and failure to do so could result in, among
other things, the disruption of product supplies. Our dependence
upon third parties for the manufacture of our products may
adversely affect our ability to develop and deliver products on a
timely and competitive basis.
We may be unable to obtain
and maintain the benefits associated with preferential
designations, including orphan drug and Fast Track.
For some
of the repurposed drug candidates being investigated by the
Company, the Company may file for a number of programs including
orphan disease designation, Fast Track status, and Breakthrough
Therapy designation, however there can be no assurances that the
Company will be able to obtain and maintain the benefits of these
programs and designations.
To be eligible for Fast Track status,
the drug must treat a serious condition and fulfill an unmet need,
such as providing a therapy where none exists or providing a
therapy which may be potentially better than the currently
available therapy. Breakthrough Therapy
designation is a process designed to expedite the development and
review of drugs that are intended to treat a serious condition and
preliminary clinical evidence indicates that the drug may
demonstrate substantial improvement over available therapy on a
clinically significant endpoint(s).
Our in-licensed intellectual property relating to cancer
programs has been discovered through government-funded programs and
thus may be subject to federal regulations such as “march-in”
rights and certain reporting requirements, and compliance with such
regulations may limit our exclusive rights and our ability to
contract with manufacturers.
Certain intellectual property
rights that have been in-licensed, specifically a patent that we
in-license from Dartmouth College, have been generated through the
use of U.S. government funding and are therefore subject to certain
federal regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or
future product candidates pursuant to the Bayh-Dole Act of 1980, or
the Bayh-Dole Act. These U.S. government rights include a
non-exclusive, non-transferable, irrevocable worldwide license to
use inventions for any governmental purpose. In addition, the U.S.
government has the right, under certain limited circumstances, to
require the licensor to grant exclusive, partially exclusive or
non-exclusive licenses to any of these inventions to a third party
if it determines that (i) adequate steps have not been taken to
commercialize the invention, (ii) government action is necessary to
meet public health or safety needs or (iii) government action is
necessary to meet requirements for public use under federal
regulations (also collectively referred to as “march-in rights”).
The U.S. government also has the right to take title to these
inventions if the licensor fails to disclose the invention to the
government or fails to file an application to register the
intellectual property within specified time limits. Any exercise by
the government of such rights could harm our competitive position,
business, financial condition, results of operations and prospects.
Intellectual property generated under a government-funded program
is also subject to certain reporting requirements, compliance with
which may require us to expend substantial resources.
In addition, the U.S. government
requires that any products embodying any of these inventions or
produced through the use of any of these inventions be manufactured
substantially in the United States. This preference for U.S.
industry may be waived by the federal agency that provided the
funding if the owner or assignee of the intellectual property can
show that reasonable but unsuccessful efforts have been made to
grant licenses on similar terms to potential licensees that would
be likely to manufacture the products substantially in the United
States or that under the circumstances domestic manufacture is not
commercially feasible. We may not be able to obtain a waiver of
this preference for U.S. industry, and this preference may limit
our ability to contract with non-U.S. product manufacturers for
products covered by such intellectual property. To the extent any
of our owned or in-licensed future intellectual property is
generated through the use of U.S. government funding, the
provisions of the Bayh-Dole Act may similarly apply. If we are
unable to comply with these manufacturing requirements, we may
experience a material adverse effect on our competitive position,
business, financial conditions, results of operations and
prospects.
General Risk Factors
There is no guarantee that an
investment in the securities described herein will provide any
positive return in the short term or long term.
There is no guarantee that an
investment in the securities described herein will provide any
positive return in the short term or long term. An investment in
our securities is speculative and involves a high degree of risk
and should be undertaken only by investors whose financial
resources are sufficient to enable them to assume such risks and
who have no need for immediate liquidity in their investment. An
investment in our securities described herein is appropriate only
for holders who have the capacity to absorb a loss of some or all
of their investment.
We have reported negative
cash flow from operations and we anticipate having negative cash
flow from operating activities in future periods.
During the year ended August 31,
2021, we had negative cash flow from operating activities, reported
a net comprehensive loss of $7,869,089 and net loss per Common
Share of $5.05. During the year ended August 31, 2020, we had
negative cash flow from operating activities, reported a net
comprehensive loss of $8,554,912 and net loss per Common Share of
$9.71. For the three months ended November 30, 2021, operating
activities provided $338,930 in cash, reported a net comprehensive
loss of $1,222,326 and a net loss per share of $0.72. We anticipate
that we will have negative cash flow from operating activities in
future periods. To the extent that we have negative cash flow in
any future period, certain of the net proceeds from any offering we
undertake may be used to fund such negative cash flow from
operating activities, if any.
The impact of the novel
coronavirus (COVID-19) pandemic on the global economy and our
operations remains uncertain, which could have a material adverse
impact on our business, financial condition and results of
operations.
Since December 31, 2019,
governments worldwide have been enacting emergency measures to
combat the spread of COVID-19. These measures, which include the
implementation of travel bans, self-imposed quarantine periods and
physical distancing, have caused material disruption to business
globally resulting in an economic slowdown. Global equity markets
have experienced significant volatility and weakness. The
development and operation of our business plan is dependent on
labour inputs and governmental approvals, which could be adversely
disrupted by the ongoing impact of COVID-19. While it is difficult
to predict the impact of the coronavirus outbreak on our business,
measures taken by the Canadian government and voluntary measures
undertaken by us with a view to the safety of our employees, may
adversely impact our business. While the pandemic has not
materially affected our clinical trials and research, its continued
disruption may delay our timeline with respect to planned clinical
trials. The ultimate extent of the impact of the pandemic on our
business, financial condition and results of operations will depend
on future developments, which are highly uncertain and cannot be
predicted, including new information that may emerge concerning the
severity of the pandemic and actions taken to contain or prevent
the further spread of COVID-19, among others. Thus, the current
pandemic could therefore materially and adversely affect our
business, financial condition and results of operations.
While governments have commenced
vaccination programs, the COVID-19 pandemic continues to result in
widespread global infections and fatalities, market volatility and
impact global economic activity. Despite reductions in such measures
and the current vaccination programs instituted by many
governments, there remains significant ongoing uncertainty
surrounding COVID-19 and the extent and duration of the impacts
that it may have on our operations and on global financial
markets.
We have a limited history of
operations and is considered a development stage
company.
We have a limited history of
operations and are considered a development stage company. As such,
we are subject to many risks common to such enterprises, including
under‐capitalization, cash shortages, limitations with respect to
personnel, financial and other resources and lack of revenues.
There is no assurance that we will be successful in achieving a
return on shareholders' investment and the likelihood of our
success must be considered in light of our early stage of
operations.
We are subject to
going‐concern risks.
The Company's consolidated
financial statements have been prepared on a going concern basis
under which an entity is considered to be able to realize its
assets and satisfy its liabilities in the ordinary course of
business. Our future operations are dependent upon the
identification and successful completion of equity or debt
financing and the achievement of profitable operations at an
indeterminate time in the future. There can be no assurances that
we will be successful in completing an equity or debt financing or
in achieving profitability. The financial statements do not give
effect to any adjustments relating to the carrying values and
classification of assets and liabilities that would be necessary
should we be unable to continue as a going concern.
The financial statements do not
give effect to any adjustments relating to the carrying values and
classification of assets and liabilities that would be necessary
should we be unable to continue as a going concern.
The market price of the
Common Shares may be subject to wide price
fluctuations.
The market price of the Common
Shares may be subject to wide fluctuations in response to many
factors, including variations in the operating results of the
Company and its subsidiaries, divergence in financial results from
analysts' expectations, changes in earnings estimates by stock
market analysts, changes in our business prospects and our
subsidiaries, general economic conditions, legislative changes, and
other events and factors outside of our control. In addition, stock
markets have from time to time experienced extreme price and volume
fluctuations, which, as well as general economic and political
conditions, could adversely affect the market price for our Common
Shares.
We are subject to litigation
risks.
We may become party to litigation
from time to time in the ordinary course of business which could
adversely affect our business. Should any litigation in which we
become involved be determined against us such a decision could
adversely affect our ability to continue operating and the market
price for the Common Shares. Even if we are involved in litigation
and win, litigation can redirect significant company resources.
Our commercial success will depend
in part on not infringing upon the patents and proprietary rights
of other parties and enforcing our own patents and proprietary
rights against others. The research and development programs will
be in highly competitive fields in which numerous third parties
have issued patents and pending patent applications with claims
closely related to the subject matter of our programs. We are not
currently aware of any litigation or other proceedings or claims by
third parties that our technologies or methods infringe on their
intellectual property.
While it is our practice to
undertake pre-filing searches and analyses of developing
technologies, they cannot guarantee that they have identified every
patent or patent application that may be relevant to the research,
development, or commercialization of our products. Moreover, we can
provide no assurance that third parties will not assert valid,
erroneous, or frivolous patent infringement claims.
There may be larger, better
financed companies which may become our competition.
There is high potential that we
will face intense competition from other companies, some of which
can be expected to have longer operating histories and more
financial resources and research and manufacturing than us.
Increased competition by larger and better financed competitors
could materially and adversely affect our business, financial
condition and results of operations.
At present, management believes
that there are a number of drug development companies, on a global
scale, that are advancing compounds for the treatment of CKD, IPF,
chronic cough, pancreatic and small cell lung cancers and are in
various stages of development from pre‐clinical up to and including
Phase 3 human trials.
Competitive pressures created by
any one of these companies, or by our competitors collectively,
could have a material adverse effect on our business, prospects,
results of operations and financial condition.
We believe that the principal
competitive factors in our market are our ability to develop drug
compounds that are more efficacious than the current gold standard
treatment of other drugs underdevelopment, to protect our
intellectual property and to also be the first company to deliver
its medical device products to the market on a timely and
cost-effective basis. Better performing drugs and the expansion of
existing technologies may increase the competitive pressures on us
by enabling our competitors to receive regulatory approval to
market for certain drugs before its compounds are approved, offer a
lower-cost product.
Any loss of the services of
key management could have a material adverse effect on our
business, prospects, results of operations and financial
condition.
Our success is dependent upon the
ability, expertise, judgment, discretion and good faith of our
senior management. While employment/consulting agreements are
customarily used as a primary method of retaining the services of
key management, these agreements cannot assure the continued
services of such persons. Any loss of the services of such
individuals could have a material adverse effect on our business,
prospects, results of operations and financial condition.
We have no earnings or
dividend record, and we do not anticipate paying any dividends on
the Common Shares in the foreseeable future
We have no earnings or dividend
record, and do not anticipate paying any dividends on the Common
Shares in the foreseeable future. Dividends paid by us would be
subject to tax and, potentially, withholdings.
There can be no assurance
that an active and liquid market for the Common Shares will be
maintained and an investor may find it difficult to resell any of
our securities.
The Common Shares are currently
listed on the CSE. There can be no assurance that an active and
liquid market for the Common Shares will be maintained and an
investor may find it difficult to resell any of our securities.
There can be no assurance
that required licenses and permits will be granted.
Our operations may require licenses
and permits from various governmental authorities. There can be no
assurance that such licenses and permits will be granted.
Our business may not be
insurable or insurance may not be purchased due to high
cost.
Our business may not be insurable
or the insurance may not be purchased due to high cost. Should such
liabilities arise, they could reduce or eliminate any future
profitability and result in increasing costs and a decline in the
value of the Company.
The lack of product for
commercialization could have a material adverse effect on our
commercialization plans and our business, prospectus, results of
operations and financial condition.
If we cannot successfully develop,
manufacture and distribute our products, or if we experience
difficulties in the development process, such as capacity
constraints, quality control problems or other disruptions, we may
not be able to develop market‐ready commercial products at
acceptable costs, which would adversely affect our ability to
effectively enter the market. A failure by us to achieve a low‐cost
structure through economies of scale or improvements in cultivation
and manufacturing processes could have a material adverse effect on
our commercialization plans and our business, prospects, results of
operations and financial condition.
The lack of experience of the
Company and/or Management in marketing, selling, and distribution
products may result in the failure of our business and a loss of
your investment.
The Company's management's lack of
experience in marketing, selling, and distributing its products
could lead to poor decision‐making which could result in
cost‐overruns and/or the inability to produce the desired products.
Although management of the Company intends to hire experienced and
qualified staff, this inexperience could also result in our
inability to consummate revenue contracts or any contracts at all.
Any combination of the aforementioned may result in the failure of
the Company and a loss of your investment.
We may pursue additional
strategic transactions in the future, which could be difficult to
implement, disrupt our business or result in dilution for existing
shareholders.
If appropriate opportunities
present themselves, we intend to acquire businesses, technologies,
services or products that we believe are strategic. We currently
have no understandings, commitments or agreements with respect to
any other material acquisition and no other material acquisition is
currently being pursued. There can be no assurance that we will be
able to identify, negotiate or finance future acquisitions
successfully, or to integrate such acquisitions with our current
business. The process of integrating an acquired business,
technology, service or product into the Company may result in
unforeseen operating difficulties and expenditures and may absorb
significant management attention that would otherwise be available
for ongoing development of our business. Future acquisitions could
result in potentially dilutive issuances of equity securities, the
incurrence of debt, contingent liabilities and/or amortization
expenses related to goodwill and other intangible assets, which
could materially adversely affect the our business, results of
operations and financial condition. Any such future acquisitions of
other businesses, technologies, services or products might require
us to obtain additional equity or debt financing, which might not
be available on terms favourable to us, or at all, and such
financing, if available, might be dilutive.
We must rely largely on our
own market research to forecast sales as detailed forecasts are not
generally obtainable from other sources at this early stage of the
industry.
We must rely largely on our own
market research to forecast sales as detailed forecasts are not
generally obtainable from other sources at this early stage of the
industry. A failure in the demand for its products to materialize
as a result of competition, technological change or other factors
could have a material adverse effect on our business, prospects,
results of operations and financial condition.
Certain of our directors and
officers are, or may be subject to conflicts of
interest.
Certain of our directors and
officers are, or may become directors and officers of other
companies, and conflicts of interest may arise between their duties
as officers and directors of the Company and as officers and
directors of such other companies.
We are subject to global
economic risks.
The ongoing economic slowdown and
downturn of global capital markets has generally made the raising
of capital by equity or debt financing more difficult. Access to
financing has been negatively impacted by the ongoing global
economic risks. As such, we are subject to liquidity risks in
meeting our development and future operating cost requirements in
instances where cash positions are unable to be maintained or
appropriate financing is unavailable. These factors may impact our
ability to raise equity or obtain loans and other credit facilities
in the future and on terms favourable to us. If uncertain market
conditions persist, our ability to raise capital could be
jeopardized, which could have an adverse impact on our operations
and the trading price of our Common Shares on the stock
exchange.
You may face difficulties in
protecting your interests, and your ability to protect your rights
through the U.S. federal courts may be limited because we are
incorporated under the laws of the Province of British Columbia, a
substantial portion of our assets are in Canada and all of our
executive officers and directors reside outside the United
Sates.
The Company is organized under the
laws of the Business Corporations Act (British Columbia)
(the "BCBCA") and our executive offices are located outside
of the United States in Vancouver, British Columbia. All of our
officers, our auditor and all our directors reside outside the
United States. In addition, a substantial portion of their assets
and our assets are located outside of the United States. As a
result, you may have difficulty serving legal process within the
United States upon us or any of these persons. You may also have
difficulty enforcing, both in and outside of the United States,
judgments you may obtain in U.S. courts against us or these persons
in any action, including actions based upon the civil liability
provisions of U.S. Federal or state securities laws. Furthermore,
there is substantial doubt as to the enforceability in Canada
against us or against any of our directors, officers and the expert
named in this prospectus who are not residents of the United
States, in original actions or in actions for enforcement of
judgments of U.S. courts, of liabilities based solely upon the
civil liability provisions of the U.S. federal securities laws. In
addition, shareholders in British Columbia companies may not have
standing to initiate a shareholder derivative action in U.S.
federal courts.
As a result, our public
shareholders may have more difficulty in protecting their interests
through actions against us, our management, our directors or our
major shareholders than would shareholders of a corporation
incorporated in a jurisdiction in the United States.
Our consolidated financial
statements contain an explanatory paragraph regarding substantial
doubt about our ability to continue as a going concern, which could
prevent us from obtaining new financing on reasonable terms or at
all.
Our audited consolidated financial
statements for the year ended August 31, 2021, contain an
explanatory paragraph regarding substantial doubt about our ability
to continue as a going concern. We incurred a net loss of
$8,538,207 for the year ended August 31, 2020 and $7,734,080 for
the year ended August 31, 2021. These events and conditions, along
with other matters, indicate that a material uncertainty exists
that may cast significant doubt on our ability to continue as a
going concern. The consolidated financial statements for the period
ended August 31, 2021 and 2020 do not include any adjustments that
might result from the outcome of this uncertainty. This going
concern opinion could materially limit our ability to raise
additional funds through the issuance of equity or debt securities
or otherwise. Further financial statements may include an
explanatory paragraph with respect to our ability to continue as a
going concern. Until we can generate significant recurring
revenues, we expect to satisfy our future cash needs through debt
or equity financing. We cannot be certain that additional funding
will be available to us on acceptable terms, if at all. If funds
are not available we may be required to delay, reduce the scope of,
or eliminate research or development plans for, or
commercialization efforts with respect to our products. This may
raise substantial doubts about our ability to continue as a going
concern.
Volatility in the Common
Shares or Warrant price may subject us to securities
litigation.
The market for Common Shares may
have, when compared to seasoned issuers, significant price
volatility, and we expect that the Common Share or Warrant price
may continue to be more volatile than that of a seasoned issuer for
the indefinite future. In the past, plaintiffs have often initiated
securities class action litigation against a company following
periods of volatility in the market price of its securities. We
may, in the future, be target of similar litigation. Securities
litigation could result in substantial costs and liabilities and
could divert management's attention and resources.
Because the SEC imposes
additional sales practice requirements on brokers who deal in
securities that are deemed penny stocks, some brokers may be
unwilling to trade our securities. This means that you may have
difficulty reselling your Common Shares Warrants and Pre-Funded
Warrants, which may cause the value of your investment to
decline.
Our Common Shares, Warrants and
Pre-Funded Warrants are classified as penny stocks and are covered
by section 15(g) of the Exchange Act, which imposes additional
sales practice requirements on broker-dealers who sell our
securities in this offering or in the aftermarket. For sales of our
securities, broker-dealers must make a special suitability
determination and receive a written agreement from you prior to
making a sale on your behalf. Because of the imposition of the
foregoing additional sales practices, it is possible that
broker-dealers will not want to make a market in our Common Shares,
Warrants or Pre-Funded Warrants. This could prevent you from
reselling your Common Shares, Warrants or Pre-Funded Warrants and
may cause the value of your investment to decline.
FINRA sales practice
requirements may limit your ability to buy and sell our Common
Shares and Warrants which could depress the price of the Common
Shares and Warrants.
FINRA rules require broker-dealers
to have reasonable grounds for believing that an investment is
suitable for a customer before recommending that investment to the
customer. Prior to recommending speculative low-priced securities
to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's
financial status, tax status and investment objectives, among other
things. Under interpretations of these rules, FINRA believes that
there is a high probability such speculative low-priced securities
will not be suitable for at least some customers. Thus, FINRA
requirements may make it more difficult for broker-dealers to
recommend that their customers buy our Common Shares and Warrants,
which may limit your ability to buy and sell our Common Shares and
Warrants, have an adverse effect on the market for our Common
Shares and Warrants and, thereby, depress their market prices.
You may face significant
restrictions on the resale of your Common Shares, Warrants and
Pre-Funded Warrants due to state "blue sky" laws.
Each state has its own securities
laws, often called "blue sky" laws, which: (1) limit sales of
securities to a state's residents unless the securities are
registered in that state or qualify for an exemption from
registration; and (2) govern the reporting requirements for
broker-dealers doing business directly or indirectly in the state.
Before a security is sold in a state, there must be a registration
in place to cover the transaction, or it must be exempt from
registration. The applicable broker must also be registered in that
state.
We do not know whether our
securities will be registered or exempt from registration under the
laws of any state. A determination regarding registration will be
made by the broker-dealers, if any, who agree to serve as market
makers for our Common Shares, Warrants and Pre-Funded Warrants.
There may be significant state blue sky law restrictions on the
ability of investors to sell, and on purchasers to buy, our
securities. You should therefore consider the resale market for our
Common Shares, Warrants and Pre-Funded Warrants to be limited, as
you may be unable to resell your Common Shares, Warrants and
Pre-Funded Warrants without the significant expense of state
registration or qualification.
We have broad discretion in
the use of the net proceeds from this offering and may not use them
effectively.
The Company's management will have
broad discretion in the application of the net proceeds from this
offering and any proceeds from the exercise of the Warrants and
Pre-Funded Warrants sold in this offering, including for any of the
purposes described in the section entitled "Use Of Proceeds"
and you will not have the opportunity as part of your investment
decisions to assess whether the net proceeds are being used
appropriately. Because of the number and variability of factors
that will determine our use of the net proceeds from this offering,
their ultimate use may vary substantially from their currently
intended use. The failure by our management to apply these funds
effectively could harm our business.
The Company is a foreign
private issuer within the meaning of the rules under the Exchange
Act, and as such it is exempt from certain provisions applicable to
the United States domestic public companies.
The Company is a foreign private
issuer within the meaning of the rules under the Exchange Act. As
such, it is exempt from certain provisions applicable to United
States public companies. For example:
• it is not
required to provide as many Exchange Act reports, or as frequently
as a domestic public company;
• for interim
reporting, it is permitted to comply solely with our home country
requirements, which are less rigorous than the rules that apply to
domestic public companies;
• it is not
required to provide the same level of disclosure on certain issues,
such as executive compensation;
• it is exempt
from provisions of Regulation FD aimed at preventing issuers from
making selective disclosure of material information;
• it is not
required to comply with the sections of the Exchange Act regulating
the solicitation of proxies, consents or authorizations in respect
of a security registered under the Exchange Act;
• it is not
required to comply with Section 16 of the Exchange Act requiring
insiders to file public reports of their share ownership and
trading activities and establishing insider liability for profits
realized from any "short-swing" trading transaction.
Our shareholders may not have
access to certain information they may deem important and are
accustomed to receiving from U.S. reporting companies.
If we are a ''passive foreign
investment company'', U.S. investors may be subject to adverse U.S.
federal income tax consequences.
Potential investors in the Units or
the pre-funded units who are U.S. taxpayers should be aware that we
anticipate that we may be classified as a ''passive foreign
investment company'' or ''PFIC'' for the current tax year and
future tax years. If the Company is a PFIC for any year during a
U.S. taxpayer's holding period of Common Shares, Pre-Funded
Warrants, Warrants or Warrant Shares (as defined below), then such
U.S. taxpayer generally will be required to treat any gain realized
upon a disposition of the Common Shares, Pre-Funded Warrants,
Warrants or Warrant Shares or any so-called ''excess distribution''
received on its Common Shares, Pre-Funded Warrants and Warrant
Shares, as ordinary income, and to pay an interest charge on a
portion of such gain or distribution. Subject to certain
limitations, these tax consequences may be mitigated if a U.S.
taxpayer makes a timely and effective QEF Election (as defined
below) with respect to the Common Shares, Pre-Funded Warrants and
Warrant Shares or a Mark-to-Market Election (as defined below) with
respect to the Common Shares and Warrant Shares. A U.S. taxpayer
generally may not make a QEF Election with respect to the Warrants
or Mark-to-Market Election with respect to the Pre-Funded Warrants
or Warrants. A U.S. taxpayer who makes a timely and effective QEF
Election generally must report on a current basis its share of the
Company's net capital gain and ordinary earnings for any year in
which the Company is a PFIC, whether or not the Company distributes
any amounts to its shareholders. A U.S. taxpayer who makes the
Mark-to-Market Election generally must include as ordinary income
each year the excess of the fair market value of the Common Shares
or Warrant Shares over the taxpayer's basis therein. This paragraph
is qualified in its entirety by the discussion below under the
heading ''Material United States Federal Income Tax
Considerations - Passive Foreign Investment Company Rules.''
Each potential investor who is a U.S. taxpayer should consult its
own tax advisor regarding the tax consequences of the PFIC rules
and the acquisition, ownership, and disposition of the Common
Shares, Pre-Funded Warrants, Warrants and the Warrant Shares.
There is currently no
existing trading market for Warrants or Pre-Funded
Warrants.
There is currently no market
through which the Warrants may be sold and purchasers of such
Warrants may not be able to resell such Warrants purchased under
this Prospectus. There can be no assurance that an active trading
market will develop for such Warrants after an offering or, if
developed, that such market will be sustained. This may affect the
pricing of such Warrants in the secondary market, the transparency
and availability of trading prices, the liquidity of such Warrants
and the extent of issuer regulation. The public offering prices of
the Warrants may be determined by negotiation between us and
underwriters based on several factors and may bear no relationship
to the prices at which the Warrants will trade in the public market
subsequent to such offering. See "Underwriting". In addition
we do not intend to apply to list the Pre-Funded Warrants on any
securities exchange or nationally recognized trading system
including the Nasdaq Capital Market. Without an active market, the
liquidity of the Pre-Funded Warrants will be limited.
Future sales may affect the
market price of the Common Shares.
In order to finance future
operations, we may determine to raise funds through the issuance of
additional Common Shares or the issuance of debt instruments or
other securities convertible into Common Shares. We cannot predict
the size of future issuances of Common Shares or the issuance of
debt instruments or other securities convertible into Common Shares
or the dilutive effect, if any, that future issuances and sales of
our securities will have on the market price of the Common Shares.
These sales may have an adverse impact on the market price of the
Common Shares.
As an "emerging growth
company" under applicable laws, we will be subject to lessened
disclosure requirements. Such reduced disclosure may make our
Common Shares, Warrants or Pre-Funded Warrants less attractive to
investors.
For as long as we remain an
"emerging growth company", as defined in the JOBS Act, we will
elect to take advantage of certain exemptions from various
reporting requirements that are applicable to other public
companies that are not "emerging growth companies", including, but
not limited to, not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in
our periodic reports, and exemptions from the requirements of
holding a non-binding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not
previously approved. Because of these lessened regulatory
requirements, our shareholders would be left without information or
rights available to shareholders of more mature companies. If some
investors find our Common Shares, Warrants or Pre-Funded Warrants
less attractive as a result, there may be a less active trading
market for such securities and their market prices may be more
volatile.
We incur significant costs as
a result of being a public company, which costs will grow after we
are listed on Nasdaq and we cease to qualify as an "emerging growth
company."
We incur significant legal,
accounting and other expenses as a public company that we would not
incur as a private company. Upon this Registration Statement being
declared effective and the intended listing of our common shares on
Nasdaq, the Sarbanes-Oxley Act, as well as rules subsequently
implemented by the SEC and Nasdaq, impose various requirements on
the corporate governance practices of public companies. We are an
"emerging growth company", as defined in the JOBS Act, and will
remain an emerging growth company until the earlier of : (1) the
last day of the fiscal year (a) following the fifth anniversary of
the date of the first sale of our common equity securities pursuant
to an effective registration statement under the U.S. Securities
Act, (b) in which we have total annual gross revenue of at least
US$1.07 billion or (c) in which we are deemed to be a large
accelerated filer, which means the market value of our common
shares that is held by non-affiliates exceeds US$700 million as of
the prior February 28th; and (2) the date on which we
have issued more than US$1.0 billion in non-convertible debt during
the prior three-year period. An emerging growth company may take
advantage of specified reduced reporting and other requirements
that are otherwise applicable generally to public companies. These
provisions include exemption from the auditor attestation
requirement under Section 404 of the Sarbanes-Oxley Act in the
assessment of the emerging growth company's internal control over
financial reporting and permission to delay adopting new or revised
accounting standards until such time as those standards apply to
private companies.
Compliance with these rules and
regulations increases our legal and financial compliance costs and
makes some corporate activities more time-consuming and costlier.
After we are no longer an emerging growth company, we expect to
incur significant expenses and devote substantial management effort
toward ensuring compliance with the requirements of Section 404 and
the other rules and regulations of the SEC. For example, as a
public company, we have been required to increase the number of
independent directors and adopt policies regarding internal
controls and disclosure controls and procedures. We have incurred
additional costs in obtaining director and officer liability
insurance. In addition, we incur additional costs associated with
our public company reporting requirements. It may also be more
difficult for us to find qualified persons to serve on our board of
directors or as executive officers. We are currently evaluating and
monitoring developments with respect to these rules and
regulations, and we cannot predict or estimate with any degree of
certainty the amount of additional costs we may incur or the timing
of such costs.
Holders of our Warrants and Pre-Funded Warrants will have no
rights as a holder of Common Shares until they acquire our Common
Shares.
Until
you acquire common shares upon exercise of the Warrants or
Pre-Funded Warrants, you will have no rights with respect to our
Common Shares issuable upon exercise of such Warrants or Pre-Funded
Warrants, as applicable. Upon exercise of your Warrants, or
Pre-Funded Warrants you will be entitled to exercise the rights of
a common shareholder only as to matters for which the record date
occurs after the exercise date.
The Warrants and Pre-Funded Warrants are speculative in
nature.
The
Warrants and Pre-Funded Warrants offered hereby merely represent
the right to acquire Common Shares at a fixed price. Specifically,
commencing on the date of issuance, holders of the Warrants may
acquire the Common Shares issuable upon exercise of Warrants at an
exercise price of US$[●] per Common Share or upon the exercise of
Pre-Funded Warrants at an exercise price of US$0.0001 per Common
Share. Moreover, following this offering, the market value of the
Warrants and Pre-Funded Warrants is uncertain and there can be no
assurance that the market value of the Warrants and Pre-Funded
Warrants will equal or exceed their respective public offering
price. There can be no assurance that the market price of the
Common Shares will ever equal or exceed the exercise price of the
Warrants, and consequently, whether it will ever be profitable for
holders of the Warrants to exercise the Warrants or holders of the
Pre-Funded Warrants to exercise the Pre-Funded Warrants.
We
will incur significant increased costs as a result of the listing
of our securities for trading on Nasdaq. By becoming a public
company in the United States, our management will be required to
devote substantial time to new compliance initiatives as well as
compliance with ongoing U.S. requirements.
Upon the
listing of securities on Nasdaq, we will become a publicly traded
company in the United States. As a public company in the United
States, we will incur additional significant accounting, legal and
other expenses that we did not incur before the offering. We also
anticipate that we will incur costs associated with corporate
governance requirements of the SEC, as well as requirements under
Section 404 and other provisions of the Sarbanes-Oxley Act. We
expect these rules and regulations to increase our legal and
financial compliance costs, introduce new costs such as investor
relations, stock exchange listing fees and shareholder reporting,
and to make some activities more time consuming and costly. The
implementation and testing of such processes and systems may
require us to hire outside consultants and incur other significant
costs. Any future changes in the laws and regulations affecting
public companies in the United States, including Section 404 and
other provisions of the Sarbanes-Oxley Act, and the rules and
regulations adopted by the SEC for so long as they apply to us,
will result in increased costs to us as we respond to such changes.
These laws, rules and regulations could make it more difficult or
more costly for us to obtain certain types of insurance, including
director and officer liability insurance, and we may be forced to
accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. The impact of
these requirements could also make it more difficult for us to
attract and retain qualified persons to serve on our board of
directors, our board committees, or as executive officers.
Nasdaq may delist our securities from trading on its
exchange, which could limit investors' ability to make transactions
in our securities and subject us to additional trading
restrictions.
We
intend on having our Common Shares and Warrants listed on Nasdaq.
We cannot guarantee that our securities will be approved for
listing on Nasdaq; however, we will not complete this offering
unless we are so listed. Although after giving effect to this
offering we expect to meet, on a pro forma basis, the minimum
initial listing standards set forth in the Nasdaq listing
standards, we cannot assure you that our securities will be, or
will continue to be, listed on Nasdaq in the future. In order to
continue listing our securities on Nasdaq, we must maintain certain
financial, distribution and stock price levels. Generally, we must
maintain a minimum amount in shareholders' equity (generally
$2,500,000) and a minimum number of holders of our securities
(generally 300 public holders). Additionally, we will be required
to demonstrate compliance with Nasdaq's initial listing
requirements after this offering, which are more rigorous than
Nasdaq's continued listing requirements, in order to continue to
maintain the listing of our securities on Nasdaq. For instance, our
share price would generally be required to be at least $4.00 per
share, our shareholders' equity would generally be required to be
at least$5.0 million and we would be required to have a minimum of
300 round lot holders of our securities (with at least 50% of such
round lot holders holding securities with a market value of at
least $2,500). We cannot assure you that we will continue to meet
those initial listing requirements.
If Nasdaq delists our securities from trading on its exchange and
we are not able to list our securities on another national
securities exchange, we expect our securities could be quoted on an
over-the-counter market. If this were to occur, we could face
significant material adverse consequences, including:
-
a limited availability of market quotations for our
securities;
-
reduced liquidity for our securities;
-
a determination that our Common Shares come within the
definition of "penny stock" which will require brokers trading in
our Common Shares to adhere to more stringent rules and possibly
result in a reduced level of trading activity in the secondary
trading market for our securities;
-
a limited amount of news and analyst coverage; and
-
a decreased ability to issue additional securities or obtain
additional financing in the future.
The National Securities Markets
Improvement Act of 1996, which is a federal statute, prevents or
preempts the states from regulating the sale of certain securities,
which are referred to as "covered securities." Because we expect
that our Common Shares and Warrants will be listed on Nasdaq, our
Common Shares and Warrants will be covered securities. Although the
states are preempted from regulating the sale of our securities,
the federal statute does allow the states to investigate companies
if there is a suspicion of fraud, and, if there is a finding of
fraudulent activity, then the states can regulate or bar the sale
of covered securities in a particular case.
You will experience immediate
dilution in book value of any Common Shares you
purchase.
Because the price per Common Share
being offered is substantially higher than our net tangible book
value per Common Share, you will suffer substantial dilution in the
net tangible book value of any Common Share you purchase in this
offering. After giving effect to the sale by us of Common Shares in
this offering, based on an assumed public offering price of US$[●]
per Unit and a public offering price of US$[●], which is the last
reported sale price of our Common Shares on the OTCQB on [●], 2022
and a price per pre-funded unit equal to the price per Unit being
sold to the public in this offering, minus $0.0001 and after
deducting underwriter's discount and commission and offering
expenses payable by us, our as adjusted net tangible book value of
our Common Shares would be approximately $1.60 per Common Share as
of November 30, 2021. If you purchased Common Shares in this
offering, you will suffer immediate and substantial dilution of our
as adjusted net tangible book value of approximately $[●] per
Common Share. To the extent outstanding options or warrants are
exercised, you will incur further dilution. See "Dilution" for a
more detailed discussion of the dilution you will incur in
connection with this offering.
The exercise of Warrants and
Pre-Funded Warrants offered hereby will cause significant dilution
to holders of our equity securities.
Assuming the issuance of no
pre-funded units and accordingly no Pre-Funded Warrants, holders of
the Warrants and may exercise their Warrants into up to [●] Common
Shares. In the event that the Warrants are exercised in full, the
ownership interest of existing holders of our equity securities
will be diluted. See "Dilution" for further information.
USE OF PROCEEDS
Assuming the sale of US$[●] of
Units in this offering, after deducting the estimated underwriting
discounts and offering expenses payable by us and assuming no
exercise of the underwriters' over-allotment option, we expect to
receive net proceeds of approximately US$[●] from this
offering.
|
Gross proceeds
|
US$[●](1)
|
|
Underwriting discounts and commissions (up to [●]% of gross
proceeds)
|
US$[●]
|
|
Underwriting non-accountable expenses ([●]% of gross
proceeds)
|
US$[●]
|
|
Miscellaneous underwriting fees expenses
|
US$[●]
|
|
Other offering expenses(2)
|
US$[●]
|
|
Net proceeds
|
US$[●]
|
(1) Assuming
no pre-funded units are issued under the Offering.
(2) These
consist of legal fees and expenses of approximately US$[●], the
Nasdaq listing fee of US$50,000, accountant and auditing fees and
expenses of approximately US$[●], and other fees of approximately
US$[●] and excludes those other offering expenses that have already
been paid.
We intend to use the net proceeds
of this offering as follows:
|
Description of Use |
|
Estimated
Amount of Net
Proceeds |
|
|
General and Administrative Expenses (12 months) |
|
US$[1,300,000] |
|
|
IPF/Chronic Cough - Ifenprodil |
|
|
|
|
Phase 2 (Australia) |
|
US$[500,000] |
|
|
Stroke - DMT |
|
|
|
|
Phase 1 |
|
US$[2,000,000] |
|
|
Phase 2 Acute |
|
US$[3,000,000] |
|
|
CKD - Repirinast |
|
|
|
|
Preclinical |
|
US$[800,000] |
|
|
Phase 1 |
|
US$[800,000] |
|
|
Unallocated Working Capital |
|
US$[600,000] |
|
|
Total |
|
US$[9,000,000] |
|
We would receive additional gross
proceeds of approximately US$[] if all of the Warrants included in
the Units are exercised, assuming no exercise of the underwriters’
over-allotment option. We intend to use any such proceeds for
working capital and general corporate purposes. General corporate
purposes may include capital expenditures. Amounts listed are the
total estimated to complete the listed phase. The Company has
approximately CAD$1,100,000 in cash on hand as of April 13, 2022 in
order to further fund operations and complete the programs noted in
the use of proceeds table
DIVIDEND POLICY
To date, we have not paid any
dividends on our outstanding Common Shares. The future payment of
dividends will depend upon our financial requirements to fund
further growth, our financial condition and other factors which our
Board of Directors (the "Board" or "Board of
Directors") may consider in the circumstances. We do not
contemplate paying any dividends in the immediate or foreseeable
futures.
CAPITALIZATION
The following table sets forth our
capitalization as of November 30, 2021:
• on an actual
basis,
• on a pro forma
basis to reflect the application of net proceeds of US$[●]
(excluding proceeds from the exercise of the over-allotment option,
if any) after deducting the estimated offering expenses.
You should read this table in
conjunction with our historical and pro forma financial statements
and related notes appearing elsewhere in this prospectus and
"Use Of Proceeds".
|
|
|
As of November 30, 2021 |
|
|
|
|
Actual
(unaudited) |
|
|
As of [●],2022
Proforma (1) |
|
|
Assets: |
|
|
|
|
|
|
|
Current assets |
|
$2,697,056 |
|
|
$[●] |
|
|
Restricted cash |
|
$57,500 |
|
|
$[●] |
|
|
Intangible assets |
|
$5,216,425 |
|
|
$[●] |
|
|
Total Assets |
|
$8,517,925 |
|
|
$[●] |
|
|
Liabilities: |
|
|
|
|
|
|
|
Current Liabilities |
|
$624,938 |
|
|
$[●] |
|
|
Derivative Liabilities |
|
$nil |
|
|
$[●] |
|
|
Total Liabilities |
|
$624,938 |
|
|
$[●] |
|
|
Shareholder's Equity: |
|
|
|
|
|
|
|
Share Capital |
|
$25,849,846 |
|
|
[●] |
|
|
Share-based payment reserve |
|
$6,826,581 |
|
|
$[●] |
|
|
Accumulated other comprehensive income |
|
$(36,530) |
|
|
|
|
|
Deficit |
|
$(24,746,905) |
|
|
$([●]) |
|
|
Total Equity |
|
$7,892,992 |
|
|
$[●] |
|
|
Total Liabilities and Equity |
|
$8,517,930 |
|
|
$[●] |
|
(1) Converted
into Canadian dollars as set out in "Currency And Exchange
Rates".
Except as otherwise indicated, all
information in this prospectus is based on 1,674,868 Common Shares
outstanding as of April 13, 2022 and excludes the Common Shares
being offered by this prospectus and issuable upon exercise of the
Warrants, Pre-Funded Warrants and Compensation Warrants and also
excludes the following:
-
144,250 Common Shares issuable upon the exercise of outstanding
options, with a weighted-average exercise price of $10.91 per
share;
-
356,587 Common Shares issuable upon the exercise of outstanding
warrants with a weighted-average exercise price of $44.98 per
share; and
-
15,433 Common Shares issuable upon the exercise of broker warrant
units, with a weighted-average exercise price of $34.35 per broker
warrant unit.
DILUTION
If you invest in our Units, your
interest in our Common Shares will be diluted to the extent of the
difference between the offering price per Unit and the pro forma
net tangible book value per Common Share after the offering,
assuming no value is attributed to the pre-funded units, Warrants
and Pre-Funded Warrants. Dilution results from the fact that the
per unit offering price is substantially in excess of the book
value per Common Share attributable to the existing shareholders
for our presently outstanding Common Shares. Our net tangible book
value attributable to shareholders at November 30, 2021 was
$2,676,567 or approximately $1.60 per Common Share. Net tangible
book value per Common Share as of November 30, 2021 represents the
amount of total assets less intangible assets and total
liabilities, divided by the number of Common Shares
outstanding.
Our pro forma as adjusted net
tangible book value of our Common Shares as of [●], 2022 gives
effect to the sale of Common Shares at the assumed public offering
price of $[●] (or US$[●] converted as using the exchange rate as
set out in "Currency And Exchange Rates") per Common Share,
after deducting the underwriting discount and commission and
estimated offering expenses. We will issue [●] Common Shares upon
completion of the offering (and [●] additional Common Shares if the
over-allotment option is exercised in full). Our post offering pro
forma net tangible book value as of [●], 2022, which gives effect
to receipt of the net proceeds from the offering and issuance of
additional Common Shares in the offering, but does not take into
consideration any other changes in our net tangible book value
after November 30, 2021, will be approximately $[●] or $[●] per
Common Share (or $[●] or $[●] per Common Share if the
over-allotment option is exercised in full). This would result in
dilution to investors in this offering of approximately $[●] per
Common Share (or $[●] per Common Share if the over-allotment option
is exercised in full) or approximately [●]% (or [●]% if the
over-allotment option is exercised in full) from the assumed
offering price of US$[●] per Unit ($[●]). Net tangible book value
per Common Share would increase to the benefit of present
shareholders by $[● per share attributable to the purchase of the
Units and/or pre-funded units by investors in this offering (or
$[●] if the over-allotment option is exercised in full).
The following table sets forth the
estimated net tangible book value per Common Share after the
offering and the dilution to persons purchasing Units based on the
foregoing offering assumptions.
|
|
Offering
Without
Over-
Allotment(1)
|
Offering With
Over-
Allotment(1)
|
|
Offering price per Unit (US$[●])
|
US$[●]
|
US$[●]
|
|
Offering Price ($[●])
|
$[●]
|
$[●]
|
|
Net tangible book value per Common Share before the offering
|
$[●]
|
$[●]
|
|
Increase per Common Share attributable to payments by new
investors
|
$[●]
|
$[●]
|
|
Pro forma net tangible book value per Common Share after the
offering
|
$[●]
|
$[●]
|
|
Dilution per Common Share to new investors
|
$[●]
|
$[●]
|
(1) U.S.
dollar amounts converted into $ as set out in "Currency And
Exchange Rates".
Except as otherwise indicated, all
information in this prospectus is based on 1,674,868 Common Shares
outstanding as of April 13, 2022 and excludes the Common Shares
being offered by this prospectus and issuable upon exercise of the
Warrants, Pre-Funded Warrants and Compensation Warrants and also
excludes the following:
-
144,250 Common Shares issuable upon the exercise of outstanding
options, with a weighted-average exercise price of $10.91 per
share;
-
356,587 Common Shares issuable upon the exercise of outstanding
warrants with a weighted-average exercise price of $44.98 per
share; and
-
15,433 Common Shares issuable upon the exercise of broker warrant
units, with a weighted-average exercise price of $34.35 per broker
warrant unit.
A US$[●] increase or decrease in
the assumed public offering price per Unit would increase or
decrease our pro forma as adjusted net tangible book value per
Common Share after this offering by approximately $[●] per Common
Share (or $[●] per Common Share if the over-allotment is exercised
in full), and increase or decrease the dilution per share to new
investors by approximately $[●] per Common Share (or $[●] per
Common Share if the over-allotment is exercised in full), assuming
the number of Common Shares offered by us, as set forth on the
cover page of this prospectus, remains the same, after deducting
the underwriting discount and estimated offering expenses payable
by us.
If any Common Shares are issued
upon exercise of outstanding options or warrants, you may
experience further dilution.
Except as otherwise noted, all
information in this prospectus reflects and assumes: (i) no sale of
pre-funded units under this offering, which, if sold, would reduce
the number of Units that we are offering on a one-for-one basis;
(ii) no exercise of outstanding options or warrants; (iii) no
exercise of Warrants or Pre-Funded Warrants issued in this
offering; and (iv) no exercise of the underwriters' over-allotment
option.
To the extent any of Warrants or
Pre-Funded Warrants are exercised, or we issue additional Common
Shares under our equity incentive plans, there will be further
dilution to new investors. In addition, we may choose to raise
additional capital due to market conditions or strategic
considerations even if we believe we have sufficient funds for our
current or future operating plans. To the extent that additional
capital is raised through the sale of equity or convertible debt
securities, the issuance of these securities could result in
further dilution to our shareholders.
COMPANY INFORMATION
History and Development of the
Company
Algernon Pharmaceuticals Inc. was
incorporated pursuant to the laws of the Province of British
Columbia, Canada, on April 10, 2015 as "PBA Acquisitions Corp.", a
wholly-owned subsidiary of Petro Basin Energy Corp. ("Algernon
Parent"). On July 23, 2015, the Company changed its name to
"Breathtec Biomedical, Inc.". The Company entered into an
arrangement agreement with Algernon Parent. The arrangement
agreement and associated plan of arrangement were approved by
Algernon Parent's shareholders on July 30, 2015, and approved by
the Ontario Superior Court of Justice (Commercial List) on August
5, 2015. The plan of arrangement was completed on September 23,
2015. On February 19, 2019, the Company changed its name to
"Algernon Pharmaceuticals Inc.".
Corporate Headquarters
The Company's principal executive
offices are located at Suite 1500 - 1055 West Georgia Street,
Vancouver, British Columbia, Canada, V6E 4N7. Our phone number is
(604) 398-4175 ext. 701.
Subsidiaries
The Company has two wholly-owned
subsidiaries, Nash Pharmaceuticals Inc. ("Nash Pharma"), a
corporation subsisting under the laws of the Province of British
Columbia, Canada, and Algernon Research PTY Ltd. ("AGN
Research"), an Australian proprietary company established on
January 6, 2020.
Acquisition of Nash
Pharmaceuticals Inc.
On October 19, 2018, the Company
acquired all of the issued and outstanding shares of Nash Pharma, a
clinical stage pharmaceutical development company focused on drug
repurposing in the areas of NASH, CKD and IBD. Through its ongoing
research programs, Nash Pharma has developed data that supports the
advancement of up to seven drug candidates into Phase 2 trials.
Pursuant to the terms of a share
exchange agreement (the "Share Exchange Agreement") dated
October 5, 2018 among the Company, Nash Pharma and the
securityholders of Nash Pharma, the Company issued 158,000 Common
Shares to the shareholders of Nash Pharma at an issue price of
$22.00 per Common Share. Existing warrants to purchase common
shares of Nash Pharma were cancelled and were replaced with 148,000
Common Share purchase warrants of the Company, each having an
exercise at a price equal to the exercise price of the Nash Pharma
warrants.
Share Consolidation
On October 16, 2018, the Company
consolidated its Common Shares on a two for one basis and began
trading on the CSE on a post-consolidated basis effective October
17, 2018.
On November 23, 2021, the Company
consolidated its Common Shares on a one hundred for one basis.
Name Change
Effective February 19, 2019, the
Company changed its name to "Algernon Pharmaceuticals Inc.".
Algernon Research Pty
Ltd.
On January 6, 2020, Nash Pharma
established AGN Research, its wholly-owned subsidiary, in
Australia. AGN Research is a proprietary company formed with the
aim to provide supporting scientific research activities to Nash
Pharma.
The SEC maintains an Internet site
that contains periodic reports and other information filed by
issuers that are subject to reporting requirements under the
Exchange Act: http://sec.gov. The Company's Internet address is:
http://algernonpharmaceuticals.com. We do not incorporate the
contents of our website into this Registration Statement.
Information on our website does not constitute part of this
Registration Statement.
BUSINESS OVERVIEW
General
Algernon is a drug re-purposing
company that investigates already approved drugs, including
naturally occurring compounds, for new disease applications, moving
them efficiently and safely into new human trials, developing new
formulations and seeking new regulatory approvals in global
markets. Algernon specifically investigates compounds that have
never been approved in the U.S. or Europe to avoid off label
prescription writing, which can interfere with the normal economic
pricing models of newly approved drug treatments.
The Company's early research
identified a number of drug candidates that had already been
approved for other diseases outside of the U.S and E.U. Only drugs
that have not been approved in the U.S or Europe were chosen to
avoid off-label prescription writing. The Company is actively
investigating new disease areas including: CKD, IPF and chronic
cough, stroke, and pancreatic and small cell lung cancer. In
addition to these indications, the Company has additional drug
candidates it is considering advancing where the Company has
performed preclinical studies and filed intellectual property.
The Company's lead candidate is
Ifenprodil, which is being investigated by the Company in multiple
disease indications. Ifenprodil is an N-methyl-D-aspartate
("NMDA") receptor antagonist specifically targeting the
NMDA-type subunit 2B (GluN2B). Ifenprodil prevents glutamate
signalling. The NMDA receptor is found on many tissues including
lung cells and T-cells, neutrophils. Ifenprodil (brand name
Cerocral) was initially developed by Sanofi in the 1990s in the
French and Japanese markets for the treatment of circulatory
disorders. Although no longer available in France, the drug is
highly genericized and sold in Japan and South Korea.
NMDA receptors also regulate the
signalling of mTOR a serine/threonine kinase, which has been
identified as a therapeutic target for many types of cancers.
Their expression on several human cancer cell lines represents a
potential therapeutic avenue to control dysregulated growth,
division, and invasiveness.
The Company is investigating
Ifenprodil for IPF and chronic cough and is conducting a Phase 2
study in Australia and New Zealand. The purpose of this
proof-of-concept trial is to determine the efficacy of Ifenprodil
in the preservation of lung function in IPF patients (including
biomarkers of fibrosis) and its associated cough. On May 6, 2020,
the Company received ethics approval from the Royal Brisbane &
Women's Hospital, Human Research Ethics Committee. The Phase 2 IPF
and Chronic Cough trial began on August 5, 2020, and it was
announced on February 4, 2022 that the Company completed enrollment
in the study. Costs related to the IPF and Chronic Cough study in
Australia and New Zealand, estimated to cost approximately $1.2
million, will be paid for by the Company with cash on hand.
The Company has also retained
Organic Consultants, Inc. (dba Cascade Chemistry) to produce the
active pharmaceutical ingredient (“API”) of Ifenprodil.
Algernon made the decision to scale-up ‘current good manufacturing
practice’ (“cGMP”) manufacturing of Ifenprodil to support
its IPF and Chronic Cough clinical program. The Company has
manufactured its first multi-kilogram batch of cGMP material
produced. Stability testing of the API is on-going. The Company
filed a pre-IND application with the FDA to seek guidance on the
development of Algernon’s planned new proprietary injectable and
slow release formulations. The Company has identified a number of
vendors that can manufacture the injectable and slow-release
formulations, but the Company has not begun any development work
beyond the completion of the manufacturing of its API. The FDA
advised that for the toxicology program of a new intravenous
formulation, a single animal 30-day study would be acceptable. The
Company’s estimated cost of manufacturing of finished product is
approximately $500,000. The Company’s on-going Phase 2 clinical
trial in Australia and New Zealand for IPF and chronic cough
utilizes immediate release Ifenprodil finished product
(“IRIF”), which is currently approved and available on the
market in Japan. Even though the IRIF has not been approved for
sale in Australia or New Zealand, Algernon received approval to run
the IPF and chronic cough clinical trial using the IRIF. The
decision on what final optimal drug formulation should be developed
for any drug that Algernon is investigating, will be decided on an
indication by indication basis as each separate clinical
trial program progresses.
Since all of Algernon's lead
compounds are genericized, there is historical data available on
each compound's mechanism of action as it relates to the disease it
was originally developed to treat. The Company has decided not to
pursue independent confirmation as to whether these known pathways
are involved in the specific biochemical interaction that produced
the pharmacological effect seen in the Company's animal model
research.
Business Strategy
The Company is currently
investigating a number of its repurposed drug compounds in both
preclinical and clinical studies for the global disease areas of
idiopathic pulmonary fibrosis (IPF) and chronic cough, stroke,
pancreatic cancer (PC), small cell lung cancer (SCLC) and chronic
kidney disease (CKD).
The compounds being advanced by the
Company have all been tested in disease-specific pre-clinical in
vivo animal research studies, using either the leading approved
drug for the indication or an advanced clinical candidate as a
positive control in cases where no appropriate approved drug was
available. The decision to advance candidates for further
investigation is based on a number of factors including their
performance in the preclinical studies. The Company is currently
conducting a Phase 2 study in Australia in idiopathic pulmonary
fibrosis and chronic cough, and early in 2021 completed a Phase 2
study in COVID-19. On July 6, 2021, the Company announced that
based on the results of the data from the Phase 2 study that it
would not be advancing Ifenprodil in a Phase 3 COVID-19 study. The
Company's other programs have yet to begin human trials for the
Company's target indications.
Algernon's business strategy is to
advance a number of its lead compounds into human clinical trials
as efficiently and as cost-effectively as possible by leveraging
the currently existing regulatory approval and finished product
supply in the country of origin where the drugs were originally
approved. Conducting off label Phase 2 trials in the drugs'
currently approved market would save the company from having to
synthesize the compounds and conduct all of the preclinical
toxicology work. This additional work would in comparison, add
significant time and costs to the Company's development timeline
and budget.
Under some conditions, if a
repurposed drug is being currently manufactured, it may be possible
to access this supply in order to conduct early-stage clinical
trials, so that the Company may not need to manufacture its own
supply. However, there may be other conditions where the
Company may also choose to engage in its own manufacture. This
would include conducting multiple trials for different diseases
with the same lead compound. A final decision will be made on which
compounds, diseases and locations will be included in the Phase 2
trials once all of the feasibility studies are completed.
The Company is planning to conduct
a minimum of two Phase 2 clinical trials simultaneously in order to
improve the Company's potential of success. Ensuring the Company is
not conducting and relying on a single Phase 2 clinical trial is
key part of the current strategy.
Subject to the success of the Phase
2 trials, the Company plans to engage in licensing, partnership and
or acquisition (as the target) discussions with a number of larger
pharmaceutical partners. If for whatever reason, a partnership,
license or acquisition opportunities do not materialize, the
Company will explore moving all successful Phase 2 compounds
forward into phase 3 clinical trials.
At present, the Company does not
plan to develop a sales team to advance the marketing sales and
distribution of any of its lead compounds if such compounds achieve
regulatory approval in any given market. The Company's strategy is
to look for moments of inflection where the potential exists to be
able to consummate the best possible licensing, partnership or
acquisition transaction.
Phase 1 and Phase 2 Clinical
Trials
The Company has initiated a number
of feasibility studies in order to determine the best geographical
location to run its planned Phase 1 or Phase 2 trials based on a
number of factors including availability of finished product and
the suitability of the country where the drug is registered. Some
of the compounds have been approved in multiple jurisdictions.
As part of its feasibility study
process the Company has developed an investigational brochure for
three of its lead compounds. These investigational brochures
include a protocol synopsis of the planned study as well as the
historical safety data for the compounds.
Since the size of the planned Phase
2 trial (i.e. number of patients) is dependent on the strength of
the data achieved from the pre-clinical research, the Company has
received initial cost estimates for 2 Phase 2 trials as part of the
feasibility process.
Regulatory - Drug
Development
The regulatory pathway for drug
development is well established in most major world markets. The
most familiar in terms of stages and timing is the FDA pathway.
Drug discovery and pre-clinical
describes all of the work and stages prior to testing the compound
in human beings. A Phase 1 study is the first point in which the
compound begins testing in human beings. All new chemical entities
must successfully follow the below pathway in order to achieve
regulatory approval and to begin sales to the public.
Algernon's drug discovery program
is based on repurposing drugs that have already been approved.
Successful drug repurposing is based on finding new uses for
approved drugs in order to treat and manage new diseases. Since
Algernon's lead compounds already have a well-established safety
history and have already undergone pre-clinical testing when they
were originally developed, the compounds are eligible in the
market(s) where they were first approved, to be moved directly into
off label Phase 2 clinical studies.
Typically, in order for the Company
to be able to move its lead compounds into Phase 2 clinical trials,
the finished drug product needs to be available for purchase and
the drug needs have an active registration in a market where
clinical testing can be successfully executed. The next step is for
the Company to conduct what is known as an off-label Phase 2
clinical study confirming that the drug shows efficacy in human
beings for the new disease.
Since Algernon only screened
compounds that were from Russia, Korea, Ukraine and Japan, none of
the currently identified finished product manufacturers meet the
cGMP standard of production for entry into an FDA study. As a
result it is unlikely that the data from the Phase 2 study would be
able to be used in a future Phase 3 trial application. However, if
any of the Company's lead compounds are successful in their
respective Phase 2 studies, the Company would then begin the
process of synthesizing and conducting all of the toxicology and
safety studies under cGMP and 'good laboratory practice' conditions
in order to move forward to Phase 3 study in the U.S.
Prior to a decision to begin
synthesizing any compounds, the Company intends to seek out a
favourable licensing, partnership or acquisition transaction (as
the target) after the completion of a Phase 2 clinical trial that
met its primary and/or secondary endpoints.
Development of A Therapy for
Chronic Kidney Disease (CKD)
Algernon's lead compound for the
treatment and management of CKD is Repirinast, an orally
administered small molecule. CKD involves the gradual loss of
kidney function leading to kidney failure. Advanced stage CKD leads
to dangerous accumulation of fluid, electrolytes and waste in the
body. CKD can progress to end-stage kidney failure, which is fatal
without artificial filtering (dialysis) or a kidney transplant.
Treatment for chronic kidney disease focuses on slowing the
progression of the kidney damage, usually by controlling the
underlying cause.
The global market for CKD drugs
continues to proliferate at a significant pace, driven by the
increasing number of CKD patients and the growing need of novel
treatments to improve patients' quality of life. According to
Research and Markets, the global CKD drugs market was valued at
US$12.4 billion in 2016, and is expected to reach US$17.4 billion
by 2025, expanding at a compound annual growth rate of 3.9% from
2017 to 2025.
The Company conducted two separate
animal in vivo mouse studies using a Unilateral Ureter
Obstruction (UUO) mouse model of kidney fibrosis conducted by
Murigenics.
CKD In Vivo Study # 1,
January 2019
In this study, mice were randomly
assigned to receive either vehicle or one of the Company's test
articles (N = 8 per arm). Animals were subjected to surgical
ligation of the left ureter; a negative control group instead
underwent a sham procedure. The animals were treated for 14
days, then sacrificed and subjected to histopathogical
examination. Animals were also observed daily for their
general condition. Data were analyzed using two-way Analysis of
Variance (ANOVA) with a Bonferroni correction for multiple
comparisons. Key results from the study were as follows:
• In animals
treated with Repirinast (30 mg/kg), there was a 33% reduction in
fibrosis as measured by Sirius red staining (p = NS) and a
reduction of blood urea nitrogen, a marker of kidney function (p
< 0.05) compared to vehicle;
• Telmisartan (5
mg/kg), a positive control in the study and a current standard of
care for CKD, reduced fibrosis by 42.2% (p = 0.004); telmisartan
also reduced blood urea nitrogen but the reduction was not
statistically significant; and
• No adverse
effects were observed in any of the treatment groups.
CKD In Vivo Study # 2, March
2019
A second CKD study was performed
using the same experimental conditions as the first. Group size was
increased (N = 10/arm) and the number of candidates was reduced to
increase statistical power. Two doses of Repirinast were tested (30
mg/kg and 90 mg/kg). Telmisartan (3 mg/kg) was again used as a
positive control. Cenicriviroc (40 mg/kg), a CCR2/5 chemokine
receptor antagonist with reported anti-fibrotic activity, was used
as a second positive control. Key results from the study were as
follows:
• Telmisartan (3
mg/kg), reduced fibrosis by 32.6% (p < 0.001);
• Cenicriviroc (40
mg/kg) reduced fibrosis by 31.9% (p = 0.00032);
• Repirinast (30
mg/kg) reduced fibrosis by 21% (p = NS);
• Repirinast 90
mg/kg) reduced fibrosis by 50.6% (p < 0.000001);
• Repirinast (30
mg/kg) in combination with telmisartan (3 mg/kg) reduced fibrosis
by 54.2% (p < 0.000001);
• In the group
treated with Repirinast (30 mg/kg) in combination with telmisartan
(3 mg/kg) the mass of the fibrotic kidney was lower than the
negative control (p < 0.001);
• Both doses of
Repirinast led to significant reduction in blood urea nitrogen
compared to vehicle (p < 0.05); and
• No adverse
effects were observed in any of the treatment groups.
The Development of a Therapy for
IPF and Chronic Cough
IPF is a type of chronic lung
disease characterized by a progressive and irreversible decline in
lung function and scarring (fibrosis) of the lungs. There is no
cure for IPF and there are currently no procedures or medications
that can remove the scarring from the lungs.
According to a report from research
and consulting firm, GlobalData's, the IPF market is projected to
rise from just over US $900 million in 2015 to US $3.2 billion by
2025, assuming a CAGR of 13.6%. Such growth is expected to occur
across the seven major markets of the USA, France, Germany, Italy,
Spain, the UK and Japan, and primarily be driven by the increased
use of expensive therapies, the anticipated launches of two novel
therapies, FibroGen's FG-3019 and Promedior's PRM-151, and a rise
in diagnosed prevalent cases of the disease.
According to a research report from
IndustryARC, the cough remedies market size was estimated to be US
$11.40 billion in 2018, and is projected to grow at a CAGR of 6.64%
during 2019-2024. Pleasant taste and easy intake of oral syrups are
among the key factors driving the global cough remedies market.
Some traditional cough remedies include drinking honey, bromelain
and bacterial microbes. Further, some new generation cough remedies
include corticosteroids, bronchodilators and antibiotics. Currently
there is no approved treatment for this condition.
A chronic (persistent) cough is a
cough lasting eight weeks or longer in adults, or four weeks in
children. Chronic cough can interrupt sleep, cause exhaustion and
in severe cases can cause serious vomiting, light-headedness and
rib fractures.
A dry, non-productive cough is a
very common symptom of IPF. At least 70%-85% of patients with IPF
have a dry cough, which can often get worse on exertion.
The company conducted two
preclinical studies in a 21-day bleomycin mouse model with
established fibrosis in (treatment began on Day 7) conducted by
Murigenics.
IPF In Vivo Study #1
Healthy young mice were randomly
assigned to receive either vehicle or one of the Company's test
articles (N = 10 per arm). Animals were first challenged
intratracheally with bleomycin, and fibrosis was allowed to
establish for 7 days; a control group received no bleomycin
challenge. Then, the animals were treated for 14 days, at which
point they were sacrificed, and lung fibrosis measured by trichrome
staining and modified Ashcroft scoring. Significance was determined
by two-way ANOVA followed by a Bonferroni multiple comparisons
test. Throughout the study, animals were also observed for
their general condition. Key results were as follows:
• The
group treated with the positive control dexamethasone (0.25 mg/kg)
experienced a 60% reduction in fibrosis compared to vehicle control
(p < 0.05).
• Treatment
with ifenprodil (30 mg/kg) reduced fibrosis by 34% compared to
vehicle, (p = NS);
• Radiprodil,
which shares the same target and similar pharmacology as
Ifenprodil, also reduced fibrosis to a similar level as Ifenprodil
at the same dose, suggesting a class effect of the pharmacophore (p
= NS);
• Treatment
with Pirfenidone (300 mg/kg) reduced fibrosis by 14% compared to
vehicle (p = NS). Pirfenidone is a marketed treatment for IPF;
• All
groups lost bodyweight in the first seven days; over the next 14
days the animals treated with ifenprodil, radiprodil and
dexamethasone recovered to their initial weight, whereas the group
treated with pirfenidone did not increase (p = not determined);
and
• No
other adverse effects were observed in any of the treatment
groups.
IPF In Vivo Study #2
A second study under the same
experimental conditions was performed with a narrower range of
candidates in order to improve statistical power, and included the
approved treatments pirfenidone (100 mg/kg twice daily) and
nintedanib (40 mg/kg once daily) as positive controls. Lung
fibrosis was measured by trichrome staining and modified Ashcroft
scoring.
• Pirfenidone (100
mg/kg, twice daily), showed a 44% reduction in fibrosis versus
untreated controls (p = NS);
• Nintedanib (40
mg/kg, once daily), showed a 51% reduction in fibrosis versus
untreated controls (p < 0.05);
• Ifenprodil (4
mg/kg, thrice daily) showed a 56% reduction in fibrosis versus
untreated controls (p = 0.015);
• As in the first
experiment, all animals gained weight during the treatment period
with the exception of pirfenidone; and
• No other adverse
effects were seen in any of the treatment groups.
Acute Cough In Vivo
Study
In this study, guinea pigs were
pre-treated with the test article or vehicle, then exposed to a
citric acid challenge to induce a cough response. The number
of coughs and the delay of onset of the first cough were used as
measure of performance. Gefapixant, a P2X3 inhibitor developed by
Merck and in Phase 3 clinical trials for chronic cough was used as
a positive control. Statistical significance was determined using
one-way ANOVA, with comparisons controlled used a Dunnett's test.
The study was performed at Pharmidex.
Data from this study demonstrated
that at clinically relevant doses
• Ifenprodil (1.5
mg/kg) showed a reduction of 42% in mean cough frequency versus
untreated control (p <0.01);
• Gefapixant (3.5
mg/kg) showed a 20% reduction in mean cough frequency versus
untreated control (p <0.05);
• Ifenprodil (59.8
seconds) showed a statistically significant delay in the onset of
the first cough when compared to control (34.2 seconds, p <
0.05); and
• Gefapixant (49.7
seconds) showed a non-statistically significant delay in the onset
of the first cough when compared to control (34.2 seconds, p =
NS).
The Company is investigating
Ifenprodil for IPF and chronic cough and is conducting a Phase 2
study in Australia and New Zealand. Results from this study are
expected in Q2 2022. The purpose of this proof-of-concept open
label 20 patient Phase 2 human trial is to determine the efficacy
of Ifenprodil in the preservation of lung function in IPF patients
(including biomarkers of fibrosis) and its associated cough. The
co-primary endpoints of this study are the preservation of lung
function as measured by forced vital capacity and the reduction in
24 hour cough counts as measured by an ambulatory cough monitor.
Secondary endpoints include biomarkers of fibrosis, other measures
of lung function and safety. There are 7 sites in total
participating in the study with 5 located in Australia and 2 in New
Zealand.
On September 20, 2021, the company
announced interim data from the cough portion of its Phase 2 IPF
and Cough study. The company observed a trend towards reduction in
both the total and waking 24-hour cough counts after 12 weeks of
treatment compared to baseline, as measured by an ambulatory cough
monitor. The data were reported in descriptive format and no
test was performed for statistical significance.
On October 7, 2021 the Company
filed a Pre-IND application with the US FDA to seek guidance on a
planned clinical program for the treatment of refractory chronic
cough.
Ifenprodil Manufacturing
The Company retained Organic
Consultants, Inc. (dba Cascade Chemistry) to produce the active
pharmaceutical ingredient ("API") of Ifenprodil. The Company
has now completed the process of having the first multi-kilogram
batch of cGMP material produced, at which point toxicology studies
can begin. The Company filed a pre-IND application with the U.S.
FDA to seek guidance on the use of Algernon's planned new
proprietary injectable and slow-release formulation. The FDA
advised that for the toxicology program of the new intravenous
Ifenprodil formulation, a single animal 30-day study would be
acceptable.
The Development of a Therapy for
Stroke
Launch of Clinical Research
Program on Dimethyltryptamine
On February 1, 2020, the Company
announced the launch a clinical research program for stroke focused
on N,N-Dimethyltryptamine, a known psychedelic compound that
is part of the tryptamine family (other drugs in the tryptamine
family include psilocybin and psilocin.) Algernon plans to be the
first company globally to pursue DMT for ischemic stroke in
humans.
On May 17, 2021, the Company
received positive feedback from the U.S. Food and Drug
Administration (FDA) regarding its plans to investigate DMT as an
adjunct to physical therapy in the rehabilitation of stroke.
On June 17, 2021 the Company announced that all of the required
permits and licenses for the manufacture of its cGMP supply of DMT
have been received and as a result, was targeting its Phase 1 human
study to be conducted at Hammersmith Medicines Research UK in Q1
2022 and has since updated plans and is now targeting to begin the
study in calendar Q3 2022.
On November 1, 2021, the Company
announced that it had established the optimum peak stimulation
period of 6 hours for neuron outgrowth by DMT in its pre-clinical
in vitro study conducted by Charles River Laboratories (CRL).
Algernon also confirmed that the increased growth was achieved with
a sub-hallucinogenic dose.
On November 19, 2021, the Company
that it has received positive feedback at a scientific advice
meeting from the MHRA. The scientific advice meeting was related to
the Company's planned Phase 1/2a stroke study with DMT.
As a result of the meeting, the
Company plans to file a Clinical Trial Authorisation ("CTA")
application for the study as soon as possible. In addition, and
based on the feedback received, the Company is also considering
focussing on DMT as a possible treatment for acute stroke for the
Phase 2a part of the study, in addition to investigating DMT as an
adjunctive treatment for stroke rehabilitation therapy. The Company
is planning to conduct the Phase 1 part of the study at Hammersmith
Medicines Research in London, UK and is now targeting to begin the
study in calendar Q3 2022.
On December 8, 2021, the Company
announced that it has completed the manufacturing of its cGMP of
DMT at Canadian manufacturer Dalton Pharma Services. The Company
believes it has produced a sufficient supply of cGMP DMT to
complete its planned Phase 1 and Phase 2 clinical trials.
The Company also announces it has
appointed Dr. Anthony Rudd and Dr. Robert Simister, both from the
U.K., as medical consultants to the Company's DMT stroke clinical
research program. Both Dr. Rudd and Dr. Simister have extensive
backgrounds in stroke management as well as clinical care and
stroke research. Their primary responsibility will be to help guide
the Company's Phase 2 acute stroke and post stroke therapy clinical
trials planned to begin in the U.K. in early 2023, after the Phase
1 trial has been completed.
On January 19, 2022, the Company
announced that it has filed a combined Clinical Trials of
Investigational Medicinal Products and Ethics Approval (CTA)
application, with the MHRA. This was accomplished via the combined
review service, which provides for a single application route for
its planned Phase 1 clinical human study of DMT.
The primary focus of the Phase 1
DMT study is to investigate prolonged intravenous infusion of DMT,
for durations which have never been clinically studied. The
resulting data generated will help the Company to plan both its
Phase 2 acute stroke and rehabilitation studies more
effectively.
The Company's decision to
investigate DMT and move it into human trials for stroke is based
on multiple independent, positive pre-clinical studies
demonstrating that DMT helps promote neurogenesis as well as
structural and functional neural plasticity. These are key factors
involved in the brain's ability to form and reorganize synaptic
connections, which are needed following a brain injury.
A recently published pre-clinical
study in an animal model for stroke, showed that rats treated with
DMT recovered motor function more quickly and to a greater extent
and also exhibited lower lesion volumes when compared to control
group animals that did not receive DMT. Key data from the study
achieved statistical significance.
Unlike other companies recently
researching psychedelic drugs, Algernon will be focusing on a
sub-hallucinogenic, or microdose of DMT provided by continuous
intravenous administration. By pursuing a continuous active
microdose, the goal will be to provide patients with the
therapeutic benefits of DMT, without having a psychedelic
experience. This is an important element when considering treating
a patient who has just suffered a stroke, wherein medications that
cause a hallucinogenic response would not be preferred.
The Company also believes that a
microdosing approach to developing a DMT treatment may enable a
much wider review and acceptance of its data, including garnering
the early interest of research investigators, the interest of
clinical trial patients and ultimately clinical acceptance.
Global Stroke Treatment Market:
Overview
According to a 2019 report from
Transparency Market Research:
• the global
stroke treatment market was valued at approximately US$8 billion in
2018;
• projected to
grow at a compound annual growth rate ("CAGR") of
approximately 7% over the forecast period, the global stroke
treatment market is expected to reach a value of approximately
US$15 billion by the year 2027;
• rise in the
prevalence of stroke across the world, surge in the elderly patient
pool, and rapid rise in comorbidities such as atrial fibrillation,
diabetes, and hypertension leading to high risk of developing
stroke are anticipated to drive the global stroke treatment market
during the forecast period;
• North America is
the leading regional market in the global stroke treatment market,
and will continue to have a major share throughout the forecast
period of 2019 to 2027.
•
DMT, or
N,N-Dimethyltryptamine is a hallucinogenic tryptamine drug
producing effects similar to those of other psychedelics like LSD,
ketamine, psilocybin and psilocin. DMT occurs naturally in many
plant species and animals and has been used in religious ceremonies
as a traditional spiritual medicine by indigenous people in the
Amazonian basin. DMT can also be synthesized in a laboratory.
At higher doses, DMT has a rapid
onset, intense psychedelic effects, and a relatively short duration
of action with an estimated half-life of less than fifteen minutes.
Like other hallucinogens in the tryptamine family, DMT binds to
serotonin receptors to produce euphoria and psychedelic effects.
Because the effects of DMT do not last very long, it has been
referred to as the "businessman's trip".
Named the "Spirit Molecule" by Dr.
Rick Strassman, an American clinical associate professor of
psychiatry and DMT research pioneer, DMT has been shown to induce
neuroplasticity in a number of key pre-clinical studies. DMT is
believed to activate pathways
involved with forming neuron connections and has been shown
in studies to increase the number of dendritic spines on cortical
neurons. Dendritic spines form synapses (connections) with other
neurons and are a major site of molecular activity in the
brain.
While Dr. Strassman's Phase 1 bolus
intravenous human study identified the sub-hallucinogenic dose of
DMT in man, another pre-clinical animal study demonstrated this
same dose level still retains the neuroplastic effect seen in
higher hallucinogenic doses.
Algernon will be investigating an
intravenous sub-hallucinogenic dose of DMT in its research and
clinical studies.
DMT - Building the Case for
Stroke
Data from a study published in
Experimental Neurology, in May 2020 showed that in a rat model of
cerebral ischemia-reperfusion injury, DMT reduced the infarct (dead
cells) volume and improved functional recovery.
Key Findings:
• Animals treated
with DMT displayed lower lesion volumes than control animals
measured by MRI 24 hours following the occlusion (p = 0.0373);
• Animals in the
DMT group improved motor function more quickly and to a greater
extent than the control group; The differences became significant
on the 4th day (p = 0.0325) and persisted throughout a
30-day follow-up; and
• mRNA expression
of brain-derived neurotrophic factor (BDNF) was upregulated in both
the peri-infarct cortex (p = 0.0273) and contralateral cortex (p =
0.0048) as well as in serum (p < 0.0001). BDNF is a key
facilitator of neuroplasticity.
Algernon's Preclinical Research
Plan
The Company has concluded its
pre-clinical research experiments on DMT and plans to use the
information to inform its clinical trial programs.
The Company hired CRL, whose center
in Kuopio, Finland is a world leading site for neurologic research,
to perform its preclinical studies. CRL has the necessary
controlled-substance permits to carry our research with DMT.
Algernon's DMT Clinical Research
Plan
1. Ischemic
Stroke
Each year there are approximately
15 million strokes that occur globally with 700,000 strokes
occurring in the U.S. alone. Approximately 85% of all strokes are
ischemic strokes, which occur when a blood clot blocks blood flow
to the brain.
Currently, medication treatments
for ischemic stroke are primarily limited to Tissue Plasminogen
Activator ("TPA") or blood thinners. However, these
treatments are stroke type specific and cannot be given until the
patient has received a CT scan to determine if the stroke is
ischemic or haemorrhagic. Patients being treated with TPA must
receive the drug within 3 hours of the injury. As a result, only 5%
of stroke patients receive TPA.
Additional treatment options
involve surgical intervention such as catheter embolectomy and
decompressive craniotomy.
Based on its pre-clinical data
research conducted by others, Algernon plans to test DMT in the
clinic in patients as soon as possible after the stroke injury
occurs. If it is established in the Company's pre-clinical research
phase that DMT can be used to treat both haemorrhagic and ischemic
stroke, the patient will not have to wait for a CT scan and
treatment can begin immediately, possibly while being transported
to the hospital.
Algernon's pre-clinical research
was designed to help establish the optimal treatment period
duration for DMT as well as the clinically effective
sub-hallucinogenic dose.
2. Post-Stroke
Rehabilitation
Sixty-five percent of stroke
survivors will end up with from some form of disability after
having suffered a stroke. Intensive physical rehabilitation has
been shown by researchers to improve function and reduce long-term
disability.
While Algernon will investigate DMT
to treat a patient as quickly as possible after the stroke occurs,
it will also investigate the potential of the drug as a treatment
during the rehabilitative process. Rehabilitation therapy, which
includes motor-skill exercises, mobility training and
range-of-motion therapy, and can begin as soon as 24 to 48 hours
after the stroke has occurred.
One specific type of rehabilitation
therapy is called Constraint-induced Movement Therapy
("CIMT"). It is focused on improving upper extremity
function in stroke patients and involves intensive training of the
weaker arm while restricting the use of the stronger arm.
If the final data is positive, the
Company will move DMT into a separate clinical trial to test for
its efficacy as a post stroke rehabilitation adjunctive
treatment.
Pathway to Clinic
1. Pre-IND
U.S. FDA & Scientific Advice Meeting UK MHRA
Based on historical data showing
that several DMT Phase 1 studies have already been conducted, the
Company believes that it will be able to use this data to seek
approval to begin its own Phase 1 study without having to complete
certain toxicology work, but can give no assurance either the FDA
or Health Canada will agree.
In a Pre-IND request submitted
March 16, 2021, Algernon sought direction from the FDA regarding
the design and scope of the Company's preclinical and early phase
stroke clinical programs. The FDA response showed they are in
agreement with the Company's planned preclinical efficacy
experiments and offered guidance with regards to supportive
preclinical safety studies. In addition, the FDA provided valuable
input into the design of the Company's planned Phase 1 clinical
trial, which will be conducted through Hammersmith Medicines
Research in the UK, in calendar Q3 2022.
The Company filed a Scientific
Advice Meeting Request with the UK MHRA in order to obtain
additional insight and options for the Company's planned clinical
research program. The meeting was held on November 18, 2021. The
Agency was supportive of the Company's proposed clinical plans, and
confirmed that no additional preclinical studies were necessary in
order to begin human trials in the UK.
On January 19, 2022, the Company
announced that it has filed a combined CTA application, with the
MHRA. This was accomplished via the combined review service, which
provides for a single application route for its planned Phase 1
clinical human study of DMT.
The primary focus of the Phase 1
DMT study is to investigate prolonged intravenous infusion of DMT,
for durations which have never been clinically studied. The
resulting data generated will help the Company to plan both its
Phase 2 acute stroke and rehabilitation studies more
effectively.
2. U.S.
FDA
At present, the Company's business
activities surrounding DMT are strictly based on either
pre-clinical research or clinical trials being conducted by third
parties. The regulatory steps required to gain approval for DMT are
the same as any other drug or compound being studied. While each
global jurisdiction has their own approval process (which often
defaults to FDA approval) the FDA rules and guidelines are
considered the gold standard. The drug approval process includes
successfully navigating through Phase 1, 2 and 3 clinical studies
and based on the strength of the data, applying for marketing
approval. Since DMT is currently a Schedule 1 drug, for DMT to be
approved in the U.S. for sale, there will need to be some
communication and agreement between the FDA and the DEA to allow
for its sale for a clinical purpose in the U.S.
The Company also believes that a
microdosing approach to developing a DMT treatment may enable a
much wider review and acceptance of its data, including garnering
the early interest of research investigators, the interest of
clinical trial patients and ultimately clinical acceptance.
Regardless of where the Company's
clinical trial will be conducted, only the various parties that
manufacture, ship, receive and handle DMT will be required to have
all required licenses and permits and the Company will be
undertaking to ensure that these are all in order. DMT is a
controlled substance in most countries globally and the import and
export of it is closely scrutinized and monitored.
Pre-Clinical Research
On February 8, 2021, the Company
appointed CRL to conduct its preclinical (non-human testing)
research work, which will be conducted in Finland.
The pre-clinical research included
conducting a cortical neurite outgrowth studies, which looked at
the neuronal effects of DMT at different concentrations and over
various time periods. This research was conducted in
vitro.
The Company will own the rights to
all results of the pre-clinical research conducted by CRL.
CRL requires the following three
permits to conduct this research in Finland, all of which have been
granted:
1. DMT
Handling permit, granted by the Finnish Medicines Agency
("FIMEA");
2. DMT
Import permit: granted by FIMEA; and
3. DMT
Export permit: granted by Health Canada. The DMT has already been
shipped and received at CRL.
Phase 1 Clinical
Research
The Phase 1 clinical trial on DMT
involves the study of safety and dosing of DMT in healthy
individuals. The Company anticipates commencing the Phase 1
clinical trial within 60 days of receiving CTA approval from the UK
MHRA and ethics approval. The Company has engaged Hammersmith
Medicines Research in the United Kingdom ("Hammersmith") to
conduct the Company's Phase 1 clinical trials for DMT. Under U.K.
law, Hammersmith requires a Schedule 1 license and a
"Manufacture/Import Authorisation" (known as an MIA(IMP)) in order
to handle DMT and conduct the Phase 1 trials.
Hammersmith presently has both the
required licence and authorisation, but Hammersmith will need to
apply for a study-specific Schedule 1 license as well. The
Phase 1 trial must also be approved by the Medicines and Healthcare
Products Regulatory Agency (the "MHRA") and its research
ethics committee, which is expected to take approximately five
weeks. The MHRA regulates medicines, medical devices and blood
components for transfusion in the U.K. Upon receipt of approval
from the MHRA, Hammersmith will make an application to the Home
Office of U.K. for a study-specific Schedule 1 licence, which is
expected to take approximately one month from the date the
application is made.
There can be no assurance that the
Schedule 1 study-specific license will be granted by the Home
Office of the U.K. In addition, Hammersmith requires an
import permit in order to import the DMT manufactured in Canada by
Dalton. To import DMT, Hammersmith will require a certificate
of analysis with the material, which is a standard document for a
drug manufacturing company and which Dalton will provide as part of
its contractual obligations. Obtaining the import permit can be
done in parallel with the other approvals and precedes the export
permit required to be obtained by Dalton.
After completion of the Phase 1
clinical trial, the Company will review the data and consider
conducting a Phase 2 clinical trial. A Phase 2 clinical trial is
the first time a drug can be tested in the patient population that
the drug has been identified to treat. The Company's initial focus
will be the acute treatment of ischemic stroke patients as well as
combination therapy of DMT and Constraint Induced Movement
Therapy.
The Company will need to engage a
contract research organization in order to conduct Phase 2 clinical
trial,
Research-Grade DMT
Manufacturing
The Company retained CRL to conduct
its preclinical research. Research grade DMT was secured from
Toronto Research Chemicals in order to conduct this research which
has now been concluded.
Clinical-Grade DMT
Manufacturing
The Company recently awarded the
contract to manufacture its cGMP (clinical grade (for human use)
material) DMT to Dalton Pharma Services ("Dalton"). The DMT
produced by Dalton is intended for use by Hammersmith (as defined
below) in the Company's Phase 1 clinical trials. Dalton is a Health
Canada approved GMP contract provider of integrated chemistry, drug
development and manufacturing services to the pharmaceutical and
biotechnology industries. Dalton holds a dealer's license with
Health Canada under the CDSA that allows Dalton to possess,
produce, assemble, sell, send, transport and deliver controlled
substances.
On July 17, 2021 the Company
announced that all of the required permits and licenses for the
manufacture and export of its cGMP supply of DMT had been received
by Dalton and that they have commenced
synthesis of DMT for the Company.
On December 8, 2021, the Company
announced that it has completed the manufacturing of its cGMP of
DMT at Canadian manufacturer Dalton Pharma Services. The Company
believes it has produced a sufficient supply of cGMP DMT to
complete its planned Phase 1 and Phase 2 clinical trials.
CRO's
Algernon has retained CRO Clinical
Development Solutions, to support all aspects of the
investigational brochure, study protocol and Pre-IND and IND
application with the FDA as well as the CTA with Health Canada.
Clinical Development Solutions will provide high-level oversight
and management of all clinical trials.
The Company has also retained
Novotech to conduct a feasibility study for Algernon to conduct all
or part of its DMT stroke clinical research program in Australia.
The Company has currently engaged Novotech for its Phase 2 clinical
study for idiopathic pulmonary fibrosis and Chronic Cough.
Australia is a favoured country for clinical research because of
its government supported 40% refundable tax credit program.
Intellectual Property
Algernon has filed new provisional
patent applications for new salt forms of DMT, in addition to
formulation, dosage and method of use claims for ischemic stroke.
The Company has also filed claims for combination therapy of DMT
and CIMT.
The Development of a Therapy for
Pancreatic Cancer
The
Company has initiated a new clinical research program for
pancreatic cancer (PC) and Ifenprodil. PC is an orphan disease and
has a five-year survival rate of 7.9%. This means that only
approximately 8 in 100 people will have survived for five years and
beyond. The 10-year survival rate of the disease is 1%, meaning
only approximately 1 in 100 people survive 10 years and beyond. PC
has the lowest 5-year survival rate of any of the 22 common
cancers.
The
global pancreatic cancer treatment market is expected to reach USD
4.2 billion in 2025, according to a new report by Grand View
Research, Inc. Increasing tobacco consumption, smoking, obesity,
and growing awareness pertaining to various treatment options
available are propelling the market growth at a global level. The
peak incidence of pancreatic cancer is seen in the age group of 65
to 75 years. This expanding geriatric population is also expected
to drive the growth during the forecast period.
Ifenprodil demonstrated a significant anti-tumour effect in a PC
animal model which was reported in a paper published in the Dove
Press Journal, Clinical Pharmacology: Advances and Applications.
The research paper concluded that Ifenprodil significantly and
rapidly reduced the average solid tumour size by approximately 50%
by day three and remained stable while on treatment in a murine
model of PC. The average tumour size in the untreated group doubled
during the same period.
The
Company signed a license agreement with Dartmouth College for the
rights to a patent that covers, Methods for diagnosing and treating
neuroendocrine cancer, specific to NMDA receptors.
The
Company has filed a pre-IND meeting request with the U.S. FDA to
help determine next steps to advance Ifenprodil into clinical
studies for PC. The agency has determined that the Company may
proceed directly to trials in cancer patients with no further
preclinical information and with the Company's existing drug
supply. Algernon also plans to file for an orphan disease
designation and seek Fast Track status, as well as a Breakthrough
Therapy Designation once data from Phase 1 studies are available.
The Company has not yet submitted an orphan drug designation
request and the determination as to whether Ifenprodil will qualify
for each indication will be made on the basis of the facts and
circumstances as of the date the request for orphan drug
designation is made.
The purpose of the
U.S. Orphan Drug Act is to stimulate the development of drugs for
rare diseases. It grants special status to a drug for the
treatment, diagnosis, or prevention of a rare disease or condition,
which would be defined as a disease that affects fewer than 200,000
people in the U.S.
The
Company is seeking non-dilutive funding mechanisms in order to
advance its oncology research programs.
The Development of a Therapy for
Small Cell Lung Cancer
The Company has initiated a new
clinical research program for small cell lung cancer
("SCLC"). Small-cell lung cancer (SCLC) is a
high-grade neuroendocrine carcinoma arising predominantly in
current or former smokers and has an exceptionally poor prognosis.
SCLC makes up about 15% of lung cancer cases.
According to Fortune Business
Insights., the global lung cancer therapeutics market size was
valued at USD 18,327.6 Million in 2018 and is projected to reach
USD 48,725.9 Million by 2026, exhibiting a CAGR of 13.0% in the
forecast period (2019-2026).
The Company signed a license
agreement with Dartmouth College for the rights to a patent that
covers, Methods for diagnosing and treating neuroendocrine cancer,
specific to NMDA receptors.
The
Company has received feedback on a pre-IND meeting request with the
U.S. FDA to help determine next steps to advance Ifenprodil into
clinical studies for SCLC. The agency has determined that the
Company may proceed directly to trials in cancer patients with no
further preclinical information and with the Company’s existing
drug supply. Algernon also plans to file for an orphan disease
designation and seek Fast Track status, as well as a Breakthrough
Therapy Designation once data from Phase 1 clinical studies are
available. The Company has not yet submitted an orphan drug
designation request and the determination as to whether Ifenprodil
will qualify for each indication will be made on the basis of the
facts and circumstances as of the date the request for orphan drug
designation is made
The Company is seeking non-dilutive
funding mechanisms in order to advance its oncology research
programs.
The Development of a Therapy for
COVID-19
On July 6, 2021, Algernon announced
that it would not be advancing Ifenprodil into a Phase 3 clinical
study for COVID-19. The Company's decision was based on several
factors including the overall finding of the Phase 2b study final
data set, the global rate of vaccinations to date, other COVID-19
drug treatment programs under development, the projected trial
size, costs and timelines needed to successfully complete a Phase 3
trial. Feedback recently received from the U.S. FDA regarding the
end of Phase 2 meeting request was also informative.
Safety History of Lead
Compounds
Ifenprodil
Ifenprodil was developed in France
and introduced into the Japanese market in 1982 by a global
pharmaceutical company. The drug is approved and marketed in Japan
and South Korea for the treatment of vertigo and dizziness as
sequelae of cerebral infarction or hemorrhage, and is now
genericized. The drug was approved in France under the name Vadilex
as a peripheral vasodilator indicated for the adjunctive treatment
of intermittent claudication in stage II chronic obliterating
arteriopathy of the lower limbs. In 2014, the French National
Agency for the Safety of Medicines and Health Products (ANSM)
conducted a review of the entire class of drugs approved to treat
intermittent claudication. During this review, it was determined
that the marketing authorization was based on a single clinical
trial, and that the efficacy data from this trial did not justify
the indication (the treatment was no better than placebo, and thus
the risk benefit was negative). Therefore, the agency requested the
repeal of the marketing authorization. As the Company is pursuing
novel indications, prior marketing authorization provides no
assurance that clinical trials will be successful (i.e. demonstrate
efficacy and safety) or that marketing approval will be
obtained.
Since its origin, there have been a
number of clinical trials investigating its use in other diseases,
as summarized below:
1. Circulatory
System Related Disorders (4,821 Patients over one 1 Year);
2. Circulatory
Issues (94 Patients over six months); and
3. Alcohol
Dependence (46 Patients over three months).
4. COVID-19
(150 patients over 8 months)
The company that marketed
ifenprodil in Japan published a safety report summarizing adverse
event data from clinical trials (983 patients) as well as
post-marketing surveillance (14,035 patients). The incidence of
adverse drug reactions was 2.26% (340/15,018). The most commonly
observed reactions were dry mouth, 0.25% (37 cases),
nausea/vomitting, 0.23% (35 cases), and rash, 0.23% (34 cases).
None of the reported effects were described as serious. In
addition, there were no clinically significant cases with abnormal
laboratory values
Note: No significant adverse
side effects were reported from third party studies 1-3 above. In
addition, the Company conducted its own 150 patient Phase 2b/3
human study of Ifenprodil for the treatment of COVID-19. The
external Data and Safety Monitoring Board completed its review at
the conclusion of the Phase 2b part of the study and provided
approval for the Company to continue with the Phase 3 part of the
study further confirming the drug's safety, and no differences in
adverse event rates were observed between groups treated with
ifenprodil and group receiving standard of care treatment with no
ifenprodil.
Ifenprodil is contraindicated in
patients who are believed to have incomplete hemostasis following
an intracranial hemorrhagic attack, and is not recommended for use
in pregnant women, in patients with low blood pressure, increased
heart rate, or immediately after cerebral infarction. Concomitant
use with droxidopa or with drug which cause bleeding is
prohibited.
DMT
N,N-dimethyltryptamine
(DMT) has
a long history of use but has not been approved of in any
jurisdiction of note. DMT was first found to be psychedelic by the
Hungarian chemist Stephen Szára in the 1950s. In the 60s it was
discovered in the human body, with research suggesting it is
synthesised in lungs and the pineal gland in the brain. It is now
believed to be widespread throughout the natural kingdom, in
thousands of plants, and in every mammal that has been investigated
so far. DMT is typically consumed as part of South American
psychoactive brew known as ayahuasca which has been in use for over
500 years. Due to abuse, in the
70s, DMT was placed into a restrictive legal category, and research
was halted.
In the 90's Strassman
conducted a dose response study to IV infusion of DMT
(hallucinogenic and sub-hallucinogenic) into experienced
hallucinogen users. Findings were that peak blood levels were seen
after 2 minutes and were negligible after 30 minutes. DMT dose
dependently elevated blood pressure, heart rate pupil diameter,
rectal temperature, as well as blood levels of beta-endorphin,
corticotropin, cortisol and prolactin. Growth hormone rose equally
in response to all administered doses. All thresholds for effects
to be deemed significant occurred at doses classified as
hallucinogenic. Although one subject had to withdraw due to a
marked diastolic blood pressure response, the study concluded that
the drug could be administered with no safety concerns even at
hallucinogenic doses.
A resurging interest
in psychoactive compounds with data indicating neuroplastic effects
has spurred numerous studies for efficacy in neurodegenerative
conditions ranging from depression to stroke with regulators
approving of DMT for clinical trials at doses high enough to
trigger a psychedelic experience. Timmermann et al.
also
treated healthy volunteers with DMT through IV infusion, and found
similar results to Strassman in that peak blood levels were found
2-3 minutes after infusion and remained significantly higher than
placebo for 17 minutes. Timmermann also did not note any safety
concerns about DMT infusion as the only subject to be excluded from
the study was due excessive movement artifacts during
EEG.
Clinical information on the safety
of DMT, outside of use as an ingredient within ayahuasca, is
limited but Algernon is unaware of any expressing significant
safety concerns. Several studies regarding consumption of ayahuasca
have been conducted finding significant adverse effects to be rare,
with nausea, vomiting, diarrhoea, and hypertension being most
commonly reported. Nausea, vomiting and diarrhea are known side
effects of the harmala alkaloids which are also components of
ayahuasca.
Repirinast
Repirinast was developed in Japan
and approved for the treatment of bronchial asthma in adults in
1987, and in children in 1990. It was withdrawn from the market in
2013 for sales reasons. As the Company intends to investigate
Repirinast for CKD rather than allergic conditions, prior marketing
authorization provides no assurance that clinical trials will be
successful (i.e. demonstrate efficacy and safety) or that marketing
approval will be obtained.
Note: The company who
marketed Repirinast in Japan published a safety report summarizing
adverse event data from clinical trials (837 patients) as well as
post-marketing surveillance (20,050 patients). The incidence of
adverse drug reactions was 0.97% (197/20,887). The most commonly
observed reactions were nausea, 0.14% (30 cases), rash, 0.10% (23
cases), and gastric discomfort, 0.06% (13 cases). None of the
reported effects were described as serious, and the drug was
approved for both adult and pediatric use.
Competitive
Conditions
CKD
Currently, there is no known cure
for CKD; however, according to the Mayo clinic, depending on the
underlying cause, some types of kidney disease can be treated.
Treatment usually consists of
measures to help control symptoms, reduce complications, and slow
progression of the disease. If the kidneys become too severely
damaged through fibrosis and progress to end-stage kidney disease,
dialysis or a kidney transplant are the only interventions
available.
The majority of drugs are used to
treat the often associated high blood pressure (e.g. angiotensin
converting enzyme inhibitors, ACE inhibitors: angiotensin receptor
blockers, ARBs) in patients at risk of, or are developing CKD. The
CKD market is growing, owing to an increasingly older population
who are more susceptible to age related diseases such as diabetes
and cardiovascular disorders. With respect to the latter
complication, patients with chronic CKD often experience high
levels of bad cholesterol, which can increase the risk of heart
disease, thus cholesterol lowering agents are often prescribed to
patients. Anemia is also a common complication of CKD and therapies
such as erythropoietin is often prescribed.
Algernon believes that its compound
Repirinast, which demonstrated anti-fibrotic activity in a commonly
used model of CKD, is an attractive candidate for development. The
compound does not appear to possess anti-hypertensive activity
which is important to nephrologists who already have many
effective, genericized blood pressure lowering agents available to
them.
CKD Phase 2/3 Compounds in
Development (not Targeting CKD Complications, e.g.
anemia)
|
Phase
|
Drug
|
Company
|
Mechanism of Action/Target
|
|
T
|
Pyridorin
|
Nephrogenyx
|
AGE inhibitor (bankruptcy)
|
|
2
|
GTK831
|
Genkyotex
|
NOX1/4 inhibitor
|
|
T
|
Atrasentan
|
Abbvie
|
ET-1 inhibitor
|
|
3
|
Canagliflozine
|
J&J
|
SGLT1 inhibitor
|
|
3
|
Finerenone
|
Bayer
|
non-steroidal selective mineral corticoid receptor
|
|
2
|
Baricitinib
|
Incyte
|
JAK1/2 inhibitor (approved for RA)
|
|
2
|
CCX140
|
Chemocentryx
|
CCR2 inhibitor (on hold)
|
|
2
|
CTP-499
|
Concert
|
PDE inhibitor (out-licensed unknown status)
|
|
2
|
Seloncertib
|
Gilead
|
ASK-1 inhibitor (note Phase 3 NASH failure)
|
|
2
|
VPI-2690B
|
Janssen
|
alpha-5-beta-3 integrin-IGF-1 mAb
|
|
2
|
SER150
|
Serodus
|
TXA2-synthase and TX receptor antagonist
|
Legend: 2 = Phase 2 Trial
3 = Phase 3 Trial T = Trial
Terminated
Product Positioning
Based on the data from the
pre-clinical animal research models, the Company believes the
product placement of its compounds are likely to be used in the
later stages of the disease (post development of
glomerulonephritis) where there are currently no approved
therapies.
IPF & Chronic Cough
IPF
IPF is a fatal disease involving
scarring of the lungs. When diagnosed, patients typically have a
3-5 year life expectancy. The condition is rare and is considered
an orphan disease. There are two approved treatments for IPF,
Nintedanib and Pirfenidone, although there are multiple drugs in
clinical trials for IPF.
IPF is a type of interstitial lung
disease in which the lung tissues are damaged, thereby reducing its
oxygen delivering capacity. Increase in incidence of fibrotic
diseases poses a high risk factor for IPF.
In addition, the Company believes
that a rise in the geriatric population or a surge in the cigarette
smoking population could boost the market growth.
One of the clinical problems with a
subset of IPF patients is a persistent cough. To the Company's
knowledge, no reliable data on the prevalence of cough in IPF
exist. Some studies report that up to 80% of patients experience
Chronic Cough; however, lower numbers are also reported. The
Company believed this may be attributed to the method of reporting
and the definition of cough used (any cough versus disabling
cough). When cough is present in IPF, it is severe and difficult to
treat.
IPF Phase 2/3 Compounds in
Development
|
Phase
|
Compound
|
|
3
|
Antimicrobial Therapy
|
|
2
|
Autoantibody Reductive therapy
|
|
2
|
BLD-2660
|
|
2
|
CC-90001
|
|
2
|
Danazol
|
|
2
|
GB0139
|
|
2
|
GKT137831
|
|
3
|
GLPG1690
|
|
2
|
HEC 68498
|
|
2
|
IDL-2965
|
|
2
|
iNO
|
|
2
|
KD025
|
|
2
|
MN-001
|
|
2
|
ND-L02-s0201
|
|
3
|
Pamrevlumab
|
|
2
|
PLN-74809
|
|
2
|
PRM-151
|
|
2
|
Rituximab
|
|
2
|
RVT-1601
|
|
2
|
VAY736
|
Chronic Cough
Chronic cough is defined as a cough
lasting for at least 8 weeks. In the general population it has a
prevalence of 9% to 33% in the United States and Europe. It is a
frequent reason for seeking medical advice, with a high number of
medical consultations.
Although at present, to the
Company's knowledge, there are no approved treatments, Gefapixant
recently reported positive Phase 3 data, but the drug causes issues
of taste disturbance with a large fraction of patients.
Chronic Cough Phase 2/3
Compounds in Development
There are several drugs in
development for Chronic Cough including TRP modulators, NK1
Antagonists, and P2X3 antagonists ranging from early pre-clinical
to completion of Phase 3.
Product Positioning
Algernon believes Ifenprodil has an
attractive profile in the treatment paradigm of IPF owing its
ability to reduce fibrosis and cough frequency. The compound also
has minimal known issues with respect to taste disturbance and
diarrhea which affects up to 60% of patients taking Nintedanib.
Owing to the multi-year regulatory exclusivity afforded to orphan
diseases, the preferred indication is IPF.
Stroke
Worldwide, 16.9 million people
suffer a first stroke each year, resulting in about 33 million
stroke survivors and 5.9 million stroke-related death making stroke
the second or third most common cause of death and one of the main
causes of acquired adult disability. Approximately 80% of these
survivors have motor impairments of the upper limb that gravely
affect their ability to perform activities of daily living (ADL),
as well as social participation.
Previous studies showed that the
severity of upper limb paresis is an independent determinant of the
outcome of basic activities of daily living (ADL) post stroke.
Constraint-induced movement therapy (CIMT) or modified versions of
CIMT (mCIMT) are currently considered the most effective treatment
regimens in physical therapy to improve the outcome of the upper
paretic limb. CIMT is a treatment technique to improve the
arm motor ability and functional use of a paretic arm-hand.
CIMT forces the use of the affected side by restraining the
unaffected side. Clinical practice guidelines recommend at
least 45 minutes of each relevant stroke rehabilitation therapy for
a minimum of 5 days per week (NICE 2013). In practice, CIMT
therapy is typically initiated as soon as possible after occurrence
of the stroke and is done in a repetitive manner in sessions from
30 minutes to 6 hours, 2-7 times a week for as short as 2 weeks up
to 12 weeks of treatment.
Stroke Phase 1/2/3 Recent Approvals
and Compounds in Development
|
Phase
|
Drug
|
Company
|
Mechanism of Action/Target
|
|
2
|
OSU61621
|
Carlson
Research
|
Monoamine stabilizer
|
|
3
|
nerinetide
|
NoNo
|
PSD-95
Inhibitor
|
|
2
|
3K3A-APC
|
ZZ
Biotech
|
Blood
clotting and inflammation modulator
|
|
M
|
tPA
|
Roche
|
thrombolytic
|
|
2
|
BIIB093
|
Biogen
|
SUR1-TRPM4 inhibitor
|
|
1
|
LT-3001
|
Lumosa
Therapeutics
|
Antioxidant/free radical scavenger
|
Product Positioning
Algernon believes its protections
filed for DMT will allow Algernon to capitalize on the compound for
uses in stroke as a therapeutic and help fill the gap in approved
treatments for acute ischemic stroke. Currently the only approved
treatment is tPA which has the side effects of bleeding
(gastrointestinal, genitourinary, nose, gums), bruising, and a
plethora of other less severe side effects.
DMT, through its action on the
sigma-1 and 5HT2a receptors, impacts many physiological processes
including inflammation, neuronal plasticity, and cell survival. In
vivo models of stroke showed a significantly lower ischemic lesion
volume and better functional recovery when rats were treated with
DMT. Algernon believes that the preclinical data on DMT related to
its activity in neurogenesis, neuroplasticity and neuroprotection
makes it an ideal candidate as a potential treatment for acute
stroke patients and their rehabilitation.
Algernon recently announced
preliminary results from the Company's preclinical in vitro
study performed at CRL's neurological research site in Kuopio,
Finland. In this study, rat cortical neurons were exposed for one
hour to DMT, then allowed to grow for three days. Sub-psychedelic
doses of DMT led to an increase of up to 40% in the number of
processes compared to vehicle, and statistically significant growth
was achieved with doses as low as 10 picomolar. Further experiments
are in progress.
Pancreatic Cancer
Pancreatic cancer has a 5-year
survival rate of 10.8%, with an estimated ~60,000 new cases, and
~48,000 new deaths projected for 2021 (Surveillance, Epidemiology,
and End Results Program (SEER)). Rates of pancreatic cancer
have been increasing over the last two decades, from 11.6/100,000
to 13.7/100,000. Surgical resection is preferred for first
line treatment if possible (NCCN guidelines). This can
include neoadjuvant therapy, adjuvant therapy, and first line
chemotherapy regimens. Most regimens recommend FOLFIRINOX,
gemcitabine or some combination with these therapeutics. If
caught very early there is small chance (10%) of becoming disease
free, otherwise median survival times for newly diagnosed localized
disease range from 3-3.5 years. Survival time for advanced
disease drops to 2-6 months. The addition of new treatment
options that could extend these survival times would be beneficial
to these population of patients.
Pancreatic Cancer Phase 1/2 Recent
Approvals and Compounds in Development
|
Phase
|
Drug
|
Company
|
Mechanism of Action/Target
|
|
M
|
Lynparza
|
Astrazeneca
|
PARP
inhibitor
|
|
M
|
Keytruda
|
Merck
|
PD-1
checkpoint inhibitor
|
|
2
|
APX005M
|
Apexigen
|
CD40
immunomodulator
|
|
2
|
Niraparib
|
GSK
|
PARP
inhibitor
|
|
2
|
BPM31510
|
Berg
|
Metabolic modulator
|
|
1
|
BYL719
|
Novartis
|
PI3Kα
inhibitor
|
|
1
|
Z650
|
Sunshine Lake Pharma Co
|
EGFr
antagonist
|
Product Positioning
Ifenprodil was shown to decrease
tumor size in nu/nu mice xenografts utilizing the PanC-1 cell line.
Based on the results of preclinical studies as well as Ifenprodil's
established safety record in Japan, Algernon believes the compound
is a clinically attractive candidate for pancreatic cancer with
additional cell lines with more specific staging to be
investigated. Intellectual property positioning has been
established with licensing of the use of Ifenprodil like compounds
for treatment of pancreatic cancer. Owing to the multi-year
regulatory exclusivity afforded to orphan diseases, this would be
another preferred route of protections.
Small Cell Lung Cancer
Small cell lung cancer has a 5-year
survival rate of 7% overall (localized 27%, regional 16%, distant
3%) and comprises 14% all lung cancers present in the US
(Surveillance, Epidemiology, and End Results Program (SEER)). The
incidence of SCLC is dropping in countries such as the US, likely
due to decrease tobacco consumption, although this may not be same
in other countries. Tumours in patients initially diagnoses
with SCLC often respond well to initial chemotherapy, however
relapse rates are high and median survival is 18-24 months (NCCN
guidelines). No major treatment advances have occurred over
the past 30 years for SCLC. The last major approval was for
topotecan for second line treatment in 1996, by the U.S. Food and
Drug Administration (FDA). Small cell lung cancer was
declared a "recalcitrant" cancer in the United States, indicating
the strong unmet need for further therapies in this indication.
Small Cell Lung Cancer Phase 1/2
Recent Approvals and Compounds in Development
|
Phase
|
Drug
|
Company
|
Mechanism of Action/Target
|
|
M
|
Zepzeca
|
Jazz
Pharmaceuticals
|
Transcription inhibitor
|
|
M
|
Imfinzi
|
Astrazeneca
|
PD-Li
immunomodulator
|
|
2
|
Anlotinib
|
Chia
Tai Tianquing Pharamceutical Group
|
Tyrosine kinase inhibitor
|
|
2
|
Prexasertib
|
Eli
Lily
|
Checkpoint kinase inhibitor
|
|
2
|
Adavosertib
|
Astrazeneca
|
WEE1
inhibitor
|
|
1
|
olaparib
|
Astrazeneca
|
PARP
inhibitor
|
|
1
|
IBI318
|
Innovent Biologics
|
PD-1/PD-L1 antibody
|
|
2
|
Veliparib
|
Abbvie
|
PARP
inhibitor
|
Product Positioning
Ifenprodil was shown to largely
prevent tumor growth in nu/nu mice xenografts utilizing the NCI H82
cell line. The effect was improved when Ifenprodil was combined
with standard of care treatment, topotecan. Based on the results of
preclinical studies as well as Ifenprodil established safety record
in Japan, Algernon believes the compound is well positioned to be
used in treatment of metastatic small cell lung cancer with
additional stage derived cell lines to be investigated.
Intellectual Property - Drug
Program
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Filing
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Compounds
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Jurisdiction
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Filing
Number
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Protections
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Owned/
Licensed
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Expiration Date
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Status
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Compositions and Methods for Treating Kidney Disorders
(PCT/CA2019/050881)
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Iguratimod, Repirinast, Lobenzarit, Actarit, Ifenprodil, Bemithyl,
Bromantane, Emoxypine, Udenafil, Istradefyllne
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Japan
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2021522114
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Use of compounds for
treating kidney disorders
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Owned
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27-Jun-2038
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Pending
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Canada
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3105127
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Owned
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Pending
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Europe
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19827430.0
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Owned
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Pending
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United
States
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17/255,364
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Owned
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Pending
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China
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201980043698.6
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Owned
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Pending
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Compositions and Methods for Treating NASH
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Cepharanthine,
Repirinast, Ifenoprodil Hemitartrate, Bromantane, Actarit,
Lobenzarit, Irsogladine, Istradefylline, Trapadil, Bemithyl,
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Japan
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Awaiting
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Use of compounds for treating non-alcoholic fatty liver disease,
and in particular, the use of particular test compounds for
treating non-alcoholic fatty liver disease, non-alcoholic fatty
liver, and non-alcoholic steatohepatitis
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Owned
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06-Jul-2038
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Pending
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Canada
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3105850
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Owned
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Pending
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Europe
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19829889.5
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Owned
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Pending
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United
States
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17/258,402
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Owned
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Pending
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China
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112654357
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Owned
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Pending
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Compositions and Methods for Treating Cough
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Ifenprodil,
Radioprodil,
Glutamate 2b receptor antagonists,
Traxoprodil,
Rislenmdaz,
Eliprodil,
Ro-25-6981,
BMT-108908,
EVT-101,
CP101-606,
MK-0657,
EVT-103,
AZD 6765,
SSRIs,
Fluvoxamine,
Fluoxetine,
Excitalpram,
donepezil
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PCT
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PCT/CA2020/050306
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Use of compounds for
treating a cough, and in particular, the use of glutamate 2b
receptor antagonists such as Ifenprodil and Radiprodil for treating
a cough
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Owned
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04-Dec-2039
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Pending
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Compositions and Methods for Treating IPF
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Bromantane,
Ifenprodil,
Radiprodil,
Bemithyl,
Repirinast, Glutamate 2b receptor antagonists,
Traxoprodil,
Rislenmdaz,
Eliprodil,
Ro-25-6981,
BMT-108908,
EVT-101,
CP101-606,
MK-0657,
EVT-103,
AZD 6765,
SSRIs,
Fluvoxamine,
Fluoxetine,
Excitalpram,
donepezil
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China
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202080014848
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Use of compounds for treating fibrosis in the lungs, and in
particular, the use of Bromantane, Ifenprodil, Radiprodil,
Bemithyl, and/or Repirinast for treating chronic lung disease,
including idiopathic pulmonary fibrosis
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Owned
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14-Feb-2039
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Pending
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United
States
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17/424,070
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Owned
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Pending
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Europe
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20754897.5
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Owned
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Pending
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Canada
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3101853
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Owned
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Pending
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Compounds for Treatment of IBD and Methods Thereof
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Emoxypine,
Glut2B antagonists,
Ifenprodil,
Radioprodil,
Traxoprodil,
Rislenmdaz,
Eliprodil,
Ro-25-6981,
BMT-108908
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United
States
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17/258,393
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The use of compounds for treating inflammatory bowel disease, and
in particular, the use of glutamate 2b receptor antagonists, and/or
emoxypine, for treating inflammatory bowel disease, ulcerative
colitis (UC), and Crohn's Disease
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Owned
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06-Jul-2038
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Pending
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Canada
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3105834
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Owned
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Pending
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Europe
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19830563.3
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Owned
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Pending
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Compounds for Treatment of IBD and Methods Thereof
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Emoxypine,
Glut2B antagonists,
Ifenprodil,
Radioprodil,
Traxoprodil,
Rislenmdaz,
Eliprodil,
Ro-25-6981,
BMT-108908,
EVT-101,
CP101-606,
MK-0657,
EVT-103,
AZD 6765,
SSRIs
Fluvoxamine,
Fluoxetine,
Excitalpram,
donepezil
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PCT
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PCT/CA2020/050009
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Use of compounds for
treating inflammatory bowel disease, and in particular, the use of
glutamate 2b receptor antagonists, and/or emoxypine, for treating
inflammatory bowel disease, ulcerative colitis (UC), Crohn's
Disease, and/or diarrhea
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Owned
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10-Jul-2039
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Pending
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Methods for diagnosing and treating neuroendocrine cancer
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GluN2 receptor antagonists
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United
States
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13/895,682
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Method for treating cancer
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Licensed
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19-Apr-2026
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Granted
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All of the patents listed above
have been publicly disclosed. In addition, the Company has
filed provisional patents around new forms of DMT, in addition to
formulation, dosage and method of use claims for ischemic stroke.
The Company has also filed claims for combination therapy of DMT
and CIMT. These applications will be converted to non-provisional
applications in late January 2022, and the information will be
publicly available shortly thereafter. The company has also filed
provisional applications for new forms of ifenprodil; these
applications will be converted to non-provisional in October
2022.
The Company's major assets revolve
around a number of method of use, dosing, and formulation patents
that have been filed protecting its key scientific discoveries. All
of Algernon's lead compounds' original composition of matter
patents have expired, or in the case of DMT which is naturally
occurring, a composition of matter patent was not possible and had
never been issued. Prior to the selection of the initial 11 drug
compounds that were selected for screening, an initial intellectual
property search was conducted in order to gain insight on the
intellectual property landscape for these compounds. Once the
initial in vivo animal research studies were concluded for
each disease, searches were conducted by two independent leading
Canadian intellectual property law firms confirming the suitability
for filing new method of use, dosing, and formulation patents. Once
the searches were completed, provisional patents were filed for all
of the active compounds from each of the research studies.
Where Algernon deemed it necessary,
and based on intellectual property searches for uses of the
Company's lead compounds, the Company has also taken certain lead
compounds and has additionally filed patents for modifications and
derivatives of said compounds. This approach will minimize the risk
of a third party trying to make small structural changes to
Algernon's lead compounds and filing new composition of matter
patents. This strategy was designed to help convince potential
competitors that exploring a partnership or licensing agreement
with the Company would be more productive that trying to compete by
developing a new NCE program for derivatives developed around the
core structure of the Company's lead compounds.
The
Company signed a license agreement with Dartmouth College for the
rights to a patent that covers, Methods for diagnosing and treating
neuroendocrine cancer, specific to NMDA receptors. This patent will
provide some freedom to operate of the Ifenprodil pancreatic and
small cell lung cancer research program should the drug show
efficacy and reach regulatory approval.
Two of the diseases that the
Company is pursuing, are orphan indications including IPF and
pancreatic cancer. Orphan Indication means a disease that affects
less than two hundred thousand (200,000) people in the United
States as defined by the Food and Drug Administration or five (5)
in ten thousand (10,000) people in the European Union as defined by
the European Medicines Agency. Orphan Drug Designation confers
numerous benefits to the development of new products, including
clinical protocol assistance and, upon marketing authorization,
assures marketing exclusivity for a period of up to seven years in
the U.S. and up to ten years in the EU once the
medicine is on the market.
Risk Assessment and
Contingency Plan
Circumstances may occur where the
Company is not able to access currently available and approved
finished product for any of its lead compounds, and/or may not be
able to gain approval to conduct any Phase 2 trials in markets
where the current drug is approved. Should this occur, the Company
intends to proceed to synthesize its lead compounds through a
global cGMP contract manufacturer. The Company will conduct all of
the pre‐clinical toxicological testing required of a new NCE
program, which could take up to 18 months. In addition, before a
Phase 2 study can begin with the new material, a Phase 1 dosing
study will need to be completed, which could take approximately six
months to complete.
While this contingency approach is
expected to add an additional 24 months to the product development
timeline before a Phase 1 trial can be conducted, the Company
believes it will have considerable flexibility to conduct a Phase 1
trial in a number of geographical regulatory jurisdictions
including in the U.S.
Regulatory Regimes (Canada,
the EU and the U.S)
Drug Scheduling
Regulations
Canada
Certain psychoactive compounds,
such as DMT, are considered controlled substances under the
CDSA. DMT and any salt thereof, is listed under Schedule III
of the CDSA. The possession, sale or distribution of
controlled substances is prohibited unless specifically permitted
by the government. Penalties for contravention of the CDSA
related to Schedule I substances are the most punitive, with
Schedule II being less punitive than Schedule I, Schedule III being
less punitive than Schedule I and II and so forth. A party may seek
government approval for a Section 56 Exemption to allow for the
possession, transport or production of a controlled substance for
medical or scientific purposes, as discussed in further detail
below under the heading "Regulatory Approvals Required for
Studies (Canada, the EU and the U.S.) - Canada".
Health Canada regulates all health
products in Canada, and a health product may only be sold in Canada
with the permission of Health Canada. During its evaluation of the
safety, efficacy and quality of each health product, Health Canada
determines whether a drug should be a controlled substance, a
prescription drug or a non-prescription drug. A substance may be
deemed a controlled substance but also a prescription drug. As
discussed above, scheduling the substance in the CDSA means that
there are criminal consequences to possessing the drug unlawfully.
If Health Canada determines that a drug requires a prescription, it
is placed on the Health Canada Prescription Drug List
("PDL"). DMT is not currently on the PDL.
After Health Canada determines if a
drug may be sold in Canada and if it requires a prescription, the
individual provinces, territories and the National Association of
Pharmaceutical Regulatory Authorities ("NAPRA") decide where
it may be sold, under advisement from the National Drug Scheduling
Advisory Committee. NAPRA maintains a harmonized list referred to
as the National Drug Schedules. NAPRA may decide to be more
restrictive in scheduling drugs, but never less restrictive than
has already been determined at the federal level.
United States
As explained in further detail
below, DMT is currently a restricted drug under the CSA. In the
United States, clinical trials involving restricted drugs must
adhere to the CSA and its implementing regulations, which are
enforced by DEA under a legislative, regulatory, and enforcement
structure and process. State regulations of controlled substances
frequently change, so it is important to be aware of the regulatory
nuances of each state in which a trial is conducted. There
are three agencies -the FDA, the National Institute on Drug Abuse,
and the DEA -involved in the scheduling of controlled substances,
including both narcotic drugs and psychotropic substances.
Controlled substances are categorized by the DEA according to five
schedules, based upon eight factors, including: 1) actual or
relative potential for abuse; 2) scientific evidence of
pharmacological effect, if known; 3) state of current scientific
knowledge about the drug; 4) history and current pattern of abuse;
5) scope/duration/significance of abuse; 6) what, if any, risk to
public health; 7) psychic or physiological dependence liability;
and 8) whether the substance is an immediate precursor of an
already controlled substance.
DMT is listed as a Schedule I
substance under the United States Code of Federal Regulations Title
21 -Food and Drugs 21 Part 1308.11 and assigned DEA Controlled
Substances Code Number 7435. Schedule I substances are described as
those that have the following findings:
• the drug or
other substance has a high potential for abuse;
• the drug or
other substance has no currently accepted medical use in treatment
in the United States; and
• there is a lack
of accepted safety for use of the drug or other substance under
medical supervision.
No prescriptions may be written for
Schedule I substances, and such substances are subject to
production quotas which the DEA imposes. All principal
investigators or sub-investigators (typically a member of a
university or CRO) involved in a clinical trial using a controlled
substance must obtain both federal and state authorizations. DEA
registration and state licensure are required at the general
physical location where the controlled substances for the clinical
trial will be dispensed and/or stored overnight. In some cases, it
may be possible to dispense the study drug at a satellite location
with a separate license and registration if there is no overnight
storage at that satellite location.
Federal registration is granted by
the DEA. DEA "Practitioner" registration is valid for three years
although Schedule I substances such as DMT require a DEA
"Researcher" registration, valid for one year only, and in this
situation, the research protocol must be formally approved by the
FDA prior to registration with the DEA. All practitioners who
participate in a clinical trial as a principal investigator or
sub-investigator must also be authorized by the state in which they
practice to prescribe, dispense, administer, and conduct research
with controlled substances. In most cases, these activities are
authorized when a license is granted to the practitioner by the
local Institutional Review Board. However, some states require a
separate, state-issued controlled substance license and other
states have a separate state-controlled substances authority that
requires practitioners to obtain a separate registration, in
addition to their board license.
Europe
The International Narcotics Control
Board ("INCB"), a United Nations ("UN") entity,
monitors enforcement of restrictions on controlled
substances. The INCB's authority is defined by three
international UN treaties -the UN Single Convention on Narcotic
Drugs of 1961, the UN Psychotropic Convention of 1971 (referred to
herein as the UN71), and the UN Convention Against Illicit Traffic
in Narcotic Drugs and Psychotropic Substances of 1988, which
contains provisions related to the control of controlled substance
precursors. EU Member States, including Finland, that have
agreed to abide by the provisions of these treaties, each create
responsible agencies and enact laws or regulations to implement the
requirements of these conventions. Specific EU legislation
establishing different classes of controlled substances is limited
to EU regulations that define classes of precursors, or substances
used in the illicit manufacture of controlled substances, including
Regulation (EC) No. 273/2004 of the European Parliament and the
Council of February 11, 2004, and the Council Regulation (EC) No.
111/2005 of December 22, 2004. While EU legislation does not
establish different classes of narcotic drugs or psychotropic
substances, the Council Decision 2005/387/JHA of May 10, 2005 can
provoke a Council Decision requiring EU member states to put a drug
under national controls equivalent to those of the INCB. DMT
is currently classified as a Schedule I substance under the UN71;
the EU member states, including Finland, have agreed to the
following in respect of Schedule I substances:
(a) prohibit
all use except for scientific and very limited medical purposes by
duly authorized persons, in medical or scientific establishments
which are directly under the control of their Governments or
specifically approved by them;
(b) require
that manufacture, trade, distribution and possession be under a
special licence or prior authorization;
(c) provide
for close supervision of the activities and acts mentioned in
paragraphs a) and b);
(d) restrict
the amount supplied to a duly authorized person to the quantity
required for his authorized purpose;
(e) require
that persons performing medical or scientific functions keep
records concerning the acquisition of the substances and the
details of their use, such records to be preserved for at least two
years after the last use recorded therein; and
(f) prohibit
export and import except when both the exporter and importer are
the competent authorities or agencies of the exporting and
importing country or region, respectively, or other persons or
enterprises which are specifically authorized by the competent
authorities of their country or region for the purpose.
As classification of controlled
substances may vary among different EU member states, sponsors must
be aware of the prevailing legislation in each country where a
clinical trial may be conducted. Prior to operating or
conducting any pre-clinical or clinical studies in any other EU
member state, the Company will investigate the specific regulatory
requirements of such EU member state. As referenced above, a
licence is required for individuals and entities who wish to
produce, dispense, import, or export Schedule I substances
(including DMT), but the specific requirements vary from country to
country. Currently, DMT is classified in Finland as a narcotic
under the Finnish Narcotics Act (373/2008) and as such the
production, manufacture, import, export, distribution, trade,
handling, possession and use of DMT are prohibited.
Regulatory Approvals Required
for Studies (Canada, the EU and the U.S)
Regulatory approvals are required
for clinical (human) studies for all investigational products in
all member countries of the International Council for Harmonisation
of Technical Requirements for Pharmaceuticals for Human Use, which
includes the United States, Canada and EU member states.
Canada
CDSA
In order to conduct any scientific
research, including pre-clinical (animal) and clinical (human)
trials using a controlled substance (such as DMT) in Canada, an
exemption under Section 56 of the CDSA is required. This
exemption allows the holder to possess and use the controlled
substance without being subject to the restrictions set out in the
CDSA, subject to obtaining any additional approvals such as ethics
and clinical trial approvals.
Specifically, the final approved
clinical study protocol and a Health Canada issued No Objection
Letter are required to obtain an exemption under subsection 56(1)
of the CDSA to conduct clinical investigations with DMT in
Canada.
Canada FDR
Products that contain a controlled
substance such as DMT cannot be made, transported or sold without
proper authorization from the government. A party can apply
for a dealer's license under Part J of the Canada Food and Drug
Regulations ("Canada FDR"), which allows the party to
produce, assemble, sell, provide, transport, send, deliver, import
or export a restricted drug (as listed in Part J in the Canada
FDR-which includes DMT), assuming compliance with all relevant laws
(the CDSA and Canada) and subject to any restrictions placed on the
license by Health Canada. In order to qualify as a licensed
dealer, a party must meet all regulatory requirements mandated by
the regulations including having compliant facilities, compliant
materials and staff that meet the qualifications under the
regulations of a senior person in charge and a qualified person in
charge.
United States
The DEA has a streamlined
application process for researchers who wish to conduct clinical
trials using a Schedule I substance not currently approved for
medical use (such as DMT). Schedule I substances are defined
as drugs, substances, or chemicals with no accepted medical use and
a high potential for abuse. Applicants must provide information
about their qualifications, research protocol, and institution
where the research will take place; complete requirements are
outlined in the United States Code of Federal Regulations Title 21
-Food and Drugs 21 Part 1301.18.
Europe
Refer to the discussion above under
the heading "Drug Scheduling Regulations - Europe" for a
general description of the regulatory requirements to conduct
research and clinical and pre-clinical studies using a Schedule I
substance such as (DMT) in one of the EU member states. The
specific regulatory processes and approvals required may vary among
different EU member states and are set forth in the respective
legislation of each country, including Finland.
Clinical Studies and Market
Authorization Regulations (Canada, the EU and the U.S)
The Company's goal is to ultimately
get market authorization from Health Canada, the FDA and the EMA to
sell any DMT products it creates in Canada, the United States and
Europe. However, prior to doing so, the Company will need to
go through the clinical trial regulatory process. The next
stage would be the market authorization regulatory process,
following the completing of Phase 1, 2 and 3 clinical studies,
associated nonclinical studies and preparation of manufacturing
documentation. Set forth below is a description of the
regulatory regimes in Canada, the United States and the European
Union that the Company will be subject to as it moves through both:
(i) the clinical study regulatory processes; and the (ii) market
authorization regulatory process in respect of the any future DMT
products and may be produced.
Canada -Health Canada
Clinical Study Regulatory
Process
In Canada, a CTA is composed of
three modules:
• Module 1
contains administrative and clinical information about the proposed
trial, and includes the Investigator's Brochure, which details all
safety, preclinical and clinical data for the drug under
study. Other components of Module 1 are the clinical study
synopsis and full protocol, informed consent documents, clinical
trial site information, and letters of access;
• Module 2
contains common technical document summaries, including Chemistry,
Manufacturing and Control ("CMC") information about the drug
product(s) to be used in the proposed trial; and
• Module 3
contains additional supporting quality information including
literature references.
The modules are organized and
numbered consistently in an internationally adopted format, the
Common Technical Document ("CTD"). Adhering to the CTD
format facilitates evaluation by Health Canada and ensures
consistency of documents in subsequent stages of the drug
authorization process. Additional documents including a Clinical
Trial Site Initiation Form, Qualified Investigator Undertaking and
a Research Ethics Board Attestation must be completed for each
clinical trial site. Once prepared, the Clinical Trial
Application is sent to the Therapeutic Products Directorate at the
Health Product and Food Branch ("HPFB") of Health Canada for
review. The review process is 30 days, although during the current
COVID-19 pandemic environment, Health Canada is able to extend
review timelines for non COVID-19 related studies to 45 days.
Health Canada invites sponsors to
request a pre-CTA consultation meeting. Such consultations
may be particularly useful for new active substances or
applications that will include complex issues that may be new to
Health Canada. The Company has applied to Health Canada to
hold a pre-CTA consultation meeting with Health Canada to discuss
proposed clinical trials for on DMT.
Market Authorization Regulatory
Process (Canada, the EU and the U.S)
The HPFB is the national authority
that regulates, evaluates and monitors the safety, efficacy, and
quality of therapeutic and diagnostic products available to
Canadians. When a manufacturer decides that it would like to
market a drug in Canada, the company must first file a "New Drug
Submission" ("NDS") with one of the Directorates (e.g.
Therapeutic Products Directorate) within the HPFB. The NDS
contains information and data about the drug's safety,
effectiveness and quality. It includes the results of the
preclinical and clinical studies, whether done in Canada or
elsewhere, details regarding the production of the drug, packaging
and labelling details, and information regarding therapeutic claims
and side effects.
The HPFB performs a thorough review
of the submitted information, sometimes using external consultants
and advisory committees. HPFB evaluates the safety, efficacy
and quality data to assess the potential benefits and risks of the
drug. HPFB reviews the labelling information that the sponsor
proposes to provide to health care practitioners and consumers
about the drug (e.g. the drug label, product monograph, patient
brochure). If, at the completion of the review, the
conclusion is that the benefits outweigh the risks and that the
risks can be mitigated, the drug is issued a Notice of Compliance,
as well as a Drug Identification Number which permits the sponsor
to market the drug in Canada and indicates the drug's official
approval in Canada. In addition, Health Canada laboratories
may test certain biological products before and after authorization
to sell in Canada has been issued.
This is done through its Lot
Release Process, in order to monitor safety, efficacy and
quality. This process is predominantly utilized for biologic
products seeking a marketing license. Once a drug is on the
market, regulatory controls continue. The manufacturer
(license holder) and distributors of the drug must report any new
information received concerning serious side effects including
failure of the drug to produce the desired effect. The
manufacturer (license holder) must also notify HPFB about any
studies that have provided new safety information and request
approval for any major changes to the manufacturing processes, dose
regime or recommended uses for the drug. HPFB conducts market
surveillance, monitors adverse reaction reports, investigates
complaints and problem reports, and manages recalls, should the
necessity arise. In addition, HPFB licenses most drug
production sites and conducts regular inspections as a condition
for licensing.
United States -FDA
Clinical Study Regulatory
Process
Current U.S. Federal law requires
that a drug be the subject of an approved marketing application
before it is transported or distributed across state lines.
Because a sponsor (which is typically a research and development
company or drug manufacturer) will want to ship the investigational
drug to clinical investigators in many states, it must seek an
exemption from that legal requirement. The IND is the means
through which the sponsor technically obtains this exemption from
the FDA. During a new drug's early preclinical development,
the sponsor's primary goal is to determine if the product is
reasonably safe for initial use in humans, and if the compound
exhibits pharmacological activity that justifies commercial
development. When a product is identified as a viable
candidate for further development, the sponsor then focuses on
collecting the data and information necessary to establish that the
product will not expose humans to unreasonable risks when used in
limited, early-stage clinical studies. FDA's role in the
development of a new drug begins when the drug's sponsor, having
screened the new molecule for pharmacological activity and acute
toxicity potential in animals, wants to test its diagnostic or
therapeutic potential in humans. At that point, the molecule
changes in legal status under the Federal Food, Drug, and Cosmetic
Act and becomes a new drug subject to specific requirements of the
drug regulatory system.
The IND application must contain
information in three broad areas:
• Animal
Pharmacology and Toxicology Studies, consisting of preclinical data
to permit an assessment as to whether the product is reasonably
safe for initial testing in humans. Also included are any
previous experience with the drug in humans (often foreign
use);
• Manufacturing
Information, pertaining to the composition, manufacturer,
stability, and controls used for manufacturing the drug substance
and the drug product. This is equivalent to the CMC data
referenced above for Health Canada applications, and is assessed to
ensure that the company can adequately produce and supply
consistent batches of the drug; and
• Clinical
Protocols and Investigator Information, including detailed
protocols for proposed clinical studies to assess whether the
initial trials will expose subjects to unnecessary risks. Also,
information on the qualifications of clinical investigators to
assess whether they are qualified to fulfill their clinical trial
duties. Finally, commitments to obtain informed consent from the
research subjects, to obtain review of the study by an
Institutional Review Board, and to adhere to the investigational
new drug regulations.
Once the IND is submitted, the
sponsor must wait 30 calendar days before initiating any clinical
trials. During this time, the FDA has an opportunity to
review the IND for safety to assure that research subjects will not
be subjected to unreasonable risk.
The FDA invites sponsors to request
a pre-IND consultation meeting in advance of application
submission. This fosters early communications between
sponsors and new drug review divisions to provide guidance on the
data necessary to warrant IND submission. The Company has
requested a pre-IND consultation meeting to discuss its proposed
clinical trials on DMT.
Market Authorization Regulatory
Process (Canada, the EU and the U.S)
The FDA regulates the development,
testing, manufacturing, labeling, storage, recordkeeping,
promotion, marketing, distribution, and service of medical products
in the United States to ensure that such medical products
distributed domestically are safe and effective for their intended
uses. In addition, the FDA regulates the export of medical
products manufactured in the United States to international markets
and the importation of medical products manufactured abroad.
Unless an exemption applies, each new or significantly modified
medical product a company seeks to commercially distribute in the
United States will require FDA approval. The FDA approval
process is conducted through the submission of a New Drug
Application ("NDA").
The process can be expensive, and
lengthy (6-12 months), and require payment of significant user
fees, unless an exemption is available. Significant reductions in
fees are available through the Small Business Fee Waiver/Reduction
program. Drug companies seeking to sell a drug in the United
States must first test it. The company then sends the Centre
for Drug Evaluation and Research ("CDER") at the FDA the
evidence from these tests to prove the drug is safe and effective
for its intended use, using the NDA. A team of CDER
physicians, statisticians, chemists, pharmacologists, and other
scientists reviews the company's data and proposed
labeling.
If this independent and unbiased
review establishes that a drug's health benefits outweigh its known
risks, the drug is approved for sale. The center does not
actually test drugs itself, although it does conduct limited
research in the areas of drug quality, safety, and effectiveness
standards. The FDA drug approval process takes place within a
structured framework that includes: (i) analysis of the target
condition and available treatments; (ii) assessment of benefits and
risks from clinical data; and (iii) strategies for managing
risks.
In some cases, the approval of a
new drug is expedited. Accelerated approval can be applied to
promising therapies that treat a serious or life-threatening
condition and provide therapeutic benefit over available therapies.
The FDA also employs several approaches to encourage the
development of certain drugs, especially drugs that may represent
the first available treatment for an illness, or ones that have a
significant benefit over existing drugs. These approaches, or
designations, are meant to address specific needs, and a new drug
application may receive more than one designation, if applicable.
Each designation helps ensure that therapies for serious conditions
are made available to patients as soon as reviewers can conclude
that their benefits justify their risks. Designations include: (i)
fast track; (ii) breakthrough therapy; and (iii) priority
review.
Europe -EMA
Clinical Study Regulatory
Process
The IMPD is one of several
regulatory documents required for conducting a clinical trial of a
pharmacologically API (active product ingredient) intended for one
or more European Union Member States. The IMPD includes summaries
of information related to the quality, manufacture and control of
any Investigational Medicinal Product (including reference product
and placebo) ("IMP"), and data from non-clinical and
clinical studies. Guidance concerning IMPDs is based on
Regulation (EU) No 536/2014 on Clinical Trials on Medicinal
Products for Human Use (the "Regulation") and on the
approximation of laws, regulations and administrative provisions of
the Member States relating to the implementation of good clinical
practice in the conduct of clinical trials on medicinal products
for human use (also commonly referred to as the "Clinical Trials
Directive"). The Regulation came into force in 2016,
harmonizing the laws, regulations and administrative provisions of
the Member States relating to the implementation of Good Clinical
Practice in the conduct of clinical trials on medicinal products
for human use. European Member States have transformed the
requirements outlined in the Clinical Trials Directive into the
respective national laws.
The content of the IMPD may be
adapted to the existing level of knowledge and the product's phase
of development. When applying for a clinical trial
authorization, a full IMPD is required when little or no
information about an API has been previously submitted to competent
authorities, when it is not possible to cross-refer to data
submitted by another sponsor and/or when there is no authorization
for sale in the European Union. However, a simplified IMPD may be
submitted if information has been assessed previously as part of a
Marketing Authorization or a clinical trial to that competent
authority. Although the format is not obligatory, the
components of an IMPD are largely equivalent to clinical trial
applications in Canada and the U.S. The IMPD need not be a
large document as the amount of information to be contained in the
dossier is dependent on various factors such as product type,
indication, development phase etc.
The assessment of an IMPD is
focused on patient safety and any risks associated with the
IMP. Whenever any potential new risks are identified the IMPD
must be amended to reflect the changes. Certain amendments
are considered substantial in which case the competent authority
must be informed of the substantial amendment. This may be the case
for changes in IMP impurities, microbial contamination, viral
safety, transmissible spongiform encephalopathies (e.g. mad cow
disease) and in some particular cases to stability when toxic
degradation products may be generated.
The Company is planning the Phase 1
study to obtain preliminary evidence of the safety and efficacy of
DMT. The study will occur in the U.K. and the current focus is
preparing an IMPD document that includes CMC (Chemistry,
Manufacturing and Control) information, an Investigator's brochure
(including prior safety, preclinical and clinical data) and a
clinical study protocol and supporting information to be submitted
to the regulatory authorities, all of which is subject to the
risks, delays and related cost implications.
Market Authorization Regulatory
Process
Under the centralized authorization
procedure, pharmaceutical companies submit a single
marketing-authorization application to the EMA, which provides the
basis of a legally binding recommendation that will be provided by
the EMA to the European Commission, the authorizing body for all
centrally authorized products. This allows the
marketing-authorization holder to market the medicine and make it
available to patients and healthcare professionals throughout the
European Union on the basis of a single marketing
authorization. EMA's Committee for Medicinal products for
Human Use or Committee for Medicinal Products for Veterinary Use
carry out a scientific assessment of the application and give a
recommendation on whether the medicine should be marketed or not,
under any particular dosing regimen. Although, under European
Union law, the EMA has no authority to permit marketing in the
different European Union countries, the European Commission is the
authorizing body for all centrally authorized products, who takes a
legally binding decision based on EMA's recommendation. This
decision is issued within 67 days of receipt of EMA's
recommendation.
Once granted by the European
Commission, the centralized marketing authorization is valid in all
European Union Member States as well as in the European Economic
Area countries Iceland, Liechtenstein and Norway. European
Commission decisions are published in the Community Register of
medicinal products for human use. Once a medicine has been
authorized for use in the European Union, the EMA and the European
Union Member States constantly monitor its safety and take action
if new information indicates that the medicine is no longer as safe
and effective as previously thought. The safety monitoring of
medicines involves a number of routine activities ranging from:
assessing the way risks associated with a medicine will be managed
and monitored once it is authorized; continuously monitoring
suspected side effects reported by patients and healthcare
professionals, identified in new clinical studies or reported in
scientific publications; regularly assessing reports submitted by
the Company holding the marketing authorization on the benefit-risk
balance of a medicine in real life; and assessing the design and
results of post-authorization safety studies which were required at
the time of authorization.
The EMA can also carry out a review
of a medicine or a class of medicines upon request of a Member
State or the European Commission. These are called European
Union referral procedures; they are usually triggered by concerns
in relation to a medicine's safety, the effectiveness of risk
minimization measures or the benefit-risk balance of the
medicine. The EMA has a dedicated committee responsible for
assessing and monitoring the safety of medicines, the
Pharmacovigilance Risk Assessment Committee. This ensures
that EMA and the European Union Member States can move very quickly
once an issue is detected and take any necessary action, such as
amending the information available to patients and healthcare
professionals, restricting use or suspending a medicine, in a
timely manner in order to protect patients.
Legislation on controlled
substances United Kingdom
In the UK, there are two main
"layers" of regulation with which products containing controlled
substances must comply. These are:
(i) controlled
drugs legislation, which applies to all products containing
controlled substances irrespective of the type of product, and
(ii) the
regulatory framework applicable to a specific category of products,
in this case, pharmaceuticals and food/food supplements.
In the U.K., DMT is considered a
Class A drug under the amended Misuse of Drugs Act 1971, and as a
Schedule 1 drug under the amended Misuse of Drugs Regulations 2001
(the "MDR").
Class A drugs are highly controlled
and considered to be the most potentially harmful. Schedule 1 drugs
receive the most restrictive controls. They are considered to
have no legitimate or medicinal use, and can only be imported,
exported, produced, supplied and the like under a Home Office
license.
Even if granted a marketing
authorization for SPL026 by the MHRA, DMT would still remain a
Schedule 1 drug until rescheduled by the Home Office. Unless
and until DMT is rescheduled under the MDR, and unless a statutory
exemption were to be passed for SPL026 following the grant of a
U.K. marketing authorization and before rescheduling, any
prescribing doctors in the U.K. would require a Home Office license
to prescribe SPL026. There can be no guarantee that such Home
Office licenses would be granted or that rescheduling would be
successful.
The amended Misuse of Drugs Act
1971, sets out the penalties for unlawful production, possession
and supply of controlled drugs based on three classes of risk (A, B
and C). The MDR sets out the permitted uses of controlled drugs
based on which Schedule (1 to 5) they fall within. In the United
Kingdom, Class A drugs are deemed to be the most dangerous, and so
carry the harshest punishments for unlawful manufacture,
production, possession and supply. Schedule 1 drugs can only be
lawfully manufactured, produced, possessed and supplied under a
Home Office licence. While exemptions do exist, none are applicable
to the API.
Additional legislation was more
recently passed in order to address an increasing prevalence of
psychoactive drugs designed to circumvent the Misuse of Drugs Act
1971. The Psychoactive Substances Act 2016 (the "PSA")
prohibits certain activities regarding any psychoactive substance,
defined in the PSA as a substance that produces a psychoactive
effect, which by stimulating or depressing the central nervous
system affects a person's mental functioning or emotional
state.
Controlled substances are exempt
from the PSA, which therefore does not apply to SPL026. SPL028 and
SPL029 may fall within the MDR. If either SPL028 or SPL029
are found to fall outside of the MDR then the PSA may apply,
subject to certain exemptions which apply to experimental
medicines. Approved medicines are also exempt from the PSA,
so the PSA should not apply to SPL028 or SPL029, if approved by the
MHRA.
Licensing Requirements
All UK-based facilities involved in
the manufacture, analytical testing, release and clinical testing
of DMT need to hold appropriate Home Office licenses. All
premises that are licensed in the manufacture, analytical testing,
release and clinical testing of controlled drugs are required to
adhere to detailed security standards.
Typically, when controlled drugs
are being transported between licensees, responsibility for their
security remains with the owner and does not transfer to either the
courier or the customer until the drugs arrive at their destination
and are signed for. However, where a third party is involved
in the transit and/or storage of controlled drugs, even if they are
not the legal owners, this party also carries responsibility for
their security by virtue of being 'in possession' of them.
Under the Home Office guidance, each organisation involved in the
movement of controlled drugs should have a standard operating
procedure covering their responsibilities, record keeping,
reconciliation and reporting of thefts/losses.
Organization Structure
Algernon has two wholly-owned
subsidiaries, Nash Pharmaceuticals Inc., a corporation subsisting
under the laws of the Province of British Columbia, Canada, and
Algernon Research PTY Ltd., an Australian proprietary company
established on January 6, 2020.
EXEMPTIONS UNDER THE JUMPSTART
OUR BUSINESS STARTUPS ACT
The United States Congress passed
the Jumpstart Our Business Startups Act of 2012, which provides for
certain exemptions from various reporting requirements applicable
to reporting companies under the Securities Exchange Act of 1934,
as amended, that qualify as "emerging growth companies". We are an
"emerging growth company" as defined in section 3(a) of the
Exchange Act (as amended by the JOBS Act, enacted on April 5,
2012), and we will continue to qualify as an "emerging growth
company" until the earliest to occur of: (a) the last day of
the fiscal year during which we have total annual gross revenues of
US$1,070,000,000 (as such amount is indexed for inflation every
five years by the SEC) or more; (b) the last day of our fiscal year
following the fifth anniversary of the date of the first sale of
our common equity securities pursuant to an effective registration
statement under the Securities Act; (c) the date on which we have,
during the previous three-year period, issued more than
US$1,000,000,000 in non-convertible debt; or (d) the date on which
we are deemed to be a "large accelerated filer", as defined in
Exchange Act Rule 12b-2. Therefore, we expect to continue to be an
emerging growth company for the foreseeable future.
Generally, a registrant that
registers any class of its securities under section 12 of the
Exchange Act is required to include in the second and all
subsequent annual reports filed by it under the Exchange Act, a
management report on internal control over financial reporting and,
subject to an exemption available to registrants that meet the
definition of a "smaller reporting company" in Exchange Act Rule
12b-2, an auditor attestation report on management's assessment of
internal control over financial reporting.
However, for so long as we continue
to qualify as an emerging growth company, we will be exempt from
the requirement to include an auditor attestation report in our
annual reports filed under the Exchange Act, even if we do not
qualify as a "smaller reporting company". In addition, section
103(a)(3) of the Sarbanes-Oxley Act of 2002 has been amended by the
JOBS Act to provide that, among other things, auditors of an
emerging growth company are exempt from the rules of the Public
Company Accounting Oversight Board requiring mandatory audit firm
rotation or a supplement to the auditor's report in which the
auditor would be required to provide additional information about
the audit and the financial statements of the registrant (auditor
discussion and analysis).
Additionally, we have irrevocably
elected to comply with new or revised accounting standards even
though we are an emerging growth company. We have made this
election to reduce the risk of having to restate our financials
once we cease to be an emerging growth company.
CAUTIONARY NOTE REGARDING
FINANCIAL DISCLOSURE IN THIS PROSPECTUS
This prospectus should be read in
conjunction with the accompanying consolidated financial statements
and related notes. The discussion and analysis of the
financial condition and results of operations are based upon the
financial statements, which have been prepared in accordance with
International Financial Reporting Standards (IFRS), as adopted by
the International Accounting Standards Board (IASB) and in
accordance with IAS 34 - Interim Financial Reporting.
The preparation of financial
statements in conformity with these accounting principles requires
us to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent
liabilities at the financial statement date and reported amounts of
revenue and expenses during the reporting period. On an
on-going basis, we review our estimates and assumptions. The
estimates were based on historical experience and other assumptions
that we believe to be reasonable under the circumstances.
Actual results are likely to differ from those estimates under
different assumptions or conditions, but we do not believe such
differences will materially affect our financial position or
results of operations.
Critical accounting policies, the
policies we believe are most important to the presentation of our
financial statements and require the most difficult, subjective and
complex judgments, are outlined below under the heading
"Critical Accounting Policies and Estimates" and have not
changed significantly.
KEY INFORMATION
Outstanding Share Data
Our authorized share capital
consists of an unlimited number of Class A Common Shares without
nominal or par value. As at November 30, 2021, our
outstanding equity and convertible securities were as follows:
|
Securities
|
|
Outstanding
|
|
Voting equity securities issued and outstanding
|
|
1,674,868 Common Shares
|
|
|
|
|
|
Securities convertible or exercisable into voting equity
securities - Stock Options
|
|
Stock Options to acquire up to 10% of the number of Common
Shares outstanding
|
|
|
|
|
|
Securities convertible or exercisable into voting equity
securities - Warrants
|
|
- 196,053
warrants to acquire 196,053 Common Shares at an exercise price of
$55.00 per Common Share with an expiry date of May 13, 2022.
- 41,478
warrants to acquire 41,478 Common Shares at an exercise price of
$12.00 per Common Share with an expiry date of August 20,
2022.
- 119,056
warrants to acquire 119,056 Common Shares at an exercise price of
$40.00 per Common Share with an expiry date of March 5, 2023.
- 380 broker
warrants to acquire 380 Common Shares at an exercise price of $8.50
per Common Share with an expiry date of May 1, 2022.
- 15,053
broker warrants to acquire 15,053 Common Shares at an exercise
price of $35.00 per Common Share with an expiry date of May 13,
2022.
|
Common Shares
Each Common Share carries the right
to attend and vote at all general meetings of shareholders. Holders
of Common Shares are entitled to receive on a pro rata basis such
dividends, if any, as when declared by the Company's Board of
Directors at its discretion from funds legally available for the
payment of dividends and upon the liquidation, dissolution or
winding up of the Company are entitled to receive on a pro rata
basis the net assets of the Company after payment of debts and
other liabilities, in each case subject to the rights, privileges,
restrictions, and conditions attaching to any other series or class
of shares ranking senior in priority to or on a pro rata basis with
the holders of Common Shares with respect to dividends or
liquidation. The Common Shares do not carry any pre-emptive
subscription, redemption or conversion rights, nor do they contain
any sinking or purchase fund provisions. There are no restrictions
on the repurchase or redemption of Common Shares by us except to
the extent that any such repurchase or redemption would render us
insolvent pursuant to the BCBCA.
For additional information
regarding our Common Shares, please see the discussion under the
heading "Notice Of Articles And Articles Of Our Company -
Rights, Preferences and Restrictions Attaching to Our
Shares".
Non-cumulative voting
Holders of our Common Share do not
have cumulative voting rights, which means that the holders of more
than 50% of the outstanding Common Shares, voting for the election
of directors, can elect all of the directors to be elected, if they
so choose, and, in that event, the holders of the remaining Common
Shares will not be able to elect any of our directors.
Stock transfer agent
The Company's Registrar and
Transfer Agent is TSX Trust Company, located at 650 West Georgia
Street, Suite 2700, Vancouver, British Columbia, V6B 4N9 and its
telephone number is (604) 689-3334.
Dividend Policy
The Company has not paid dividends
on its Common Shares during the past three financial years and
through the date of this Registration Statement. The Company has no
present intention of paying dividends in the near future. It will
pay dividends when, as and if declared by the Board. The Company
expects to pay dividends only out of retained earnings in the event
that it does not require its retained earnings for operations and
reserves. There are no restrictions in the Company's articles of
incorporation or bylaws that prevent it from declaring dividends.
The Company has no shares with preferential dividend and
distribution rights authorized or outstanding.
Indebtedness as of November 30,
2021:
|
Contractual obligations |
|
Payments due by period |
|
|
|
|
Total |
|
|
Less than 1
year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5
years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Liabilities |
|
$624,938(1) |
|
|
624,938 |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Long-Term Liabilities Reflected on the Registrant's Balance
Sheet under IFRS |
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$624,938 |
|
|
624,938 |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
Notes:
(1) The
carrying value of accounts payable and accrued liabilities is
estimated due to the short-term nature of these instruments.
Reasons for the Offer and Use of
Proceeds
Assuming the sale of US$[●] of
Units in this offering and no issuance of pre-funded units, after
deducting the estimated underwriting discounts and offering
expenses payable by us and assuming no exercise of the
underwriters' over-allotment option, we expect to receive net
proceeds of approximately US$[●] from this offering.
|
Gross proceeds
|
US$[●]
|
|
Underwriting discounts and commissions (up to 8.0% of gross
proceeds)
|
US$
[●]
|
|
Underwriting non-accountable expenses (0.85% of gross
proceeds)
|
US$[●]
|
|
Miscellaneous underwriting fees expenses
|
US$[●]
|
|
Other offering expenses(1)
|
US$[●]
|
|
Net proceeds
|
US$[●]
|
(1) These
consist of legal fees and expenses of approximately US$[●] , the
Nasdaq Capital Market listing fee of US$50,000, accountant and
auditing fees and expenses of approximately US$[●], and other fees
of approximately US$[●] and excludes those other offering expenses
that have already been paid.
We intend to use the net proceeds
of this offering as follows:
|
Description of Use |
|
Net Proceeds |
|
|
General and Administrative Expenses (12 months) |
|
US$[1,300,000] |
|
| IPF
or Chronic Cough - Ifenprodil |
|
|
|
|
Phase 2 (Australia) |
|
US$[500.000] |
|
|
Stroke - DMT |
|
|
|
|
Phase 1 |
|
US$[2,000,000] |
|
|
Phase 2 Acute |
|
US$[3,000,000] |
|
|
CKD - Repirinast |
|
|
|
|
Preclinical |
|
US$[800,000] |
|
|
Phase 1 |
|
US$[800,000] |
|
|
Unallocated Working Capital |
|
US$[600,000] |
|
|
Total |
|
US$[9,000,000] |
|
We would receive additional gross
proceeds of US$[●] if all of the Warrants included in the Units are
exercised, assuming no issuance of pre-funded units and assuming no
exercise of the underwriters' over-allotment option. We intend to
use any such proceeds for working capital and general corporate
purposes. General corporate purposes may include capital
expenditures.
Incentive Stock Options
On January 1, 2022, we granted
96,000 stock options with an exercise price of $4.10 per Common
Share, which options will expire on January 1, 2027 at an exercise
price of $4.10 per Common Share.
There were no stock option grants
during the year ended August 31, 2021.
During the year ended August 31,
2020, we granted 43,750 stock options with an exercise price of
$10.00 per Common Share, which options will expire on February 13,
2025, 45,500 stock options with an exercise price of $29.00 per
Common Share, which options will expire on April 13, 2025, and
6,000 stock options with an exercise price of $35.00 per Common
Share, which options will expire on August 17, 2025.
The following table represents the
number of stock options that are outstanding as of April [●],
2022:
|
Date of Grant
|
Number of
Options
|
Price Per
Option
|
Expiry Date
|
|
May 18,
2017
|
500
|
$30.00
|
May 18,
2022
|
|
March 1,
2018
|
3,000
|
$48.00
|
March 1,
2023
|
|
February
13, 2020
|
25,000
|
$10.00
|
February
13, 2025
|
|
April
13, 2020
|
20,250
|
$29.00
|
April
13, 2025
|
|
August
17, 2020
|
6,000
|
$35.00
|
August
17, 2025
|
|
January
1, 2022
|
89,500
|
$4.10
|
January
1, 2027
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
This Prospectus should be read in
conjunction with the accompanying financial statements and related
notes. The discussion and analysis of the financial condition and
results of operations are based upon the financial statements,
which have been prepared in accordance with International Financial
Reporting Standards (IFRS), as adopted by the International
Accounting Standards Board (IASB).
The preparation of financial
statements in conformity with these accounting principles requires
us to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent
liabilities at the financial statement date and reported amounts of
revenue and expenses during the reporting period. On an on-going
basis, we review our estimates and assumptions. The estimates were
based on historical experience and other assumptions that we
believe to be reasonable under the circumstances. Actual results
are likely to differ from those estimates or other forward-looking
statements under different assumptions or conditions, but we do not
believe such differences will materially affect our financial
position or results of operations. Our actual results may differ
materially as a result of many factors, including those set forth
under the headings entitled "Special Note Regarding Forward
Looking Statements" and "Risk Factors".
Critical accounting policies, the
policies we believe are most important to the presentation of our
financial statements and require the most difficult, subjective and
complex judgments, are outlined below under the heading
"Critical Accounting Policies and Estimates", and have not
changed significantly since our founding.
Overview
Algernon Pharmaceuticals Inc. was
incorporated on April 10, 2015 under the BCBCA. The registered
office of Algernon is located at Suite 1500 - 1055 West Georgia
Street, Vancouver, British Columbia, V6E 4N7.
Results of Operations for the
Three Months Ended November 30, 2021 as Compared to the Three
Months Ended November 30, 2020
The Company had a net loss of
$1,200,560 for the three months ended November 30, 2021 ("Q1 2022")
compared to a net loss of $3,434,448 for the three months ended
November 30, 2020 ("Q1 2021"). The Company's significant
operating expenses for the three months ended November 30, 2021
included the following:
-
Research and development expenses of $626,718 (Q1 2021 -
$2,505,231)
-
Salaries and benefits of $222,152 (Q1 2021 - $171,892)
-
Marketing expenses of $142,698 (Q1 2021 - $155,443)
-
Professional fees of $103,327 (Q1 2021 - $112,190)
-
General and administrative expenses of $48,573 (Q1 2021 -
$45,095)
-
Shareholder communications expenses of $57,557 (Q1 2021 -
$58,129)
-
No share-based payment expenses (Q1 2021 - $392,775)
Research and Development
Expenses
|
|
|
November 30 |
|
|
August 31, |
|
|
For the three month period ended |
|
2021 |
|
|
2021 |
|
|
Clinical Trials: |
|
|
|
|
|
|
|
Phase 2 for IPF and chronic cough |
$ |
388,701 |
|
$ |
376,418 |
|
|
Investigator-led COVID-19 study in South Korea |
|
- |
|
|
(196,335 |
) |
|
Phase 2b/3 multinational COVID-19 study |
|
2,676 |
|
|
(1,027,954 |
) |
|
|
|
391,377 |
|
|
(847,871 |
) |
|
Preclinical: |
|
|
|
|
|
|
|
Ifenprodil preclinical and manufacture |
|
37,726 |
|
|
25,247 |
|
|
Oncology preclinical |
|
36,993 |
|
|
- |
|
|
|
|
74,719 |
|
|
25,247 |
|
|
|
|
|
|
|
|
|
|
DMT |
|
224,548 |
|
|
216,064 |
|
|
Management and Ad Hoc scientific support |
|
47,199 |
|
|
57,677 |
|
|
|
|
|
|
|
|
|
|
Total |
|
737,843 |
|
|
(548,883 |
) |
|
|
|
|
|
|
|
|
|
Less: Australian R&D Tax Credit |
|
(111,125 |
) |
|
341,642 |
|
|
Total Net Expenses |
$ |
626,718 |
|
$ |
(207,241 |
) |
Research and development expenses
totaled $626,718 for the three months ended November 30, 2021 (Q1
2021 - $2,505,231) and pertained primarily to the Company's DMT
manufacturing and development. The decrease was mainly due to
activities during the three months ended November 30, 2020 in
connection with the Company's multinational Phase 2b/3 study of
Ifenprodil as a potential therapeutic treatment for patients with
COVID-19. The Company was also supporting an investigator led Phase
2 human trial for Ifenprodil and COVID-19 in South Korea during the
three months ended November 30, 2020.
Salaries and benefits for the three
months ended November 30, 2021 were $222,152 (Q1 2021 - $171,892)
which included salaries paid to officers, independent directors and
two employees as well as severance costs associated with a change
in CFO which occurred on December 1, 2021. The increase from the
three months ended November 30, 2020 resulted from severance costs
which totaled $56,000 for the three months ended November 30,
2021.
Marketing expenses, consisted of
expenses in relation to promotional activities to create and expand
market presence of the Company, were $142,698 for the three months
ended November 30, 2021 (Q1 2021 - $155,443) and were consistent
with marketing expenses for the three months ended November 30,
2020.
Professional fees, which included
legal, accounting and consulting fees, incurred in the operation of
the business, were $103,327 for the three months ended November 30,
2021 (Q1 2021 - $112,190) and were consistent with professional
fees for the three months ended November 30, 2020.
General and administrative expenses
which included expenses incurred to support Company's day-to-day
operational activities were $48,573 for the three months ended
November 30, 2021 (Q1 2021 - $45,095) and were consistent with
general and administrative expenses for the three months ended
November 30, 2020.
Shareholder communications
expenses, which included newswire subscription fees, communication
advisory fees, transfer agent and filing expenses, were $57,557 for
the three months ended November 30, 2021 (Q1 2021 - $58,129) and
were consistent with shareholder communications expenses for the
three months ended November 30, 2020.
There were no share-based payment
expenses for the three months ended November 30, 2021 compared to
share-based payments for the three months ended November 30, 2021
of $392,775 which related to share-based payments recognized
related to restricted share units ("RSUs") that were previously
granted to certain directors, officers and consultants of the
Company.
Results of Operations for the
Year Ended August 31, 2021 as Compared to the Year Ended August 31,
2020
The Company had a net loss of
$7,734,080 for the year ended August 31, 2021 (2020 - $8,538,207).
The Company's significant operating expenses included the
following:
• Research
and development of $4,797,012 (2020 - $2,675,493)
• Share-based
payment of $827,402 (2020 - $3,179,440)
• Marketing
expenses of $794,324 (2020 - $1,265,925)
• Salaries
and benefits of $656,829 (2020 - $8,175)
• Professional
fees of $607,672 (2020 - $1,171,258)
• General
and administrative of $194,573 (2020 - $151,024)
• Shareholder
communications of $173,312 (2020 - $209,740)
Research and Development
Expenses
|
|
|
August 31 |
|
|
August 31, |
|
|
For the year ended |
|
2021 |
|
|
2020 |
|
|
Clinical Trials: |
|
|
|
|
|
|
|
Phase 2 for IPF and chronic cough |
$ |
1,203,109 |
|
$ |
1,032,627 |
|
|
Investigator-led COVID-19 study in South Korea |
|
148,182 |
|
|
544,710 |
|
|
Phase 2b/3 multinational COVID-19 study |
|
4,617,199 |
|
|
1,264,373 |
|
|
|
|
5,968,490 |
|
|
2,841,710 |
|
|
Preclinical: |
|
|
|
|
|
|
|
Ifenprodil preclinical and manufacture |
|
116,802 |
|
|
503,821 |
|
|
Oncology preclinical |
|
49,535 |
|
|
23,900 |
|
|
Nash preclinical |
|
12,468 |
|
|
- |
|
|
|
|
178,805 |
|
|
527,721 |
|
|
|
|
|
|
|
|
|
|
DMT |
|
398,501 |
|
|
-, |
|
|
Management and Ad Hoc scientific support |
|
214,247 |
|
|
251,411 |
|
|
|
|
|
|
|
|
|
|
Total |
|
6,760,043 |
|
|
3,620,842 |
|
|
|
|
|
|
|
|
|
|
Less: Australian R&D Tax Credit |
|
(1,897,019 |
) |
|
(929,301 |
) |
|
Less: Canadian NRC Research Grant |
|
(66,012 |
) |
|
(16,048 |
) |
|
Total Net Expenses |
$ |
4,797,012 |
|
$ |
2,675,493 |
|
Research and development expenses
for the year ended August 31, 2021 were $4,797,012 (2020 -
$2,675,493) after being partially offset by the Australia R&D
incentive cash tax credit of $1,897,019 (2020 - $929,301) and the
contribution of $66,012 (2020 - $16,048) from the National Research
Council - Industrial Research Assistance Program for its COVID-19
Therapeutic Development Project. The increase primarily related to
the Company's Phase 2b/3 multinational COVID-19 study which began
during the year ended August 31, 2020, but was ramped up and
completed during the year ended August 31, 2021. Costs
pertaining to this study totaled $4,617,199 for the year ended
August 31, 2021 compared to $1,264,373 for the previous year. There
was a decrease in costs associated with an investigator led
COVID-19 study being run in South Korea, which incurred costs of
$544,710 during the year ended August 31, 2020. This study
was wound up during the year ended August 31, 2021 where costs
$148,182 were incurred, a significant decline from the previous
year. Additionally, the Company launched its DMT program during the
year ended August 31, 2021 and incurred costs totaling $398,501
compared to nil in the previous year. Eligible research and
development expenditures incurred by the Company in Australia are
refundable at 43.5%.
Salaries and benefits for the year
ended August 31, 2021 were $656,829 (2020 - $8,175) which included
salaries and cash settlement of the final tranche of RSUs paid to
officers, independent directors and two employees. For the year
ended August 31, 2021, officers and director fees were remunerated
as salaries whereas in the prior year, they were remunerated as
consultants.
Share-based payment for the year
ended August 31, 2021 was $827,402 (2020 - $3,179,440). It was
mainly consisted of share-based payment recognized for the
restricted share units ("RSUs") over their vesting periods that
were granted to certain directors, officers and consultants of the
Company on July 23, 2020. As of August 31, 2021, all RSUs were
vested and settled. The decrease for the year could be attributed
to no issuance of stock options by the Company whereas a total of
95,250 stock options with a weighted average exercise price of
$21.00 were granted to directors, officers and consultants of the
Company in the prior year.
Marketing expenses of $794,324
(2020 - $1,265,925) consisted of expenses in relation to
promotional activities to create and expand market presence of the
Company. For year ended August 31, 2020, the Company invested in
new and additional marketing communications campaigns and investor
communications initiatives to improve the Company's visibility and
market awareness of the Company to support the Company's multiple
financing efforts which resulted in gross proceeds totalling
$10,491,880 collectively from the November 2019 Offering, the
February 2020 Offering, and the May 2020 Special Warrants Offering.
In the year ended August 31, 2021, the Company undertook less
promotional activities as the Company's financing activities were
reduced to the closing of one private placement offering that
resulted in gross proceeds of $2,815,010. Therefore, the marketing
expenditures were significantly higher in the prior year.
Professional fees, which included
legal, accounting and consulting fees, incurred in the operation of
the business, were $607,672 (2020 - $1,171,258). The decrease was
mainly due to a reclassification of remuneration for officers and
directors from consulting fees to salaries.
General and administrative expenses
of $194,573 (2020 - $151,024) included expenses incurred to support
Company's day-to-day operational activities. The increase was
mainly due to increases in insurance premiums incurred for the
various clinical trial programs as well as increase in office
rents.
Shareholder communications
expenses, which included newswire subscription fees, communication
advisory fees, transfer agent and filing expenses, were $173,312
for the year ended August 31, 2021 (2020 - $209,740). The higher
costs in 2020 could be attributed to additional transfer agent and
filing fees in connection with the various financing activities in
2020.
During the year ended August 31,
2021, the Company had a gain on restricted share units cash
settlement of $305,117 (2020 - $nil). The gain was a result of
lower market value of the Company's common shares at the settlement
date than at the grant date.
Liquidity and Capital
Resources
Liquidity risk is the risk that the
Company will encounter difficulty in satisfying financial
obligations as they become due. The Company manages its liquidity
risk by forecasting cash flows from operations and anticipated
investing and financing activities. The Company's objective in
managing liquidity risk is to maintain sufficient readily available
reserves in order to meet its liquidity requirements.
At November 30, 2021, the Company
had a working capital of $2,619,067 compared to working capital at
August 31, 2021 of $3,886,947. This included cash and cash
equivalents of $2,697,056 (August 31, 2021 - $2,411,163) available
to meet short-term business requirements and current liabilities of
$624,938 (August 31, 2021 - $1,022,314). The Company's accounts
payable and accrued liabilities have contractual maturities of less
than 30 days and are subject to normal trade terms. The
Company has no long-term debt.
At present, the Company has no
current operating income. The Company will need to raise sufficient
working capital to maintain operations. Without additional
financing, the Company may not be able to fund its ongoing
operations and complete development activities. The Company intends
to finance its future requirements through a combination of debt
and/or equity issuance. There is no assurance that the Company will
be able to obtain such financings or obtain them on favourable
terms. These uncertainties may cast doubt on the Company's ability
to continue as a going concern.
The Company uses "working capital"
to assess liquidity and general financial strength and is
calculated as current assets less current liabilities. Working
capital does not have any standardized meaning prescribed by IFRS
and is referred to as a "Non-GAAP Financial Measure." It is
unlikely for Non-GAAP Financial Measures to be comparable to
similar measures presented by other companies.
Cash Used in Operating
Activities
Operating activities used
$7,822,617 in cash for the year ended August 31, 2021 compared to
$6,609,933 in cash for the year ended August 31, 2020. The increase
in cash used in operating activities for the year ended August 31,
2021 compared to the year ended August 31, 2020, was primarily due
to the net loss of $7,734,080 and adjusting for items not involving
cash in each year. Operating activities provided $338,930 in cash
for the three months ended November 30, 2021 compared to cash used
in operating activities of $3,422,476 in cash for the three months
ended November 30, 2020. The change in cash from operating
activities between the two periods is a result of the lower net
loss experienced for the three months ended November 30, 2021, when
compared to the same period in 2020 combined with the receipt of
amounts pertaining to the Australian research and development tax
credit, which were received during the three months ended November
30, 2021.
Cash Used in Investing
Activities
The cash used in investing
activities for the year ended August 31, 2021 was $124,488 compared
to $99,741 in cash used in investing activities for the year ended
August 31, 2020. The cash used in investing activities for
the three months ended November 30, 2021 was $40,048 compared to
$6,262 in cash used in investing activities for the three months
ended November 30, 2020. The increase in cash used in investing
activities for the year ended August 31, 2021 and for the three
months ended November 30, 2021 was due to additions in intangible
assets.
Cash flows from Financing
Activities
Cash flows generated from financing
activities for the year ended August 31, 2021 were $4,245,207
compared to $12,619,745 for the year ended August 31, 2020.
The decrease in cash generated from financing activities during the
year ended August 31, 2021 was mainly due to a decrease in proceeds
from the sale of securities issued or cash and a decrease in
proceeds from the exercise of warrants and compensation options.
There was no cash from financing activities for the three months
ended November 30, 2021. For the three months ended November 30,
2020, the Company used $43,490 in financing activities as a result
of the payment of withholding taxes pertaining to restricted share
units settled during the three months ended November 30, 2020,
partially offset by proceeds received from the exercise of warrants
and compensation options. Off-Balance Sheet Arrangements
As of August 31, 2021 and November
30, 2021, we did not have any off-balance sheet debt nor did we
have any transactions, arrangements, obligations (including
contingent obligations) or other relationships with any
unconsolidated entities or other persons that may have material
current or future effect on financial conditions, changes in the
financial conditions, results of operations, liquidity, capital
expenditures, capital resources, or significant components of
revenue or expenses.
Research and Development,
Patents and Licenses, etc.
Development activities involve a
plan or design for the production of new or substantially improved
products and processes. Development expenditures are capitalized
only if development costs can be measured reliably, the product or
process is technically and commercially feasible, future economic
benefits are probable, and the Company intends to and has
sufficient resources to complete development and to use or sell the
asset. Expenditures capitalized may include the cost of materials,
direct labour and overhead costs that are directly attributable to
preparing the asset for its intended use. Other development
expenditures are recognized in profit or loss as incurred.
Expenditures on research activities, undertaken with the prospect
of gaining new scientific or technical knowledge and understanding,
are recognized in profit or loss when incurred.
All of the Company's research
programs and statistical analysis are being conducted by third
party contract research organizations. All of the Company's drug
development research programs have been directly managed by Dr.
Mark Williams, the Company's Chief Science Officer until his
resignation on March 1, 2021. Effective March 1, 2021, Dr.
Christopher Bryan assumed the position of Vice President of
Research and Operations directly in charge of all of the Company's
drug development research programs. Some independent
laboratories are also being utilized for mechanism of action
research.
All research and development work
is carried out by the Company's wholly-owned Canadian subsidiary,
Nash Pharmaceuticals Inc. On January 6, 2020, Nash Pharma
established a wholly-owned Australian, Algernon Research Pty Ltd.
Through its ongoing research programs, Nash Pharma is seeking to
minimize investment and drug development risk by taking advantage
of regulatory approved drugs and discovering alternative clinical
uses by accelerating entry into Phase 2 clinical trials
(human).
The Company qualifies for the
Australian R&D tax credit as it has incurred qualified R&D
expenditures undertaken in Australia. The tax credit is calculated
as 43.5% of qualified R&D expenditures incurred. The Company
recognizes a tax credit receivable and records those amounts as a
recovery against R&D expenses in the relevant periods to match
with the related expenditures.
Trend Information
Due to our short operating history,
we are not aware of any trends that have or are reasonably likely
to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources
that is material to investors.
Going Concern
As at August 31, 2021, the Company
has an accumulated deficit of $23,546,345 (August 31, 2020 -
$17,463,488) and for the year then ended incurred a net loss of $
7,734,080 (August 31, 2021 - $8,538,207). As of November 30, 2021,
the Company had an accumulated deficit of $24,746,905 (August 31,
2021 - $23,546,345) and for the three months then ended incurred a
net loss of $1,200,560 (November 30, 2020 - $3,434,448). The
Company will need to raise sufficient working capital to maintain
operations. Without additional financing, the Company may not be
able to fund its ongoing operations and complete development
activities. Management anticipates that the Company will continue
to raise adequate funding through equity or debt financings,
although there is no assurance that the Company will be able to
obtain adequate funding on favorable terms. These uncertainties may
cast significant doubt on the Company's ability to continue as a
going concern. These annual consolidated financial statements have
been prepared on a going concern basis, which assumes that the
Company will be able to realize its assets and discharge its
liabilities in the normal course of business. These annual
consolidated financial statements do not reflect adjustments, which
could be material, to the carrying value of assets and liabilities,
which may be required should the Company be unable to continue as a
going concern.
The assessment of the Company's
ability to continue as a going concern and to raise sufficient
funds to pay its ongoing operating expenditures and to meet its
liabilities for the ensuing year, involves significant judgment
based on historical experience and other factors, including
expectation of future events that are believed to be reasonable
under the circumstances.
The financial statements do not
include any adjustments that might be necessary should we be unable
to continue as a going concern. If the going concern basis was not
appropriate for these financial statements, adjustments would be
necessary in the carrying value of assets and liabilities, the
reported expenses and the balance sheet classifications used.
Internal control over financial
reporting and disclosure controls and procedures
Management is responsible for the
design and maintenance of both internal control systems over
financial reporting and disclosure controls and procedures.
Disclosure controls and procedures are designed to provide
reasonable assurance that relevant information is gathered and
reported to senior management on a timely basis so that appropriate
decisions can be made regarding public disclosure.
Current disclosure controls include
meetings with the Chief Executive Officer, Chief Financial Officer
and members of our Board of Directors and Audit Committee through
e-mails, on telephone conferences and informal meetings to review
public disclosure. All public disclosures are reviewed by certain
members of senior management and our Board of Directors and Audit
Committee. Our Board of Directors has delegated the duties to the
Chief Executive Officer who is primarily responsible for financial
and disclosure controls.
Management and the Board of
Directors continue to work to mitigate the risk of material
misstatement.
Financial Instruments & Risk
Management
The Company's financial instruments
as at November 30, 2021 included cash and cash equivalents,
accounts receivable, restricted cash equivalents and accounts
payable and accrued liabilities.
The Company classifies its
financial instruments into the following categories:
-
cash and cash equivalent are classified as financial assets at
FVTPL;
-
accounts receivable are classified as loans and receivables;
-
restricted cash equivalents are classified as financial assets at
FVTPL;
-
accounts payable and accrued liabilities are classified as other
financial liabilities, which are
measured
at amortized cost.
Fair Value
Fair value is the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. Financial instruments measured at fair value are classified
into one of three levels in the fair value hierarchy according to
the relative reliability of the inputs used to estimate the fair
values.
Level
1 - fair values are based on quoted prices (unadjusted) in active
markets for identical assets or liabilities;
Level 2 - fair values are based on inputs other than quoted prices
included in Level 1 that are observable for the asset or liability,
either directly (as prices) or indirectly (derived from prices);
or
Level 3
- fair values are based on inputs for the asset or liability that
are not based on observable market data (unobservable inputs).
The Company classified its
financial instruments at Level 1 and as follows:
|
|
|
Financial
Assets |
|
|
Financial
Assets |
|
|
Financial
Liabilities |
|
|
|
|
Fair Value
Through Profit
Or loss |
|
|
Measured at
Amortized
Cost |
|
|
Measured at
Amortized
Cost |
|
|
November 30, 2021 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
2,697,056 |
|
$ |
- |
|
$ |
- |
|
|
Accounts receivable |
|
- |
|
|
949 |
|
|
- |
|
|
Restricted cash equivalents |
|
57,500 |
|
|
- |
|
|
- |
|
|
Accounts payable and accrued liabilities |
$ |
- |
|
$ |
- |
|
$ |
(624,938 |
) |
|
|
|
Financial
Assets |
|
|
Financial
Assets |
|
|
Financial
Liabilities |
|
|
|
|
Fair Value
Through Profit
Or loss |
|
|
Measured at
Amortized
Cost |
|
|
Measured at
Amortized
Cost |
|
|
August 31, 2021 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
2,411,163 |
|
$ |
- |
|
$ |
- |
|
|
Accounts receivable |
|
- |
|
|
484 |
|
|
- |
|
|
Restricted cash equivalents |
|
57,500 |
|
|
- |
|
|
- |
|
|
Accounts payable and accrued liabilities |
$ |
- |
|
$ |
- |
|
$ |
(1,022,314 |
) |
The Company's risk exposure and the
impact on the Company's financial instruments are summarized
below:
Credit risk
Credit risk is the risk of loss
associated with a counter party's inability to fulfill its payment
obligations. The Company's credit risk is primarily
attributable to its cash and cash equivalents and accounts
receivable. The Company's accounts receivable is mainly comprised
of GST receivable, accrued interest receivable from GIC's held with
bank, and accrued Australia R&D tax credit receivable.
GST receivable and Australia R&D tax credit receivable are not
financial instruments as they do not arise from contractual
obligations. The Company limits exposure to credit risk on bank
deposits by holding demand deposits in high credit quality banking
institutions in Canada. Management believes that the credit
risk with respect to receivables is minimal.
Liquidity risk
Liquidity risk is the risk that the
Company will encounter difficulty in satisfying financial
obligations as they become due. The Company manages its liquidity
risk by forecasting cash flows from operations and anticipated
investing and financing activities. The Company's objective in
managing liquidity risk is to maintain sufficient readily available
reserves in order to meet its liquidity requirements. All of
the Company's financial obligations are due within one year.
At November 30, 2021, the Company
had a working capital of $2,619,066 compared to working capital at
August 31, 2021 of $3,886,947. This included cash and cash
equivalents of $2,697,056 (August 31, 2021 - $2,411,163) available
to meet short-term business requirements and current liabilities of
$624,938 (August 31, 2021 - $1,022,314).
Market risk
Market risk is the risk that the
fair value or future cash flows of a financial instrument will
fluctuate due to changes in market prices. Market risk comprises
three types of risk: interest rate risk, foreign currency risk and
other price risks. The Company is not exposed to significant
interest rate risk and other price risk.
• Interest
rate risk
Interest
rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market
interest rates. The risk that the Company will realize a loss as a
result of a decline in the fair value of the cash is limited
because of the short-term investment nature. The Company's
financial asset exposed to interest rate risk consists of cash and
cash equivalents and restricted cash equivalents. Cash equivalents,
totaling $1,000,000, consists of a GIC held at banking institutions
that bears interest at 0.2% and matures on June 14, 2022.
Restricted cash equivalents consist of GICs held at banking
institutions that bear interest at prime less 2.2% and matures on
April 13, 2022.
• Other
price risk
Other
price risk is the risk that the fair value or future cash flows of
a financial instrument will fluctuate due to changes in market
prices, other than those arising from interest rate risk or foreign
currency risk. The Company is not exposed to significant other
price risk.
• Foreign
currency risk
Foreign
currency risk is related to fluctuations in foreign exchange rates.
The Company has certain expenditures that are denominated in US
dollars ("US$"), Australian dollars ("AUD$"), Euros and other
operating expenses that are mainly in Canadian dollars
("CAD$").
The Company
holds funds in Australian subsidiary in AUS$ and may fund
additional cash calls to this foreign subsidiary in the
future. The Company's exposure to foreign currency risk
arises primarily on fluctuations in the exchange rate of the CAD$
relative to the US$ and the AUD$.
As at November
30, 2021, the Company had monetary assets of US$13,378 or $17,113
(August 31, 2021 - US$19,796 or $24,976) at the CAD equivalent and
monetary liabilities of US$19,774 or $25,295 (August 31, 2021 -
US$78,289 or $98,777) at the CAD equivalent. The Company's
sensitivity analysis suggests that a change in the absolute rate of
exchange in US$ by 10% will increase or decrease other
comprehensive loss by approximately $818 (August 31, 2021 -
$7,380).
As at November
30, 2021, the Company had monetary assets of AUD$1,466,460 or
$1,336,092 (August 31, 2021 - AUD$2,685,541 or $2,478,217) at the
CAD equivalent and monetary liabilities of AUD$377,200 or $343,667
(August 31, 2021 - AUD$638,313 or $589,035) at the CAD equivalent.
The Company's sensitivity analysis suggests that a change in the
absolute rate of exchange in AUD$ by 10% will increase or decrease
other comprehensive loss by approximately $99,242 (August 31, 2021
- $188,918).
The Company has
not entered into any foreign currency contracts to mitigate this
risk. Foreign currency risk is considered low relative to the
overall financial operating plan.
Tabular Disclosure of
Contractual Obligations
The following is an analysis of the
contractual maturities of our non-derivative financial liabilities
as at November 30, 2021:
|
Contractual Obligations |
|
|
Total |
|
|
Less than 1 year |
|
|
1 - 3 years |
|
|
Long-Term Debt Obligations |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
Capital (Finance) Lease Obligations |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
Operating Lease Obligations |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
Purchase Obligations |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
Other Long-Term Liabilities Reflected on the Company's Balance
Sheet under the GAAP of the primary financial statements |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
Total |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Critical Accounting Policies and
Estimates
The preparation of consolidated
financial statements in accordance with IFRS requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements
and reported amounts of revenues and expenses during the reporting
period.
Actual outcomes could differ from
these estimates, and as such, the estimates and underlying
assumptions are reviewed on an ongoing basis.
The Company assesses on an annual
basis if the intangible assets with finite life have indicators of
impairment. In determining whether the intangible assets are
impaired, the Company assesses certain criteria, including
observable decreases in value, significant changes with adverse
effect on the entity, evidence of technological obsolescence and
future plans. The Company will impair or write-off when it
abandons a drug or determine an amortization policy when a compound
is approved.
Following initial recognition, the
Company carries the value of the intangible assets at cost less
accumulated amortization and any accumulated impairment losses.
Intangibles assets such as patents, once approved, will have a
finite life based on their expiry dates and will be amortized on a
straight-line over their economic or legal life. The estimates are
reviewed at least annually and are updated if expectations change
as a result of the technical obsolescence or legal and other limits
to use. A change in the useful life or residual value will impact
the reported carrying value of the intangible assets resulting in a
change in related amortization expense. As at November 30, 2021,
the Company has not amortized the intangible assets as amortization
begins when the intangible assets are available for use.
Apart from the above, there have
been no material revisions to the nature and amount of changes in
estimates of amounts reported in its condensed consolidated interim
financial statements for the three months ended November 30,
2021.
DIRECTORS AND EXECUTIVE
OFFICERS
Nasdaq Corporate
Governance
The Company intends to comply with
corporate governance requirements of the Nasdaq Marketplace
Rules. The Company is a "foreign private issuer" as defined
under Rule 3b-4 promulgated under the Exchange Act. As a
foreign private issuer, the Company is not required to comply with
all of the corporate governance requirements of the Nasdaq
Marketplace Rules and may follow home country practice in lieu of
the requirements of the Rule 5600 Series, the requirement to
disclose third party director and nominee compensation set forth in
Rule 5250(b)(3) and the requirement to distribute annual and
interim reports set forth in Rule 5250(d). The Company has
reviewed the Nasdaq corporate governance requirements and confirms
that the Company intends to comply with the Nasdaq corporate
governance standards in all significant respects if it is approved
for listing on the Nasdaq Capital Market. The Company intends to
disclose in its annual reports to be filed under section 13 of the
Exchange Act, and on the Company's website, the manner in which the
Company's corporate governance practice differs from the Nasdaq
corporate governance requirements.
Board of Directors
Our Notice of Articles and Articles
are attached to this Registration Statement as exhibits. The
Articles of the Company provide that the number of directors is set
at:
(a) subject
to paragraphs (b) and (c), the number of directors that is equal to
the number of the Company's first directors;
(b) if
the Company is a public company, the greater of three and the
number most recently elected by ordinary resolution (whether or not
previous notice of the resolution was given); and
(c) if
the Company is not a public company, the number most recently
elected by ordinary resolution (whether or not previous notice of
the resolution was given).
Our Board of Directors currently
consists of five directors. Our directors are elected
annually at each annual meeting of our Company's shareholders.
Our Board of Directors currently
has one committee, the Audit Committee. The Board has not
appointed a compensation committee or a nominating committee
because the Board fulfills these functions. The Board assesses
potential Board candidates to fill perceived needs on the Board for
required skills, expertise, independence and other factors.
Our Board of Directors is
responsible for appointing our Company's officers.
Board Committees
Our Board of Directors currently
has three committees, the Audit Committee and the Compensation
Committee and Nominating and Corporate Governance. The Audit
Committee is governed by a charter approved by our Board of
Directors, a copy of which is attached as an exhibit to this
Registration Statement.
Audit Committee
The Company's Audit Committee
consists of Harry Bloomfield (Chair), Raj Attariwala and Howard
Gutman and is chaired by Harry Bloomfield. Each member of the Audit
Committee satisfies the "independence" requirements of Rule
5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and meet
the independence standards under Rule 10A-3 under the Exchange Act.
Our Audit Committee financial expert is Harry Bloomfield who
qualifies as an "audit committee financial expert" within the
meaning of the SEC Rule 10A-3 and possesses financial
sophistication within the meaning of the Listing Rules of the
Nasdaq Stock Market. The Audit Committee oversees our accounting
and financial reporting processes and the audits of the financial
statements of the Company. The Audit Committee is responsible for,
among other things:
-
ensuring, through discussion with management and the external
auditors, that the Company's annual and quarterly financial
statements (individually and collectively, the "Financial
Statements"), as applicable, present fairly in all material
respects the financial conditions, results of operations and cash
flows of the Company as of and for the periods presented;
-
reviewing and recommending for approval to the Board, the
Company's financial statements, accounting policies that affect the
financial statements, annual MD&A and associated press
release(s);
-
reviewing significant issues affecting financial reports;
-
monitoring the objectivity and credibility of the Company's
financial reports;
-
considering the effectiveness of the Company's internal controls
over financial reporting and related information technology
security and control;
-
reviewing with auditors any issues or concerns related to any
internal control systems in the process of the audit;
-
reviewing with management, external auditors and legal counsel
any material litigation claims or other contingencies, including
tax assessments, and adequacy of financial provisions, that could
materially affect financial reporting;
-
overseeing the work of the external auditor engaged for the
purpose of preparing or issuing an auditor's report or performing
such other audit, review or attest services for the Company,
including the resolution of disagreements between management and
the external auditor regarding financial reporting; and
-
taking such other actions within the general scope of its
responsibilities as the Audit Committee shall deem appropriate or
as directed by the Board of Directors.
Nominating and Corporate
Governance Committee
On October 12, 2021, the Board of
Directors adopted a new Nominating and Corporate Governance
Committee Charter that complies with the requirements of Nasdaq
Listing Rule 5605(e)(2), and has established a corporate governance
committee (the "N&CG Committee") which operates under
its Nominating and Corporate Governance Committee Charter. The
N&CG Committee is currently comprised of Raj Attariwala, Harry
Bloomfield (Chair) and Howard Gutman. The N&CG Committee is
responsible for (i) identifying and recommending to the Board,
individuals qualified to be nominated for election to the Board;
(ii) recommending to the Board, the members and chairperson for
each Board committee; and (iii) periodically reviewing and
assessing the Company's corporate governance principles contained
in the Nominating and Corporate Governance Committee Charter and
making recommendations for changes thereto to the Board.
The N&CG Committee is
responsible for, among other things:
-
establishing and overseeing appropriate director orientation and
continuing education programs;
-
making recommendations to the Board regarding an appropriate
organization and structure for the Board of Directors;
-
evaluating the size, composition, membership qualifications,
scope of authority, responsibilities, reporting obligations and
charters of each committee of the Board;
-
periodically reviewing and assessing the adequacy of the
Company's corporate governance principles as contained in the
Nominating and Corporate Governance Committee Charter and, should
it deem it appropriate, it may develop and recommend to the Board
of Directors for adoption of additional corporate governance
principles;
-
periodically reviewing the Company's Articles in light of
existing corporate governance trends, and shall recommend any
proposed changes for adoption by the Board of Directors or
submission by the Board of Directors to the Company's
shareholders;
-
making recommendations on the structure and logistics of Board
of Directors' meetings and may recommend matters for consideration
by the Board of Directors;
-
considering, adopting and overseeing all processes for
evaluating the performance of the Board of Directors, each
committee and individual directors; and
-
annually reviewing and assessing its own performance.
Compensation
Committee
On October 12, 2021, the Board of
Directors adopted a new Compensation Committee Charter which
complies with the requirements of Nasdaq Listing Rule 5605(d)(1)
and the Board of Directors has established a Compensation Committee
(the "Compensation Committee"). The Compensation Committee
is comprised of Raj Attariwala, Harry Bloomfield (Chair) and Howard
Gutman.
The Compensation Committee assists
the Board in fulfilling its oversight responsibilities relating to
officer and director compensation, succession planning for senior
management, development and retention of senior management and such
other duties as directed by the Board.
Each of the Compensation Committee
members satisfies the "independence" requirements of Rule
5605(a)(2) of the Listing Rules of Nasdaq. The Compensation
Committee will be responsible for, among other things:
-
reviewing and approving the Company's compensation guidelines
and structure;
-
reviewing and approving on an annual basis the corporate goals
and objectives with respect to the CEO of the Company;
-
reviewing and approving on an annual basis the evaluation
process and compensation structure for the Company's other
officers, including salary, bonus, incentive and equity
compensation;
-
reviewing the Company's incentive compensation and other
equity-based plans and recommending changes in such plans to the
Board as needed.
-
periodically making recommendations to the Board regarding the
compensation of non-management directors, including Board and
committee retainers, meeting fees, equity-based compensation and
such other forms of compensation and benefits as the Committee may
consider appropriate; and
-
overseeing the appointment and removal of executive officers,
and reviewing and approving for executive officers, including the
CEO, any employment, severance or change in control agreements.
Directors, Executive Officers
and Key Employees
The following table sets forth the
names and select details of all of our directors, executive
officers and key employees.
|
Name, Province/State and
Country of Residence
|
Business Address
|
Age
|
Position
|
Date of Appointment
|
|
Harry J.F. Bloomfield(1)(2)(3)
Quebec,
Canada
|
Suite
1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7
|
77
|
Chairman
and Director
|
September 8, 2021
|
|
Christopher J. Moreau
Manitoba, Canada
|
Suite
1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7
|
57
|
Chief
Executive Officer and Director
|
March 1,
2018
|
|
Christopher Bryan
Manitoba, Canada
|
Suite
1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7
|
39
|
Vice
President of Research and Operations
|
March 1,
2021
|
|
James Kinley
Manitoba, Canada
|
Suite
1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7
|
43
|
Chief
Financial Officer
|
December
1, 2021
|
|
Mark Williams (1)(2)(3)
Manitoba, Canada
|
Suite
1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7
|
50
|
Director
|
September 22, 2021
|
|
Raj Attariwala(1)(2)(3)
British Columbia, Canada
|
Suite
1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7
|
53
|
Director
|
October
26, 2015
|
|
Howard Gutman (1)(2)(3)
Maryland, USA
|
Suite
1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7
|
65
|
Director
|
February
28, 2022
|
Notes:
(1) Member
of Audit Committee.
(2) Member
of the Compensation Committee.
(3) Member
of the Nominating and Corporate Governance Committee.
Business Experience
The following summarizes the
occupation and business experience during the past five years or
more for our directors and executive officers as of the date of
this Registration Statement.
Harry Bloomfield - Chairman
and Director
Harry J. F. Bloomfield, Q.C.,
M.B.A., is a lawyer, business manager and philanthropist, and
joined the Bar of Quebec in 1969 and was appointed Queen's Counsel
in 1991. He began his business career with the J. Henry Schroder
Banking Corporation in New York and served as Member of the
Commission des Valeurs Mobiliers due Québec, now called the
Autorité des Marchés Financiers - equivalent of the U.S. Securities
and Exchange Commission in 1987 and was named by the government of
Prime Minister Brian Mulroney to the Board of Directors of the
Federal Business Development Bank, now called the BDC (Business
Development Bank of Canada) serving as the audit committee
Chairman.
Christopher J. Moreau - Chief
Executive Officer and Director
Mr. Moreau is a business
professional in the life sciences sector with a background in
biotechnology research, business development and experience in
capital markets. Mr. Moreau was previously President & CEO and
Director of Miraculins Inc., a publicly traded company focussed on
the research & development of screening tests for prostate
cancer, skin cholesterol and type 2 diabetes from February 2007 to
April 2016. He has over 30 years of senior management experience in
private & publicly traded company environments.
James Kinley - Chief
Financial Officer
Mr. Kinley is a Certified
Professional Accountant (CPA, CA) with over 15 years of experience
in building, leading, and advising corporations through their daily
operations as well as on complex restructurings, mergers,
acquisitions, and capital markets transactions. He also has
experience in structuring and negotiating transactions with
commercial and investment banks. He was previously the CFO for
Medicure Inc. (TSX-V: MPH), another Canadian publicly traded
pharmaceutical company, a position he held for nearly 10 years.
Christopher Bryan - Vice
President of Research and Operations
Dr. Christopher Bryan graduated
from the University of Toronto, with a PhD in organic chemistry.
His background as a scientist and senior manager includes the
synthesis of novel small molecules as potential therapeutic agents,
the coordination of regional commercial teams and internal
departments (i.e., marketing, R&D, manufacturing, sales and
regulatory affairs), and the management of strategic relationships
including those involving opinion leaders. He also has experience
in scientific writing, data analysis and literature review. Since
joining the Company on a full-time basis last year, Dr. Bryan has
been managing its contract research providers and clinical trials,
as well as all of its vendor relationships. He has also been
managing the Company's intellectual property suite.
Raj Attariwala -
Director
Dr. Attariwala is a dual board
certified Radiologist and Nuclear Medicine physician certified in
both Canada and the United States. He received his formal medical
training at University of British Columbia with periods of
specialized medical training at Memorial Sloan Kettering Cancer
Centre (New York), UCLA and USC. He holds a doctorate in Biomedical
Engineering from Northwestern University (Evanston, IL).
Howard Gutman -
Director
Ambassador (Rtd) Howard Gutman
acted, during his distinguished career over the past three decades,
as a leading American and International lawyer, and served in a
number of high-profile appointments for the government of the
United States, including Ambassador to Belgium, and Special
Assistant to the Director of the FBI for Counter-Intelligence and
Counter-Terrorism. During his legal career he served as a United
States Supreme Court and federal appellate court law clerk prior to
entering private practice in Washington, DC., where in addition to
legal practice, he served as advisor to candidates for President,
Governor and the U.S. Senate.
Mark Williams -
Director
Dr. Mark Williams has over 15 years
of experience in drug and medical device development having
repurposed three drugs from preclinical studies directly to
positive Phase 2 data including manufacturing and toxicology. Dr.
Williams is the author of more than twelve patents and an inventor
of DM199 (a recombinant protein) in Phase 2 trials for stroke and
kidney disease. Dr. Williams is also involved in the financing and
collaboration side of various life science companies and has
assisted such companies with securing arrangements with drug
foundations, pharma companies and various government agencies
including Health Canada and US FDA. In the past five years, Dr.
William has served as the former Chief Science Officer of Algernon,
President and Chief Scientific Officer of Alphanco Venture Corp.,
Chief Scientific Officer of Marvel Biotechnology Inc., Vice
President of Research of Diamedica Therapeutics Inc. and Vice
President of Research and clinical Affairs of Cerebra.
Board Practices
Corporate governance refers to the
policies and structure of the board of directors of a corporation,
whose members are elected by and are accountable to the
shareholders of the corporation. Corporate governance encourages
establishing a reasonable degree of independence of the board of
directors from executive management and the adoption of policies to
ensure the board of directors recognizes the principles of good
management. The Board is committed to sound corporate governance
practices; as such practices are both in the interests of
shareholders and help to contribute to effective and efficient
decision-making.
Code of Business Conduct and
Ethics
The Board has adopted a Code of
Business Conduct and Ethics (the "Code of Ethics") that
applies to all of our employees and officers, including our
principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar
functions. The Code of Ethics meets the requirements for a "code of
ethics" within the meaning of that term in Item 16B of Form 20-F.
The Code of Business Conduct and Ethics is filed as Exhibit 14.1 to
the Registration Statement of which this prospectus forms a
part.
Board of Directors
The Board has responsibility for
the stewardship of the Company including responsibility for
strategic planning, identification of the principal risks of the
Company's business and implementation of appropriate systems to
manage these risks, succession planning (including appointing,
training and monitoring senior management), communications with
investors and the financial community and the integrity of the
Company's internal control and management information systems.
The Board sets long term goals and
objectives for the Company and formulates the plans and strategies
necessary to achieve those objectives and to supervise senior
management in their implementation. The Board delegates the
responsibility for managing the day-to-day affairs of the Company
to senior management but retains a supervisory role in respect of,
and ultimate responsibility for, all matters relating to the
Company and its business. The Board is responsible for protecting
Shareholder's interests and ensuring that the incentives of the
Shareholders and of management are aligned.
As part of its ongoing review of
business operations, the Board reviews, as frequently as required,
the principal risks inherent in the Company's business including
financial risks, through periodic reports from management of such
risks, and assesses the systems established to manage those risks.
Directly and through the Audit Committee, the Board also assesses
the integrity of internal control over financial reporting and
management information systems.
In addition to those matters that
must, by law, be approved by the Board, the Board is required to
approve any material dispositions, acquisitions and investments
outside the ordinary course of business, long-term strategy, and
organizational development plans. Management of the Company is
authorized to act without Board approval, on all ordinary course
matters relating to the Company's business.
The Board also monitors the
Company's compliance with timely disclosure obligations and reviews
material disclosure documents prior to distribution.
The Board is responsible for
selecting the CEO and other senior management and for monitoring
their performance.
The Board considers that the
following directors are "independent" in that they are independent
and free from any interest and any business or other relationship
which could or could reasonably be perceived to, materially
interfere with the director's ability to act with the best
interests of the Company, other than interests and relationships
arising from shareholding: Raj Attariwala, Harry Bloomfield and
Howard Gutman.
Directorships
Certain of the directors are
presently a director of one or more other public companies, as
follows:
|
Director
|
Name of Reporting Issuer
|
|
|
Raj Attariwala
|
Cannabix
Technologies Inc.
|
CSE
|
|
Mark Williams
|
Marvel
Biosciences Corp.
|
TSX-V
|
Orientation and Continuing
Education
The Board ensures that all new
directors receive a comprehensive orientation regarding their role
as a member of the Board, its committees and its directors, and the
nature and operation of the Company. As each director brings a
different skill set and professional background, the Board
determines what orientation to the nature and operations of the
Company's business will be necessary and relevant. New directors
are provided with appropriate orientation through a series of
meetings, telephone calls and other correspondence.
Ethical Business Conduct
The Board seeks to foster a culture
of ethical conduct by striving to ensure the Company carries out
its business in line with high business and moral standards and
applicable legal and financial requirements. In that regard, the
Board encourages management to consult with legal and financial
advisors to ensure the Company is meeting those requirements.
• is cognizant of
the Company's timely disclosure obligations and reviews material
disclosure documents such as financial statements, Management's
Discussion & Analysis (MD&A) and press releases prior to
distribution.
• relies on its
Audit Committee to annually review the systems of internal
financial control and discuss such matters with the Company's
external auditor.
• actively
monitors the Company's compliance with the Board's directives and
ensures that all material transactions are thoroughly reviewed and
authorized by the Board before being undertaken by management.
The Board must also comply with the
conflict of interest provisions of the BCBCA, as well as the
relevant securities regulatory instruments, to ensure that
directors exercise independent judgment in considering transactions
and agreements in respect of which a director or executive officer
has a material interest.
The Board has found that the
fiduciary duties placed on individual directors by the Company's
governing corporate legislation and the common law and the
restrictions placed by applicable corporate legislation on an
individual directors' participation in decisions of the Board in
which the director has an interest have been sufficient to ensure
that the Board operates independently of management and in the best
interests of the Company.
Nomination of Directors
The Board does not have a
nominating committee, and these functions are currently performed
by the Board as a whole. The Board is responsible for identifying
individuals qualified to become new Board members and recommending
to the Board new director nominees for the next annual general
meeting of the shareholders. The criteria for selecting new
directors reflect the requirements of the listing standards of the
Canadian Securities Exchange (or such other exchange or
self-regulatory organization on which the Company's shares are
listed for trading) with respect to independence and the following
factors:
• the appropriate
size of the Company's Board;
• the needs of the
Company with respect to the particular talents and experience of
its directors;
• the personal and
professional integrity of the candidate;
• level of
education and/or business experience;
• broad-based
business acumen;
• the level of
understanding of the Company's business and the pharmaceutical
industry in which it operates and other industries relevant to the
Company's business;
• the ability and
willingness to commit adequate time to Board and committee
matters;
• the fit of the
individual's skill and personality with those of other directors
and potential directors in building a Board that is effective,
collegial and responsive to the needs of the Company;
• the ability to
think strategically and a willingness to share ideas; and
• diversity of
experiences, expertise and background.
Once a decision has been made to
add or replace a director, the task of identifying new candidates
will fall on the Company's Board. If a candidate looks promising,
the Board will conduct due diligence on the candidate and interview
the candidate and if the results are satisfactory, the candidate is
invited to join the Board.
Other Board Committees
The Board has no committees other
than the Audit Committee.
Assessments
The Board has not established a
process to regularly assess the Board and its Audit Committee with
respect to their effectiveness and contribution. Nevertheless,
their effectiveness is subjectively measured on an ongoing basis by
each director based on each director's assessment of the
performance of the Board, its committee or the individual directors
compare to their expectation of performance. In doing so, the
contributions of an individual director are informally monitored by
the other Board members, bearing in mind the business strengths of
the individual and the original purpose of nominating that
individual to the Board.
Advisory Board
Medical and Scientific Advisory
Board
The Company has a Medical and
Scientific Advisory Board in place, complete with individuals who
have various backgrounds and experience to complement our
operations, mission and business strategy. The Medical and
Scientific Advisory Board provides suggestions to our management on
as-needed basis. The Medical and Scientific Advisory Board does not
have a charter and does not meet on a scheduled basis. It is
comprised of the following individuals:
|
Name
|
Position
|
|
Dr. Martin Kolb
|
Medical and Scientific Advisory Board member
|
|
Dr. Jacky Smith
|
Medical and Scientific Advisory Board member
|
|
Dr. Mark Swaim
|
Medical and Scientific Advisory Board member
|
Dr. Martin Kolb, Medical and
Scientific Advisory Board
Dr. Kolb is the Moran Campbell
Chair and Professor in Respiratory Medicine and Director of the
Division of Respirology, McMaster University, Hamilton, Ontario,
Canada. He is lead of the interstitial lung disease program,
located at St. Joseph's Healthcare Hamilton, where more than 1,500
patients with different types of fibrotic interstitial lung
disorders are seen annually. His major research interests are the
mechanisms of lung fibrosis, with a particular interest in the role
of growth factors, matrix abnormalities and pulmonary vessel
remodelling in disease progression.
He leads activities in biomarker
development for lung fibrosis, and is a Principal Investigator and
steering committee member in numerous clinical trials. Dr. Kolb has
authored over 150 peer-reviewed publications on different basic
science and clinical topics. He is the Chief-Editor of the European
Respiratory Journal, the flagship publication of the European
Respiratory Society. He is also an editorial board member of
American Journal of Respiratory and Critical Care Medicine,
American Journal of Respiratory Cell and Molecular Biology, the
European Respiratory Review and Respirology and serves on the Lung
Injury & Repair Study Section for the National Institute of
Health.
Dr. Jacky Smith, Medical and
Scientific Advisory Board
Dr. Smith is a Professor of
Respiratory Medicine at the University of Manchester and an
Honorary Consultant at Manchester University NHS Foundation Trust.
She runs a multi-disciplinary research team whose focus is on
understanding mechanisms underlying pathological cough and a
regional clinical service seeing patients with refractory Chronic
Cough. She is also the Director of the NIHR Manchester Clinical
Research Facility and Leads the Rapid Translational Incubator Theme
of the NIHR Manchester Biomedical Research Centre.
In collaboration with Mr. Kevin
McGuinness (clinical engineer), she has developed a novel method
for semi-automated cough detection that was licensed to Vitalograph
Ltd., a medical device company with whom she collaborates. The
subsequent commercialization of this cough monitoring system has
changed the standards by which novel cough therapies are evaluated
in regulatory clinical trials. Moreover, the use of this system to
quantify coughing in a study of patients attending her Chronic
Cough clinic facilitated the discovery of a new class of
efficacious anti-tussive therapy, P2X3 antagonists.
Dr. Mark Swaim, Medical and
Scientific Advisory Board
On October 9, 2020 the Company
announced that Dr. Mark Swaim, a former practicing physician and
researcher has joined the Algernon Medical and Scientific Advisory
Board.
Dr. Mark Swaim, MD, PhD graduated
from Duke University with honours, where he was an NIH-sponsored
Medical Scientist Training Program scholar, and was elected to the
Alpha Omega Alpha Honor Medical Society and served as its
president. He completed post-graduate training in internal
medicine, gastroenterology and hepatology at Duke University
Medical Center and post-doctoral research at National Taiwan
University in Taipei. Dr. Swaim served on the faculties of Duke
University Medical Center, University of Texas MD Anderson Cancer
Center and the McGovern Medical School of University of Texas in
Houston. He was elected to fellowship in the American College of
Physicians. He is editor-in-chief and founder of BioPub.co, a small-cap biotech special
situations investing website with a global following.
Business Advisory Board
The Company has a Business Advisory
Board in place, complete with individuals who have various
backgrounds and experience to complement our operations, mission
and business strategy. The Business Advisory Board provides
suggestions to our management on as-needed basis. The Business
Advisory Board does not have a charter and does not meet on a
scheduled basis. It is comprised of the following individuals:
|
Name
|
Position
|
|
Bruce Rowlands
|
Business Advisory Board member
|
Bruce Rowlands, Business
Advisory Board
Bruce Rowlands has extensive public
company experience over the last 25 years and recently was the
Chairman of Xortx Therapeutics a Canadian Biotech company focused
in kidney disease on whose board he served for almost 8 years. He
also served as Vice President & Director, Dominick &
Dominick Securities Canada, SVP Lorus Therapeutics, now Aptose
Bioscience, and Chairman & CEO Eurocontrol Technics Group
Inc.
Family Relationships
There are no family relationships
among any of our directors and executive officers.
Term of Office
Each director of our company is to
serve for a term of one year ending on the date of the subsequent
annual meeting of shareholders following the annual meeting at
which such director was elected. Notwithstanding the foregoing,
each director is eligible for re-election or re-appointment. Our
Board of Directors appoints our officers and each officer is to
serve until his successor is appointed and qualified in accordance
with the terms and conditions and at the remuneration that the
Board of Directors see fit and are subject to termination at the
pleasure of the Board of Directors.
Involvement in Certain Legal
Proceedings
During the past ten years, none of
our directors or executive officers have been the subject of the
following events:
1. a
petition under the Federal bankruptcy laws or any state insolvency
law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of
such person, or any partnership in which he was a general partner
at or within two years before the time of such filing, or any
corporation or business association of which he was an executive
officer at or within two years before the time of such filing;
2. convicted
in a criminal proceeding or is a named subject of a pending
criminal proceeding
(excluding traffic violations and other minor offenses);
3. the
subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities;
(i) acting
as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
(ii) engaging
in any type of business practice; or
(iii) engaging
in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of
Federal or State securities laws or Federal commodities laws;
4. the
subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the
right of such person to engage in any activity described in
paragraph 3.i in the preceding paragraph or to be associated with
persons engaged in any such activity;
5. was
found by a court of competent jurisdiction in a civil action or by
the SEC to have violated any Federal or State securities law, and
the judgment in such civil action or finding by the SEC has not
been subsequently reversed, suspended, or vacated;
6. was
found by a court of competent jurisdiction in a civil action or by
the Commodity Futures Trading Commission to have violated any
Federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated;
7. was
the subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of:
(i) any
Federal or State securities or commodities law or regulation;
or
(ii) any
law or regulation respecting financial institutions or insurance
companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money
penalty or temporary or permanent cease-and-desist order, or
removal or prohibition order, or
(iii) any
law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or
8. was
the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act
(15 U.S.C. 78c(a)(26))), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C.
1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or
persons associated with a member.
Director Independence
Our Board has determined that the
following directors are "independent" as such directors do not have
a direct or indirect material relationship with our company. A
material relationship is a relationship which could, in the view of
our Board of Directors, be reasonably expected to interfere with
the exercise of a director's independent judgment.
• Harry
Bloomfield;
• Raj Attariwala;
and
• Howard
Gutman.
Employees
As of the end of the Company's most
recently completed financial year, August 31, 2021, the Company had
two employees, other than the Company's executive officers. As of
the date of this Registration Statement, the Company has two
employees, other than the Company's executive officers. The Company
uses consultants for the provision of all management and other
services.
EXECUTIVE COMPENSATION
In this Statement, references to
"the Company", "Algernon Pharmaceuticals", "we" and "our" refer to
Algernon Pharmaceuticals Inc. "Common Shares" mean Class A
Common Shares without par value in the capital of the Company.
All monetary amounts herein are
expressed in Canadian Dollars ("$") unless otherwise
stated. In this Statement:
"CEO" of the Company means
each individual who acted as chief executive officer of the Company
or acted in a similar capacity for any part of the most recently
completed financial year;
"CFO" of the Company means
each individual who acted as chief financial officer of the Company
or acted in a similar capacity for any part of the most recently
completed financial year;
"compensation securities"
includes stock options, convertible securities, exchangeable
securities and similar instruments including stock appreciation
rights, deferred share units and restricted stock units granted or
issued by the Company or one of its subsidiaries (if any) for
services provided or to be provided, directly or indirectly to the
Company or any of its subsidiaries (if any); and
"Named Executive Officer" or
"NEO" means each of the following individuals:
1) each
individual who, in respect of the Company, during any part of the
most recently completed financial year, served as chief executive
officer, including an individual performing functions similar to a
chief executive officer;
2) each
individual who, in respect of the Company, during any part of the
most recently completed financial year, served as chief financial
officer, including an individual performing functions similar to a
chief financial officer;
3) in
respect of the Company and its subsidiaries, the most highly
compensated executive officer other than the individuals identified
in paragraphs (a) and (b) at the end of the most recently completed
financial year whose total compensation was more than $150,000 for
the financial year, and
4) each
individual who would be an NEO under paragraph (c) but for the fact
that the individual was neither an executive officer of the
Company, and was not acting in a similar capacity, at the end of
that financial year.
Director and Named Executive
Officer Compensation
As at the year ended August 31,
2021, the Company had three NEOs, namely Christopher Moreau, the
Chief Executive Officer and a director, Mark Williams, the former
Chief Science Officer and Michael Sadhra, the Chief Financial
Officer and former director. The Company had two independent
directors: Raj Attariwala and David Levine.
This section sets out the
objectives of our Company's executive compensation arrangements,
our Company's executive compensation philosophy and the application
of this philosophy to our Company's executive compensation
arrangements. It also provides an analysis of the compensation
design, and the decisions that the Board made in fiscal 2021 with
respect to its NEOs (as herein defined). Subsequent to end of the
2021 fiscal year, the Company established the Compensation
Committee. The Compensation Committee determines compensation for
the directors and officers of the Company as well as the procedures
for this determination. See "Directors, Senior Management and
Employees - Board Practices - Compensation Committee.
Director and NEO Compensation
Excluding Options and Compensation Securities
The following table presents
information concerning all compensation paid, payable, given, or
otherwise provided, directly or indirectly, to NEOs and Directors
by the Company for services in all capacities to the Company during
the two most recently completed financial years:
Name and
Principal Position |
|
Year |
|
|
Salary
consulting
fee, retainer
or
commission
($) |
|
|
Bonus
($) |
|
|
Committee
or meeting
($) |
|
|
Value of
Perquisites
($) |
|
|
Value of all
other
compen-
sation
($) |
|
|
Total
Compen-
sation
($) |
|
Christopher Moreau(1)
CEO and Director |
|
2021
2020 |
|
|
220,000
157,000 |
|
|
Nil
100,000 |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
36,079
Nil |
|
|
256,079
257,000 |
|
Mark Williams(2)
Former Chief Science Officer |
|
2021
2020 |
|
|
116,667
166,663 |
|
|
Nil
100,000 |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
116,667
266,663 |
|
Michael Sadhra(3)
Former CFO and Former Director |
|
2021
2020 |
|
|
120,000
60,000 |
|
|
Nil
20,000 |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
28,864
Nil |
|
|
148,864
80,000 |
|
Christopher Bryan(4)
Vice President of Research and Operations |
|
2021
2020 |
|
|
65,000
N/A |
|
|
Nil
N/A |
|
|
Nil
N/A |
|
|
Nil
N/A |
|
|
Nil
N/A |
|
|
65,000
N/A |
|
Raj Attariwala
Director |
|
2021
2020 |
|
|
6,000
4,000 |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
7,216
Nil |
|
|
13,216
4,000 |
|
David Levine(5)
Director |
|
2021
2020 |
|
|
6,000
4,000 |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
7,216
Nil |
|
|
13,216
4,000 |
|
Alfred Wong(6)
Former VP Corporate
Development |
|
2021
2020 |
|
|
Nil
4,000 |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
Nil
Nil |
|
|
Nil
4,000 |
|
Notes:
(1) Mr.
Moreau was appointed as CEO on March 1, 2018 and as a director on
May 5, 2020.
(2) Dr.
Williams was appointed Chief Science Officer on October 19, 2018
and resigned effective on March 1, 2021. Dr. Williams was appointed
as director of the Company on September 22, 2021.
(3) Mr.
Sadhra resigned as director of the Company on September 16, 2021
and as CFO on November 30, 2021.
(4) Dr.
Bryan was appointed as Vice President of Research and Operations on
March 1, 2021.
(5) Mr.
Levine was not nominated for election as a director at the February
28, 2022 annual general meeting and was no longer a director of the
Company as of February 28, 2022.
(6) Mr.
Wong resigned as the VP Corporate Development of the Company on
August 27, 2019.
Other than as set forth above, no
NEO or Director of the Company has, during the most recently
completed financial year, received compensation pursuant to:
1) any
standard arrangement for the compensation of NEOs or Directors for
their services in their capacity as NEOs and/or Directors,
including any additional amounts payable for committee
participation or special assignments;
2) any
other arrangement, in addition to, or in lieu of, any standard
arrangement, for the compensation of NEOs in their capacity as
NEOs; or
3) any
arrangement for the compensation of NEOs of Directors for services
as consultants or expert.
Compensation
Securities
There were no compensation
securities granted or issued to any NEO or Director of the Company
during the most recently completed financial year ended August 31,
2021.
As of August 31, 2021, the NEOs and
Directors of the Company held the following compensation
securities:
Mr. Moreau had a total of 20,000
stock options and nil RSUs:
• 2,500
stock options were issued on March 1, 2018, each exercisable into
one Common Share at a price of $48.00 per share until March 1,
2023;
• 5,000
stock options issued on February 13, 2020, each exercisable into
one Common Share at a price of $10.00 per share until February 13,
2025;
• 12,500
stock options issued on April 13, 2020, each exercisable into one
Common Share at a price of $29.00 per share until April 13, 2025;
and
• 12,500
RSUs were issued on July 23, 2020, each RSU convertible into one
Common Share. The RSUs vested over a 12-month period with 1/3
vesting on the grant date, 1/3 vesting on January 22, 2021 and the
remaining 1/3 vesting on July 22, 2021. A total of 4,125 RSUs
vested on July 23, 2020. As of August 31, 2021, all RSUs were
settled. A total of 8,250 RSUs from the first and second tranches
were settled in common shares with the third and final tranche of
4,250 RSUs settled in cash.
Dr. Williams had a total of 17,500
stock options and nil RSUs:
• 5,000
stock options issued on February 13, 2020, each exercisable into
one Common Share at a price of $10.00 per share until February 13,
2025. These stock options were exercised on May 27, 2021;
• 12,500
stock options issued on April 13, 2020, each exercisable into one
Common Share at a price of $29.00 per share until April 13, 2025.
These stock options expired unexercised on May 29, 2021 upon Dr.
Williams' resignation as Chief Science Officer effective March 1,
2021; and
• 10,000
RSU's were issued on July 23, 2020, each RSU convertible into one
Common Share. The RSUs vested over a 12 month period with 1/3
vesting on the grant date, 1/3 vesting on January 22, 2021 and the
remaining 1/3 vesting on July 22, 2021. As of August 31, 2021, a
total of 6,600 RSUs from the first and second tranches were settled
in common shares. Upon Dr. Williams' resignation as Chief Science
Officer effective March 1, 2021, the third and final tranche of
3,400 RSUs were forfeited.
Mr. Sadhra had a total of 22,000
stock options and nil RSUs:
• 500
stock options were issued on May 18, 2017 each exercisable into one
Common Share at a price of $30.00 per share until May 18, 2022;
• 1,500
stock options were issued on March 1, 2018 exercisable into one
Common Share at a price of $48.00 per share until March 1,
2023;
• 10,000
stock options issued on February 13, 2020, each exercisable into
one Common Share at a price of $10.00 per share until February 13,
2025;
• 10,000
stock options issued on April 13, 2020, each exercisable into one
Common Share at a price of $29.00 per share until April 13, 2025;
and
• 10,000
RSUs were issued on July 23, 2020, each RSU convertible into one
Common Share. The RSUs vested over a 12-month period with 1/3
vesting on the grant date, 1/3 vesting on January 22, 2021 and the
remaining 1/3 vesting on July 22, 2021. A total of 3,300 RSUs
vested on July 23, 2020. As of August 31, 2021, all RSUs were
settled. A total of 6,600 RSUs from the first and second tranches
were settled in common shares with the third and final tranche of
3,400 RSUs settled in cash.
Mr. Attariwala had a total of 5,000
stock options and nil RSUs:
• 500
stock options were issued on May 18, 2017 each exercisable into one
Common Share at a price of $30.00 per share until May 18, 2022;
• 500
stock options were issued on March 1, 2018 exercisable into one
Common Share at a price of $48.00 per share until March 1,
2023;
• 2,000
stock options issued on February 13, 2020, each exercisable into
one Common Share at a price of $10.00 per share until February 13,
2025;
• 2,000
stock options issued on April 13, 2020, each exercisable into one
Common Share at a price of $29.00 per share until April 13, 2025;
and
• 2,500
RSUs were issued on July 23, 2020, each RSU convertible into one
Common Share. The RSUs vested over a 12-month period with 1/3
vesting on the grant date, 1/3 vesting on January 22, 2021 and the
remaining 1/3 vesting on July 22, 2021. A total of 825 RSUs
vested on July 23, 2020. As of August 31, 2021, all RSUs were
settled. A total of 1,650 RSUs from the first and second tranches
were settled in common shares with the third and final tranche of
850 RSUs settled in cash.
Mr. Levine had a total of 5,000
stock options and nil RSUs:
• 500
stock options were issued on May 18, 2017 each exercisable into one
Common Share at a price of $30.00 per share until May 18, 2022;
• 500
stock options were issued on March 1, 2018 exercisable into one
Common Share at a price of $48.00 per share until March 1,
2023.
• 2,000
stock options issued on February 13, 2020, each exercisable into
one Common Share at a price of $10.00 per share until February 13,
2025;
• 2,000
stock options issued on April 13, 2020, each exercisable into one
Common Share at a price of $29.00 per share until April 13, 2025;
and
• 2,500
RSUs were issued on July 23, 2020, each RSU convertible into one
Common Share. The RSUs vested over a 12-month period with 1/3
vesting on the grant date, 1/3 vesting on January 22, 2021 and the
remaining 1/3 vesting on July 22, 2021. A total of 825 RSUs
vested on July 23, 2020. As of August 31, 2021, all RSUs were
settled. A total of 1,650 RSUs from the first and second tranches
were settled in Common Shares with the third and final tranche of
850 RSUs settled in cash.
Exercise of Compensation
Securities by Directors and NEOs:
The following table sets out
compensation securities that were exercised/settled by Directors
and NEOs during the financial year ended August 31, 2021:
Name and
position |
|
Type of
compensation
security |
|
|
Number of
underlying
securities
exercised |
|
|
Exercise
price per
security ($) |
|
|
Date of
exercise/vesting |
|
|
Closing
price per
security on
date of
exercise ($) |
|
|
Difference
Between
exercise
price and
closing
price on
date of
exercise ($) |
|
|
Total value
on exercise
date ($) |
|
|
Christopher Moreau CEO and Director |
|
RSUs |
|
|
4,125
4,125
4,250 |
|
|
$35.00
$26.60
$8.50 |
|
|
07/23/20
01/22/21
07/22/21 |
|
|
$35.00
$26.60
$8.50 |
|
|
N/A |
|
|
$144,375
$109,725
$36,079 |
|
Mark
Williams
Director and Former Chief Science Officer |
|
RSUs |
|
|
3,300
3,300 |
|
|
$35.00
$26.60 |
|
|
07/23/20
01/22/21 |
|
|
$35.00
$26.60 |
|
|
N/A |
|
|
$115,500
$87,780 |
|
Michael Sadhra
CFO and Former Director |
|
RSUs |
|
|
3,300
3,300
3,400 |
|
|
$35.00
$26.60
$8.50 |
|
|
07/23/20
01/22/21
07/22/21 |
|
|
$35.00
$26.60
$8.50 |
|
|
N/A |
|
|
$115,500
$87,870
$28,864 |
|
Raj
Attariwala
Director |
|
RSUs |
|
|
825
825
850 |
|
|
$35.00
$26.60
$8.50 |
|
|
07/23/20
01/22/21
07/22/21 |
|
|
$35.00
$26.60
$8.50 |
|
|
N/A |
|
|
$28,875
$21,945
$7,216 |
|
David Levine
Director |
|
RSUs |
|
|
825
825
850 |
|
|
$35.00
$26.60
$8.50 |
|
|
07/23/20
01/22/21
07/22/21 |
|
|
$33.00
$26.60
$8.50 |
|
|
N/A |
|
|
$28,875
$21,945
$7,216 |
|
Stock Option Plan
The Company adopted a Stock Option
Plan on September 11, 2015, which was adopted by shareholders on
April 10, 2017 (the "Stock Option Plan").
The purpose of the Stock Option
Plan is to attract, retain, and motivate NEOs, directors, employees
and other service providers by providing them with the opportunity,
through the grant of Stock Options, to acquire an interest in the
Company and benefit from the Company's growth. A Stock Option
is an incentive share purchase option that entitles the holder to
purchase Common Shares.
Under the Stock Option Plan, the
maximum number of Common Shares reserved for issuance, including
Stock Options currently outstanding, is equal to 10% of the issued
and outstanding Common Share from time to time (the "10%
Maximum"). Following the exercise, termination,
cancellation or expiration of any Stock Options, a number of Common
Shares equivalent to the number of Stock Options exercised,
terminated, cancelled or expired would become available for reserve
for issuance in respect of future Stock Option grants.
Material Terms to the Stock
Option Plan
1) The
number of Common Shares which may be the subject of Stock Options
on a yearly basis to any one person cannot exceed 5% of the number
of issued and outstanding Common Shares at the time of the
grant;
2) Stock
Options may be granted to any employee, officer, director,
consultant, affiliate or subsidiary of the Company exercisable at a
price which is not less than the market price of Common Shares on
the date of the grant;
3) The
directors of the Company may, by resolution, determine the time
period during which any Stock Option may be exercised (the
"Exercise Period"), provided that the Exercise Period does
not contravene any rule or regulation of such exchange on which the
Common Shares may be listed;
4) All
Stock Options will terminate on the earliest to occur of:
(i) the
expiry of their term;
(ii) the
date of termination of an optionee's employment, office or position
as director, if terminated for just cause;
(iii) 90
days (or such other period of time as permitted by any rule or
regulation of such exchange on which the Common Shares may be
listed) following the date of termination of an optionee's position
as a director or NEO, if terminated for any reason other than the
optionee's disability or death; and
(iv) 30
days following the date of termination of an optionee's position as
a consultant engaged in investor relations activities, if
terminated for any reason other than the optionee's disability,
death, or just cause;
5) Stock
Options are non-assignable and non-transferable and are subject to
early termination in the event of the death of a participant or in
the event a participant ceases to be a NEO, director, employee,
consultant, affiliate, or subsidiary of the Company, as the case
may be.
Subject to the foregoing
restrictions, and certain other restrictions set out in the Stock
Option Plan, the Board is authorized to provide for the granting of
Stock Options and the exercise and method of exercise of Stock
Options granted under the Stock Option Plan.
Restricted Share Unit (RSU)
Plan
The Company adopted a 10% rolling
RSU Plan on July 23, 2020. The RSU Plan allows the Company to
grant RSUs to directors, officer, employees and consultants of the
Company ("Eligible Persons").
A RSU is a bookkeeping entry
equivalent in value to a Common Share credited to an Eligible
Person's (a "Participant") account and represents the right
of a Participant to whom a grant of such RSUs is made to receive
one Common Share (or an amount of cash equal to the market value
thereof).
The purpose of the RSU Plan is to
promote and advance the interests of the Company by:
(i) providing
Eligible Persons with additional incentive through an opportunity
to receive discretionary bonuses in the form of Common Shares,
(ii) encouraging
stock ownership by such Eligible Persons,
(iii) increasing
the proprietary interest of Eligible Persons in the success of the
Company, and
(iv) increasing
the ability to attract, retain and motivate Eligible Persons.
Similar to the Stock Option Plan, the maximum number of Common
Shares reserved for issuance under the RSU Plan shall not exceed
10% of the issued and outstanding Common Shares from time to time
(the "10% Maximum"), less any Common Shares reserved for
issuance under all other compensation agreements, such as the Stock
Option Plan.
The RSU Plan is a "rolling plan"
and when RSUs are cancelled (whether or not upon payment with
respect to vested RSUs) or terminated, the number of Common Shares
in respect of such cancelled or terminated RSUs shall again be
available for the purpose of granting RSU Awards pursuant to the
RSU Plan.
Material Terms to the RSU
Plan
1) RSUs
may be granted to any employee, officer, director, consultant or
subsidiary of the Company provided that RSUs granted to any
Eligible Person shall be approved by shareholders if the rules of
the stock exchange the Company is listed on requires such
approval;
2) Where
the Board determines to grant a RSU Award to an Eligible Person and
sets the terms and conditions applicable to such RSU Award, the
Company shall deliver to the Eligible Person a RSU Grant Letter,
containing the terms and conditions applicable to such RSU Award
and will credit the Participant's account with the number of RSUs
granted to such Participant under the terms of the RSU Award on the
grant of an RSU Award;
3) The
grant of a RSU Award shall entitle the Participant to the
conditional right to receive for each RSU credited to the
Participant's Account, at the election of the Company, either one
Common Share or an amount in cash, net of applicable taxes and
contributions to government sponsored plans, as determined by the
Board, equal to the market price of one Common Share for each RSU
credited to the Participant's Account on the Settlement Date,
subject to the conditions set out in the RSU Grant Letter and in
the Plan, and subject to all other terms of the RSU Plan;
4) An
Eligible Person may receive an RSU Award on more than one occasion
under the RSU Plan and may receive separate RSU Awards on any one
occasion;
5) RSUs
granted under the RSU Plan to an Eligible Person in a calendar year
will (subject to any applicable terms and conditions) represent a
right to a bonus or similar award to be received for services
rendered by such Eligible Person to the Company or an affiliate, as
the case may be, in the fiscal year ending in, coincident with or
before such calendar year, subject to any other determination by
the Company;
6) Subject
to the provisions of the RSU Plan and any vesting limitations
imposed by the Board at the time of grant, RSUs subject to an RSU
Award may be settled by a Participant during the Settlement Period
applicable to the RSU by delivery to the Company of a notice (the
"Settlement Notice") in a form attached to the RSU Grant
Letter. As soon as practicable following the receipt of the
Settlement Notice, RSUs will be settled by the Company through the
delivery by the Company of such number of Common Shares equal to
the number of RSUs then being settled or, at a Company's election,
an amount in cash, net of applicable taxes and contributions to
government sponsored plans, equal to the market price at the
Settlement Date of one Common Share for each RSU then being
settled. Where, prior to the Expiry Date, a Participant fails
to elect to settle an RSU, the Participant shall be deemed to have
elected to settle such RSUs on the day immediately preceding the
Expiry Date.
7) Notwithstanding
the foregoing, if the Company elects to issue Common Shares in
settlement of RSUs:
(i) the
Company may arrange for such number of the Common Shares to be sold
as it deems necessary or advisable to raise an amount at least
equal to its determination of such applicable taxes, with such
amount bring withheld by the Company; or
(ii) the
Company may elect to settle for cash such number of RSUs as it
deems necessary or advisable to raise funds sufficient to cover
such withholding taxes with such amount being withheld by the
Company; or
(iii) the
Company may, as a condition of settlement in the form of Common
Shares, require the Participant to pay the applicable taxes as
determined by the Company or make such other arrangement acceptable
to the Company in its discretion (if at all) as it deems necessary
or advisable.
8) Except
as otherwise determined by the Board:
(i) The
"Termination Date" means the date on which a Participant ceases to
be an Eligible Person;
(ii) all
RSUs held by the Participant (whether vested or unvested) shall
terminate automatically upon the termination of the Participant's
service with the Company or any subsidiary companies for any reason
other than as set forth in paragraph (b) and (c) below;
(iii) in
the case of a termination of the Participant's service by reason of
(A) termination by the Company or any Subsidiary Companies other
than for Cause, or (B) the Participant's death, the Participant's
unvested RSUs shall vest automatically as of such date, and on the
earlier of the original Expiry Date and any time during the ninety
(90) day period commencing on the date of such termination of
service (or, if earlier, the Termination Date), the Participant (or
his or her executor or administrator, or the person or persons to
whom the Participant's RSUs are transferred by will or the
applicable laws of descent and distribution) will be eligible to
request that the Company settle his vested RSUs.
Where, prior
to the 90th day following such termination of service (or, if
earlier, the Termination Date) the Participant fails to elect to
settle a vested RSU, the Participant shall be deemed to have
elected to settle such RSU on such 90th day (or, if earlier, the
Termination Date) and to receive Common Shares in respect
thereof;
(i) in
the case of a termination of the Participant's services by reason
of voluntary resignation, only the Participant's unvested RSUs
shall terminate automatically as of such date, and any time during
the ninety (90) day period commencing on the date of such
termination of service (or, if earlier, the Termination Date), the
Participant will be eligible to request that the Company settle
it's vested RSUs. If the Participant fails to elect to settle
a vested RSU, the Participant shall be deemed to have elected to
settle such RSU on the 90th day and will receive Common Shares in
respect thereof;
(ii) for
greater certainty, where a Participant's employment or term of
office terminates by reason of termination by the Company or any
subsidiary companies for cause then any RSUs held by the
Participant, whether or not vested at the Termination Date,
immediately terminate and are cancelled on the Termination Date or
at a time as may be determined by the Board, in its sole
discretion;
(iii) a
Participant's eligibility to receive further grants of RSUs under
the RSU Plan ceases as of the earliest of the date the Participant
resigns from the Company or any subsidiary company and the date
that the Company or any subsidiary company provides the Participant
with written notification that the Participant's employment or term
of office, as the case may be, is terminated, notwithstanding that
such date may be prior to the Termination Date; and
(iv) for
the purposes of the RSU Plan, a Participant shall not be deemed to
have terminated service where: (i) the Participant remains in
employment or office within or among the Company or any subsidiary
company or (ii) the Participant is on a leave of absence approved
by the Board.
9) RSUs
shall not be transferable or assignable by the Participant
otherwise than by will or the laws of descent and distribution, and
shall be exercisable during the lifetime of a Participant only by
the Participant and after death only by the Participant's legal
representative.
Subject to the foregoing
restrictions, and certain other restrictions set out in the RSU
Plan, the Board is authorized to provide for the granting of RSUs,
the vesting limitations on the RSUs and the method in which the
RSUs are settled.
Employment, Consulting and
Management Agreements
Management functions of the Company
are substantially performed by directors or senior officers (or
private companies controlled by then, either directly or
indirectly) of the Company and not, to any substantial degree, by
any other person with whom the Company has contracted.
The Company entered into a
Management Consulting Agreement dated March 1, 2018 with
Christopher Moreau (the "Moreau Agreement") whereby he was
retained to act as the Company's CEO. The Moreau Agreement
provided for the remuneration of Mr. Moreau at the rate of
CAD$9,000 per month (the "Moreau Base Fee"). The
Moreau Base Fee was increased to CAD$13,333 per month effective on
December 1, 2019. The Moreau Agreement was amended and
restated on July 31, 2020 ("Moreau Amended and Restated
Agreement") whereby the Moreau Base Fee was further amended to
CAD$18,333 per month effective on July 31, 2020. Mr. Moreau
is not paid for being a director of the Company. On September 1,
2020, the Company replaced the Moreau Amended and Restated
Agreement with an Executive Employment Agreement with Mr. Moreau at
the same rate of CAD$18,333 per month. The Executive Employment
Agreement contains a change of control clause where Mr. Moreau may
terminate the Executive Employment Agreement in connection with any
Change of Control by providing the Company with 30 days notice in
writing, within 90 days after the Change in Control. In this
event the Company is required to pay Mr. Moreau an amount equal to
two years of the base salary in effect at the time that the notice
is provided.
The Company's affiliate, Nash
Pharma entered into a Management Consulting Agreement dated July 1,
2018 with Dr. Mark Williams (the "Williams Agreement")
whereby he was retained to act as the CEO of Nash Pharma. The
Williams Agreement provided for the remuneration of Dr. Williams at
the rate of CAD$13,333 per month (the "Williams Base
Fee"). After the acquisition of Nash Pharma by the
Company, the Williams Agreement was amended on October 19, 2018
("Williams Amended Agreement") whereby Dr. Williams was
appointed to the position of Chief Science Officer of Nash
Pharma. The Williams Base Fee remained unchanged. The
Williams Amended Agreement was further amended and restated on July
31, 2020 ("Williams Amended and Restated Agreement") whereby
the Williams Base Fee was amended to CAD$16,666 per month effective
on July 31, 2020. Dr. Williams resigned as Chief Science Officer
effective March 1, 2021 and was appointed as director of the
Company on September 22, 2021.
Under prior agreement with the
Company, Michael Sadhra has acted as the Company's CFO at a rate of
CAD$4,000 per month (the "Sadhra Base Fee"). The
Company amended and restated any prior agreement it had with Mr.
Sadhra on July 31, 2020 ("Sadhra Amended and Restated
Agreement") whereby the Sadhra Base Fee was amended to
CAD$10,000 per month effective on July 31, 2020. Mr. Sadhra
is not paid for being a director of the Company. On September 1,
2020, the Company replaced the Sadhra Amended and Restated
Agreement with an Executive Employment Agreement with Mr. Sadhra at
the same rate of CAD$10,000 per month. Mr. Sadhra resigned as
Director effective September 16, 2021.
Under prior agreement with the
Company, Dr. Christopher Bryan has acted as the Company's Senior
Scientist at a rate of CAD$8,000 per month (the "Bryan Consulting
Agreement") since June 1, 2020. On March 1, 2021, the Company
replaced the Bryan Consulting Agreement with an Executive
Employment Agreement with Dr. Christopher Bryan whereby he was
retained to act as the Company's Vice President of Research and
Operations at a rate of CAD$ 10,833.33 per month.
Oversight and Description of
Director and NEO Compensation
The Company does not have a
compensation committee or a formal compensation policy and relies
solely on the Board of Directors to determine NEO
compensation. In determining compensation, the Board
considers industry standards and its financial situation but does
not currently have any formal objectives or criteria. The
performance of each NEO is informally monitored by the Board, who
keeps in mind the business strengths of the individual and the
purpose of originally appointing the individual as an
officer. The duties and responsibilities of the NEOs are
typical of those of a business entity of the Company's size in a
similar business and include direct reporting responsibility to the
Board, overseeing the activities of all other executive and
management consultants, representing the Company, providing
leadership and responsibility for achieving corporate goals and
implementing corporate policies and initiatives.
The Board is also responsible for
recommending compensation for the directors and granting stock
options to the directors, NEOs and employees of, and consultants
to, the Company pursuant to the Company's Stock Option Plan
(defined below).
Philosophy and
Objectives
The compensation program for the
senior management of the Company is designed to ensure that the
level and form of compensation achieves certain objectives,
including:
• attracting
and retaining talented, qualified and effective executives;
• motivating
the short and long-term performance of these executives; and
• better
aligning their interests with those of the Company's
shareholders.
In compensating its senior
management, the Company has employed a combination of base salary
and equity participation through its Stock Option Plan.
The Company relies solely on the
discussions of the Board, without any formal objectives, criteria
and analysis, for determining executive compensation.
Base Salary or Consulting
Fees
In establishing the base salary for
NEOs, the Board considers the NEO's performance, level of
expertise, responsibilities, length of service to the Company and
comparable levels of remuneration paid to executives of other
companies of comparable size and development. The financial
and other resources of the Company are also considered since
capital management is critical to the Company as a successful
generator of business using Shareholders' funds. Using this
information, together with budgetary guidelines the Board
determines and sets the base salaries of the CEO, CFO and other
NEOs.
Bonus Incentive
Compensation
The Company's objective is to
achieve certain strategic objectives and milestones. The
Board will consider executive bonus compensation dependent upon the
Company meeting those strategic objectives and milestones and
sufficient cash resources being available for granting of
bonuses. The Board approves executive bonus compensation
dependent upon compensation levels based on recommendations of the
CEO. Such recommendations are generally based on information
provided by issuers that are similar in size and scope to the
Company's operations.
Equity Participation
The Company believes that
encouraging its executives and employees to become shareholders is
the best way of aligning their interests with those of its
shareholders. Equity participation is accomplished through
the Company's stock option plan. Stock options are granted to
executives and employees taking into account a number of factors,
including the amount and term of options previously granted, base
salary and bonuses and competitive factors. The amounts and
terms of options granted are determined by the Board. The
Board continues to review and redesign the overall compensation
plan for senior management so as to continue to address the
objectives identified above.
Given the evolving nature of the
Company's business, the Board continues to review and redesign the
overall compensation plan for senior management so as to continue
to address the objectives identified above.
Compensation Review
Process
Compensation Components:
Compensation paid to the Company's NEOs consists of a base salary
in the form of cash compensation, and long-term incentive stock
options. No specific formula is used to assign a specific
weighting to these components. Instead, the Board considers
the Company's performance and assigns compensation based on this
assessment.
In establishing compensation
levels, the Board also relies on the experience of its members as
officers and directors of other companies in similar lines of
business as the Company. The purpose of this comparison to
similar companies is to: (1) understand the competitiveness of
current pay levels for each executive position relative to
companies with similar business characteristics; (2) identify and
understand any gaps that may exist between actual compensation
levels and market compensation levels; and (3) establish a basis
for developing salary adjustments and long-term incentive awards
for the Board to consider and approve.
Long Term Compensation
Long term compensation is paid in
the form of granting of stock options. The Board established
the Stock Option Plan to encourage share ownership and
entrepreneurship on the part of the directors, management and
employees. The Board believes that the Stock Option Plan
aligns the interests of the NEOs with the interests of Shareholders
by linking a component of compensation to the longer-term
performance of the Common Shares.
Stock Options are generally granted
on an annual basis, subject to the imposition of trading blackout
periods, in which case options scheduled for grant will be granted
subsequent to the end of the black-out period. All stock
options granted to NEOs are approved by the Board. In
monitoring stock option grants, the Board takes into account the
level of stock options granted by comparable companies for similar
levels of responsibility and considers each NEO based on reports
received from management, its own observations on individual
performance (where possible) and its assessment of individual
contributions to Shareholder value.
In addition to determining the
number of stock options to be granted pursuant to the methodology
outlined above, the Board also makes the following
determinations:
• the
exercise price for each stock option granted;
• the
date on which each stock option is granted;
• the
vesting terms for each stock option; and
• the
other materials terms and conditions of each stock option
grant.
The Board makes these
determinations subject to and in accordance with the provision of
the Stock Option Plan.
Risks Associated with the Company's
Compensation Program
Neither the Board nor any committee
of the Board considered the implications of the risks associated
with the Company's compensation program during the most recently
completed financial year. All of the Company's option-based
awards for the benefit of executive officers were fully
discretionary.
Hedging by Named Executive
Officers or Directors
The Company has no policy with
respect to NEOs or directors purchasing financial instruments,
including, for greater certainty, prepaid variable forward
contracts, equity swaps, collars, or units of exchange funds that
are designed to hedge or offset a decrease in market value of
equity securities granted as compensation or held, directly or
indirectly, by the NEO or director.
Benefits and Perquisites
The Company does not offer any
benefits or perquisites to its directors or NEOs other than
potential grants of incentive stock options as otherwise disclosed
and discussed herein.
Option-Based Awards
As described above, the Company has
a 10% "rolling" Stock Option Plan. The Stock Option Plan was
established to provide incentive to qualified parties to increase
their proprietary interest in the Company and thereby encourage
their continuing association with the Company. Management
proposes stock option grants to the Board based on such criteria as
performance, previous grants, and hiring incentives. All
grants require approval of the Board.
The purpose of the Company's Option
Plan is to provide the Company with a share related mechanism to
enable the Company to attract, retain and motivate qualified
directors, officers, employees and other service providers, to
reward directors, officers, employees and other service providers
for their contribution toward the long-term goals of the Company
and to enable and encourage such individuals to acquire Common
Shares as long-term investments.
Share-Based Awards
As described above, the Company has
a 10% "rolling" RSU Plan. The RSU Plan was established to
promote and advance the interests of the Company by providing
Eligible Persons with additional incentive through an opportunity
to receive discretionary bonuses in the form of Common Shares,
encourage stock ownership by such Eligible Persons, increase the
proprietary interest of Eligible Persons in the success of the
Company, and increase the ability to attract, retain and motivate
Eligible Persons.
Management proposes RSU Awards to
the Board based on such criteria as performance, previous grants,
and hiring incentives. All RSU Awards require approval of the
Board.
Oversight and Description of
Director Compensation
In the Board's view, there is, and
has been, no need for the Company to design or implement a formal
compensation program for directors. While the Board considers
Option grants to directors under the Option Plan from time to time,
the Board does not employ a prescribed methodology when determining
the grant or allocation of Options. Other than the Option
Plan, as discussed above, the Company does not offer any long-term
incentive plans, share compensation plans or any other such benefit
programs for directors.
Pension Plan
Benefits
The Company does not have a pension
plan that provides for payments or benefits to the NEOs or
Directors at, following, or in connection with retirement.
Termination and Change of
Control Benefits
There are no compensatory plan(s)
or arrangements(s), with respect to any of the NEOs resulting from
the resignation, retirement or any other termination of employment
of the officer's employment or from a change of the NEOs
responsibilities following a change of control.
SECURITIES AUTHORIZED FOR
ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets out, as of
the end of the Company's fiscal year ended August 31, 2021 all
required information with respect to compensation plans under which
equity securities of the Company are authorized for issuance:
|
Plan Category
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
Number of securities
remaining available for
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
(a))
(c)
|
|
Equity compensation plans approved by security holders
|
155,750
|
$11.02
|
11,735
(1)
|
|
Equity compensation plans not approved by security holders
|
N/A
|
N/A
|
11,735(1)
|
|
Total
|
155,750
|
|
11,735(1)
|
Note:
(1) The
Company had a total of 1,674,868 Common Shares issued and
outstanding as at August 31, 2021. The maximum number of
Common Shares reserved for issuance under the Stock Option Plan and
RSU Plan collectively shall not exceed 10% of the issued and
outstanding Common Shares from time to time.
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain
Beneficial Owners and Management
The following table sets forth
certain information regarding the beneficial ownership of our
Common Shares as of April 13, 2022 by (a) each shareholder who is
known to us to own beneficially 5% or more of our outstanding
Common Shares; (b) all directors; (c) our executive officers, and
(d) all executive officers and directors as a group. Except as
otherwise indicated, all persons listed below have (i) sole voting
power and investment power with respect to their common shares,
except to the extent that authority is shared by spouses under
applicable law, and (ii) record and beneficial ownership with
respect to their common shares.
|
Name
|
Common Shares of
the Company
Beneficially Owned (1)
|
Percentage of
Common Shares
Beneficially
Owned (2)
|
|
|
|
|
|
Directors and Executive Officers:
|
|
|
| |
|
|
|
Christopher Moreau, Chief Executive Officer and Director
|
70,017 (3)
|
4.1%
|
| |
|
|
|
Christopher Bryan, Vice President of Research and Operations
|
9,250 (4)
|
*
|
| |
|
|
|
James Kinley, Chief Financial Officer
|
8,124 (5)
|
*
|
| |
|
|
|
Raj Attariwala, Director
|
23,837 (6)
|
1.4%
|
| |
|
|
|
Howard Gutman, Director
|
4,045 (7)
|
*
|
| |
|
|
|
Harry Bloomfield, Director
|
16,000 (8)
|
*
|
| |
|
|
|
Mark Williams, Director
|
7,700 (9)
|
*
|
| |
|
|
|
Directors and Executive Officers as a Group (7
persons)
|
138,973 (10)
|
7.8%
|
| |
|
|
|
Other 5% or more Shareholders:
|
|
|
| |
|
|
|
N/A
|
-
|
-
|
____________________
Notes
(*) Less than 1%
(1) Under
Rule 13d-3, a beneficial owner of a security includes any person
who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or common shares: (i)
voting power, which includes the power to vote, or to direct the
voting of Common Shares; and (ii) investment power, which includes
the power to dispose or direct the disposition of Common Shares.
Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the
power to dispose of the common shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the
right to acquire the shares (for example, upon exercise of an
option) within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the
amount of shares outstanding is deemed to include the amount of
shares beneficially owned by such person (and only such person) by
reason of these acquisition rights. As a result, the percentage of
outstanding shares of any person as shown in this table does not
necessarily reflect the person's actual ownership or voting power
with respect to the number of Common Shares actually outstanding on
April 13, 2022.
(2) The percentage is
calculated based on 1,674,868 Common Shares that were outstanding
as of April 13, 2022.
(3) This
figure consists of (i) 18,017 Common Shares directly held by Mr.
Moreau and (ii) 52,000 stock options to purchase 52,000 Common
Shares which have vested as of April 13, 2022.
(4) This
figure consists of 9,250 stock options to purchase 9,250 Common
Shares which have vested as of April 13, 2022.
(5) This
figure consists of (i) 1,374 Common Shares directly held by Mr.
Kinley and (ii) 6,750 stock options to purchase 6,750 Common Shares
which have vested as of April 13, 2022.
(6) This
figure consists of (i) 12,337 Common Shares directly held by Mr.
Attariwala and (ii) 11,500 stock options to purchase 11,500 Common
Shares which have vested as of April 13, 2022.
(7) This
figure consists of (i) 2,045 Common Shares directly held by Mr.
Gutman and (ii) 2,000 stock options to purchase 2,000 Common Shares
which have vested as of April 13, 2022.
(8) This
figure consists of (i) 6,000 Common Shares held by Eldee Foundation
(over which Mr. Bloomfield has discretionary voting and investment
authority) and (ii) 10,000 stock options to purchase 10,000 Common
Shares which have vested as of April 13, 2022.
(9) This
figure consists of (i) 1,200 Common Shares directly held by Mr.
Williams and (ii) 6,500 stock options to purchase 6,500 Common
Shares which have vested as of April 13, 2022.
(10) This
figure consists of (i) 40,973 Common Shares and (ii) 98,000 stock
options to purchase 98,000 Common Shares which have vested as of
April 13, 2022.
The information as to shares
beneficially owned, not being within our knowledge, has been
furnished by the officers and directors.
RELATED PARTY
TRANSACTIONS
Key management personnel are
considered to be those persons having authority and responsibility
for planning, directing and controlling the activities of the
Company, directly or indirectly. Key management includes senior
officers and directors of the Company.
Related party transactions to key
management personnel are as follows:
|
Year ended
|
August 31, 2021
|
August 31, 2020
|
August 31, 2019
|
|
Short-term benefits(1)
|
$596,375
|
$8,000
|
$-
|
|
Consulting fees - other(2)
|
$11,750
|
$606,663
|
$297,391
|
|
Share-based payments(3)
|
$697,667
|
$2,489,669
|
$-
|
|
Rent(4)
|
$36,000
|
$32,000
|
$24,000
|
Note:
(1) Salaries
paid to officers and director fees to independent directors:
- $256,079 (August
31, 2020 - $nil, August 31, 2019 -$nil) to Chief Executive
Officer;
- $148,864
(August 31, 2020 - $nil, August 31, 2019 -$nil) to Chief Financial
Officer;
- $100,000
(August 31, 2020 - $nil, August 31, 2019 -$nil) to Chief Science
Officer who resigned effective March 1, 2021;
- $65,000
(August 31, 2020 - $nil, August 31, 2019 -$nil) to VP of Research
and Operations who took on the role effective March 1, 2021;
- $13,216
(August 31, 2020 - $4,000, August 31, 2019 -$nil) to an independent
director; and
- $13,216
(August 31, 2020 - $4,000, August 31, 2019 -$nil) to an independent
director.
(2) Fees
paid to consultants/companies related to management personnel:
- $nil (August 31,
2020 - $257,000, August 31, 2019 - $108,000) to a company
controlled by the Chief Executive Officer;
- $nil (August
31, 2020 - $80,000, August 31, 2019 - $48,000) to a company
controlled by the Chief Financial Officer;
- $nil (August
31, 2020 - $266,663, August 31, 2019 - $138,491) to the Chief
Science Officer; and
- $11,750
(August 31, 2020 - $3,000, August 31, 2019 - $2,900) for tax
services paid to a partnership where Chief Financial Officer is a
partner.
(3) Share-based
payments were non-cash items that consisted of the fair value of
RSUs that were granted but unvested.
(4) Rent:
- $36,000
(August 31, 2020 - $32,000, August 31, 2019 - $24,000) paid for
corporate office space to a company controlled by Chief Financial
Officer.
MATERIAL AGREEMENTS
We have not entered into any
material agreements other than in the ordinary course of business
and other than those described below or in this prospectus.
Share Exchange Agreement
On October 19, 2018, the Company
acquired all of the issued and outstanding shares of Nash Pharma, a
clinical stage pharmaceutical development company focused on drug
repurposing in the areas of NASH, CKD and IBD. Through its ongoing
research programs, Nash Pharma has developed data that supports the
advancement of up to seven drug candidates into Phase 2 trials.
Pursuant to the terms of a Share
Exchange Agreement dated October 5, 2018 among the Company, Nash
Pharma and the security holders of Nash Pharma, the Company issued
158,000 Common Shares to the shareholders of Nash Pharma at an
issue price of $22.00 per Common Share. Existing warrants to
purchase common shares of Nash Pharma were cancelled and were
replaced with 148,000 Common Share purchase warrants of the
Company, each having an exercise at a price equal to the exercise
price of the Nash Pharma warrants.
Agency Agreement dated September
30, 2019 with Mackie Research Capital Corporation
In connection with the Company's
November 2019 Offering of units on November 1, 2019, the Company
entered into an agency agreement with Mackie Research Capital
Corporation and paid Mackie, the sole agent and book-runner, a cash
fee of $163,092, equal to 9% of the gross proceeds from the sale of
the units, subject to a reduced fee of 4.5% for units issued to
President's list purchasers. As additional compensation, the
Company also issued an aggregate of 18,011 non-transferable
compensation options, entitling the holder to acquire one unit at
an exercise price of $8.50 per unit until May 1, 2022. Each unit
consists of one Common Share and one Common Share purchase warrant.
Each Common Share purchase warrant entitles the holder to purchase
one additional Common Share until May 1, 2022 at a purchase price
of $12.00 per Common Share.
Warrant Indenture dated November
1, 2019, with AST Trust Company (Canada)
Pursuant to the November 2019
Offering, the Company issued 244,013 units at the issue price of
$8.50 per unit for total gross proceeds of $2,074,110. Each
unit was comprised of one Common Share and one Common Share
purchase warrant. Each Common Share purchase warrant entitles
the holder to purchase one additional Common Share until May 1,
2022 at a purchase price of $12.00 per Common Share. The expiry
date of the warrants was accelerated to January 21, 2021 resulting
in the expiration of a total of 2,272 warrants. These Common Share
purchase warrants were listed and posted for trading on the CSE
under the symbol AGN.WT.
As compensation, the Company issued
18,011 compensation options to the agents under the November 2019
Offering. Each compensation option entitles the holder to
purchase one unit of the Company at a price of $8.50 per unit until
May 1, 2022. Each unit consists of one Common Share and one
Common Share purchase warrant entitling the holder to acquire an
additional Common Share at a purchase price of $12.00 per Common
Share. The Company also paid a cash commission in the
aggregate amount of $153,092 to a syndicate of agents.
Agency Agreement dated May 13,
2020 with Mackie Research Capital Corporation
In connection with the Company's
Special Warrant Financing on May 13, 2020, the Company entered into
an agency agreement with Mackie Research Capital Corporation and
paid Mackie, the sole agent and book-runner, and a syndicate of
sub-agents, a cash fee of $526,853, equal to 8% of the gross
proceeds from the sale of the Special Warrants, subject to a
reduced fee of 4% for Special Warrants issued to President's list
purchasers. As additional compensation, the Company also issued an
aggregate of 15,053 non-transferable compensation options,
entitling the holder to acquire one Special Warrant Unit at an
exercise price of $35.00 per Special Warrant Unit until May 13,
2022.
Special Warrant Indenture dated
May 13, 2020 with AST Trust Company (Canada) and Warrant Indenture
dated May 13, 2020 with AST Trust Company (Canada)
On May 13, 2020, the Company
completed a private placement of 196,053 Special Warrants at a
price of $35.00 per Special Warrant for gross proceeds of
$6,861,850. Each Special Warrant is exercisable, for no additional
consideration at the option of the holder, into one unit of the
Company. Each Special Warrant Unit is comprised of one Common Share
and one Common Share purchase warrant. Each whole Common Share
purchase warrant will entitle the holder to purchase one Common
Share at an exercise price of $55.00 per Common Share until May 13,
2022. If, at any time after the Qualification Date (as defined
below) and prior to the expiry date of the Common Share purchase
warrants, the volume weighted average trading price of the Common
Shares on the CSE, or other principal exchange on which the Common
Shares are listed, is greater than $100.00 for 10 consecutive
trading days, the Company may, within 15 days of the occurrence of
such event, deliver a notice to the holders of Common Share
purchase warrants accelerating the Expiry Date to the date that is
30 days following the date of such notice.
All unexercised Special Warrants
will be automatically exercised, without payment of additional
consideration, on the date that is the earlier of: (i) four months
and a day following May 13, 2020; and (ii) three business days
following the date on which receipt is issued by the British
Columbia Securities Commission for a final short form prospectus
qualifying the distribution of the underlying the Special Warrants
Units. In the event the Qualification Date has not occurred prior
to 5:00 p.m. on the date that is 35 days from May 13, 2020, each
unexercised Special Warrant will thereafter entitle holders thereof
to receive upon the exercise or deemed exercise thereof, for no
additional consideration, 1.10 Units in lieu of one (1) Unit and
thereafter at the end of each additional 30 day period prior to the
Qualification Date, each Special Warrant will be exercisable for an
additional 0.0002 of a Unit.
In connection with the Special
Warrant Financing, the Company paid Mackie Research Capital
Corporation, the sole agent and bookrunner, and a syndicate of
sub-agents, a cash fee of $526,853, equal to 8% of the gross
proceeds from the sale of the Special Warrants, subject to a
reduced fee of 4% for Special Warrants issued to President's list
purchasers. As additional compensation, the Company also issued an
aggregate of 15,053 non-transferable compensation options,
entitling the holder to acquire one Special Warrant Unit at an
exercise price of $35.00 per Special Warrant Unit until May 13,
2022.
MARKET FOR OUR SECURITIES
On February 1, 2016, our Common
Shares began to trade on the CSE under the symbol “BTH” and in May
of 2016, our Common Shares began to be quoted on the OTCQB under
the symbol “BTHCF”. On February 19, 2019, our ticker symbol on the
CSE changed from “BTH” to “AGN” and on December 30, 2019, our
symbol changed from “BTHCF” to “AGNPF”. As of April 13, 2022, the
last reported sale price of our Common Shares on the OTCQB was
US$4.685 per share, and on April 13, 2022, we had 1,674,868 Common
Shares outstanding. The market for our Common Shares is limited,
volatile and sporadic.
The following table sets forth, for
the periods indicated, the high and low bid prices of our Common
Shares on the OTCQB as reported by Yahoo Finance. The following
quotations reflect inter-dealer prices, without mark-up, markdown,
or commissions, and may not reflect actual transactions.
| |
|
High Bid |
|
|
Low Bid |
|
|
Quarter ended |
|
|
|
|
|
|
| February 28, 2022 |
|
US$9.28 |
|
|
US$2.50 |
|
|
November 30, 2021 |
|
US$9.29 |
|
|
US$3.44 |
|
| August 31, 2021 |
|
US$14.10 |
|
|
US$6.00 |
|
| May
31, 2021 |
|
US$32.10 |
|
|
US$11.60 |
|
| February 28, 2021 |
|
US$43.80 |
|
|
US$14.40 |
|
|
Month ended |
|
|
|
|
|
|
|
March 31, 2022 |
|
US$4.84 |
|
|
US$3.78 |
|
| February 28, 2022 |
|
US$6.60 |
|
|
US$4.33 |
|
|
January 31, 2022 |
|
US$9.28 |
|
|
US$3.00 |
|
| December 31, 2021 |
|
US$4.56 |
|
|
US$2.50 |
|
|
November 30, 2021 |
|
US$6.51 |
|
|
US$3.44 |
|
| October 31, 2021 |
|
US$7.25 |
|
|
US$5.84 |
|
The following table sets forth, for
the periods indicated, the high and low sales prices of our Common
Shares on the CSE as reported by Yahoo Finance.
|
|
|
High |
|
|
Low |
|
|
Quarter ended |
|
|
|
|
|
|
|
February 28, 2022 |
|
CAD$11.90 |
|
|
CAD$3.25 |
|
|
November 30, 2021 |
|
CAD$10.50 |
|
|
CAD$4.50 |
|
|
August 31, 2021 |
|
CAD$18.00 |
|
|
CAD$7.50 |
|
|
May 31, 2021 |
|
CAD$40.00 |
|
|
CAD$14.50 |
|
|
February 28, 2021 |
|
CAD$54.00 |
|
|
CAD$18.50 |
|
|
November 30, 2020 |
|
CAD$24.50 |
|
|
CAD$19.00 |
|
|
Month ended |
|
|
|
|
|
|
|
March 31, 2022 |
|
CAD$6.05
|
|
|
CAD$4.80
|
|
|
February 28, 2022 |
|
CAD$8.37 |
|
|
CAD$5.50 |
|
|
January 31, 2022 |
|
CAD$11.90 |
|
|
CAD$4.02 |
|
|
December 31, 2021 |
|
CAD$5.90 |
|
|
CAD$3.25 |
|
|
November 30, 2021 |
|
CAD$8.00 |
|
|
CAD$4.50 |
|
|
October 31, 2021 |
|
CAD$9.00 |
|
|
CAD$7.50 |
|
|
September 30, 2021 |
|
CAD$10.50
|
|
|
CAD$8.00
|
|
We will apply to have our Common
Shares and the Warrants included in the Units listed on the Nasdaq
Capital Market under the symbols "[●]" and "[●]", respectively.
Currently, there is no established public trading market for the
Warrants included in the Units, and such a market might never
develop. The successful listing of our Common Shares and Warrants
on the Nasdaq Capital Market is a condition of this offering.
Holders
As of April 13, 2022, there were 2
registered holders of record of our Common Shares as reported by
our transfer agent, TSX Trust Company. There were also an
undetermined number of holders who hold their shares in nominee or
"street" name.
SECURITIES ELIGIBLE FOR FUTURE
SALE
Common Shares
Upon completion of this offering at
an assumed public offering price of US$[●] per Unit, and assuming
no pre-funded units are issued we will have [●] Common Shares
outstanding, not including (i) Common Shares underlying the
Warrants included in the Units, (ii) Common Shares underlying the
Warrants to be issued to the Representative (please see below
"Compensation Warrants", (iii) any Common Shares that may be sold
pursuant to the underwriters' over-allotment option or (iv) any
Common Shares underlying Warrants that may be sold pursuant to the
underwriters' over-allotment option. All of the Common Shares sold
in this offering will be freely transferable by persons other than
by our "affiliates" without restriction or further registration
under the Securities Act. Sales of substantial amounts of our
Common Shares in the public market could adversely affect
prevailing market prices of our Common Share. Prior to this
offering, there has been a limited public market for our Common
Shares. We intend on applying to list the Common Shares on the
Nasdaq Capital Market under the symbol "[●]".
Additionally, we had approximately
83,500 vested options, 356,587 Warrants and 15,433 Broker Warrants
outstanding as of November 30, 2021. The exercise price of the
majority of these options and Warrants is significantly above our
current market price.
Warrants Underlying
Units
Upon completion of this offering,
at an assumed public offering price of US$[●] per Unit, and
assuming no pre-funded units are issued, [●] Warrants underlying
the Units sold in this offering will be outstanding, not including
any Warrants that may be sold pursuant to the underwriters'
over-allotment option. All of the Warrants underlying the Units
sold in this offering will be freely transferable by persons other
than by our "affiliates" without restriction or further
registration under the Securities Act. Sales of substantial amounts
of our Warrants in the public market could adversely affect
prevailing market prices of our Common Shares. Prior to this
offering, there has been no public market for our Warrants. We
intend on applying to list the Warrants included in the Units on
the Nasdaq Capital Market under the symbol "[●]".
Pursuant to a warrant agency
agreement between us and AST Financial, as Warrant Agent, the
Warrants will be issued in book-entry form and shall initially be
represented only by one or more global warrants deposited with the
Warrant Agent, as custodian on behalf of The Depository Trust
Company, or DTC, and registered in the name of Cede & Co., a
nominee of DTC, or as otherwise directed by DTC.
Exercisability. The Warrants
are immediately exercisable and will expire on the date that is 5
years after their original issuance. The Warrants will be
exercisable, at the option of each holder, in whole or in part by
delivering to us or the Warrant Agent a duly executed exercise
notice.
Exercise Limitation. A
holder will not have the right to exercise any portion of the
Warrant if the holder (together with its affiliates) would
beneficially own in excess of 4.99% (or, at the election of the
holder, 9.99%) of our then outstanding common shares following such
exercise; provided, however, that upon prior notice to us, such
holder may increase or decrease its ownership, provided that in no
event will the ownership exceed 9.99%, as such percentage ownership
is determined in accordance with the terms of the Warrants.
However, any holder may increase or decrease such percentage,
provided that any increase will not be effective until the 61st day
after such election.
Exercise Price. The Warrants
will have an exercise price of US$[●] per Common Share ([●]% of the
per Unit offering price). The exercise price is subject to
appropriate adjustment in the event of certain stock dividends and
distributions, stock splits, stock combinations, reclassifications
or similar events affecting our common shares and also upon any
distributions of assets, including cash, stock or other property to
our shareholders.
Cashless Exercise. If, at
the time a holder exercises its Warrant, there is no effective
registration statement registering, or the prospectus contained
therein is not available for an issuance of the shares underlying
the Warrant to the holder, then in lieu of making the cash payment
otherwise contemplated to be made to us upon such exercise in
payment of the aggregate exercise price, the holder may elect
instead to receive upon such exercise (either in whole or in part)
the net number of Common Shares determined according to a formula
set forth in the Warrant.
Transferability. Subject to
applicable laws, the Warrants may be offered for sale, sold,
transferred or assigned without our consent.
Exchange Listing. Prior to
this offering, there has been no public market for our Warrants. We
intend on applying to list the Warrants included in the Units on
the Nasdaq Capital Market under the symbol "[●]".
Fundamental Transactions. If
a fundamental transaction occurs, then the successor entity will
succeed to, and be substituted for us, and may exercise every right
and power that we may exercise and will assume all of our
obligations under the Warrants with the same effect as if such
successor entity had been named in the warrant itself. If holders
of our Common Shares are given a choice as to the securities, cash
or property to be received in a fundamental transaction, then the
holder shall be given the same choice as to the consideration it
receives upon any exercise of the warrant following such
fundamental transaction. Additionally, as more fully described in
the Warrant, in the event of certain fundamental transactions, the
holders of the Warrants will be entitled to receive consideration
in an amount equal to the Black Scholes value of the Warrants on
the date of consummation of the transaction.
Rights as a Shareholder.
Except as otherwise provided in the Warrants or by virtue of such
holder's ownership of Common Shares, the holder of a Warrant does
not have the rights or privileges of a holder of our Common Shares,
including any voting rights, until the holder exercises the
Warrant.
Pre-Funded Warrants Underlying
Pre-funded Units
Any Pre-Funded Warrants underlying
any pre-funded units sold in this offering will be freely
transferable by persons other than by our "affiliates" without
restriction or further registration under the Securities Act. Prior
to this offering, we have not issued any Pre-Funded Warrants and
accordingly there is no public market for the Pre-Funded Warrants.
We do not intend to apply for the listing of the Pre-Funded
Warrants on the Nasdaq Capital Market or any other national
securities exchange or other trading market. Without an active
trading market, the liquidity of the Pre-Funded Warrants will be
limited.
The Pre-Funded Warrants will be
issued in certificate form registered in the names of the holders
of the Pre-Funded Warrants.
Exercisability. The
Pre-Funded Warrants are immediately exercisable and will expire
when exercised in full. The Pre-Funded Warrants will be
exercisable, at the option of each holder, in whole or in part by
delivering to us a duly executed exercise notice.
Exercise Limitation. A
holder will not have the right to exercise any portion of the
Pre-Funded Warrant if the holder (together with its affiliates)
would beneficially own in excess of 4.99% (or, at the election of
the holder, 9.99%) of our then outstanding Common Shares following
such exercise; provided, however, that upon prior notice to us,
such holder may increase or decrease its ownership, provided that
in no event will the ownership exceed 9.99%, as such percentage
ownership is determined in accordance with the terms of the
Pre-Funded Warrants. However, any holder may increase or decrease
such percentage, provided that any increase will not be effective
until the 61st day after such election.
Exercise Price. The
Pre-Funded Warrants will have an exercise price of US$0.0001 per
Common Share. The exercise price is subject to appropriate
adjustment in the event of certain stock dividends and
distributions, stock splits, stock combinations, reclassifications
or similar events affecting our common shares and also upon any
distributions of assets, including cash, stock or other property to
our shareholders.
Cashless Exercise. A holder
of a Pre-Funded Warrant, may, at the time of exercise, elect in
lieu of making the cash payment otherwise contemplated to be made
to us upon such exercise in payment of the aggregate exercise
price, to instead to receive upon such exercise (either in whole or
in part) the net number of Common Shares determined according to a
formula set forth in the Pre-Funded Warrant.
Transferability. Subject to
applicable laws, the Pre-Funded Warrants may be offered for sale,
sold, transferred or assigned without our consent.
Exchange Listing. We do not
intend to apply for the listing of the Pre-Funded Warrants on the
Nasdaq Capital Market or any other national securities exchange or
other trading market. Without an active trading market, the
liquidity of the Pre-Funded Warrants will be limited.
Fundamental Transactions. If
a fundamental transaction occurs, then the successor entity will
succeed to, and be substituted for us, and may exercise every right
and power that we may exercise and will assume all of our
obligations under the Pre-Funded Warrants with the same effect as
if such successor entity had been named in the warrant itself. If
holders of our Common Shares are given a choice as to the
securities, cash or property to be received in a fundamental
transaction, then the holder shall be given the same choice as to
the consideration it receives upon any exercise of the warrant
following such fundamental transaction.
Rights as a Shareholder.
Except as otherwise provided in the Pre-Funded Warrants or by
virtue of such holder's ownership of Common Shares, the holder of a
Pre-Funded Warrant does not have the rights or privileges of a
holder of our Common Shares, including any voting rights, until the
holder exercises the Warrant.
Compensation Warrants
In addition to cash compensation,
we have agreed to issue to the Representative Compensation Warrants
to purchase up to a total of [●] Common Shares (equal to 5.0% of
the Common Shares and/or Pre-Funded Warrants sold in this
offering). The Compensation Warrants will be immediately
exercisable from time to time, in whole or in part, from the date
of issuance until 5 years from the commencement of sales in this
offering. The Compensation Warrants are exercisable at a per share
price equal to US$[●]. The Compensation Warrants are also
exercisable on a cashless basis. Pursuant to FINRA Rule 5110(e),
the Compensation Warrants and any Common Shares issued upon
exercise of such Compensation Warrants shall not be sold,
transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put or call transaction
that would result in the effective economic disposition of the
securities by any person for a period of 180 days immediately
following the date of commencement of sales of this offering,
except the transfer of any security: (i) by operation of law or by
reason of reorganization of the issuer; (ii) to any FINRA member
firm participating in the offering and the officers, partners,
registered persons or affiliates thereof, if all securities so
transferred remain subject to the lock-up restriction set forth
above for the remainder of the time period; (iii) if the aggregate
amount of our securities held by the Underwriters or related
persons does not exceed 1% of the securities being offered; (iv)
that is beneficially owned on a pro-rata basis by all equity owners
of an investment fund, provided that no participating member
manages or otherwise directs investments by the fund and the
participating members in the aggregate do not own more than 10% of
the equity in the fund; (v) the exercise or conversion of any
security, if all securities remain subject to the lock-up
restriction set forth above for the remainder of the time period;
(vi) if we meet the registration requirements of Forms S-3, F-3 or
F-10; or (vii) back to us in a transaction exempt from registration
with the SEC. The exercise price and number of Common Shares
issuable upon exercise of the Compensation Warrants may be adjusted
in certain circumstances including in the event of a stock
dividend, subdivisions, combinations, reclassification, merger or
consolidation. The Compensation Warrants and the Common Shares
underlying the Compensation Warrants are being registered
hereby.
Rule 144
As of [●], 2022, our transfer agent
has recorded [●] of our outstanding Common Shares as restricted.
These Common Shares may be resold publicly in the United States
only if they are subject to an effective registration statement
under the Securities Act or pursuant to an exemption from the
registration requirement such as that provided by Rule 144
promulgated under the Securities Act. In general, a person (or
persons whose Common Shares are aggregated) who at the time of a
sale is not, and has not been during the three months preceding the
sale, an affiliate of ours and has beneficially owned our
restricted securities for at least six months will be entitled to
sell the restricted securities without registration under the
Securities Act, subject only to the availability of current public
information about us, and will be entitled to sell restricted
securities beneficially owned for at least one year without
restriction. Persons who are our affiliates and have beneficially
owned our restricted securities for at least six months may sell a
number of restricted securities within any three-month period that
does not exceed the greater of the following:
• [●]%
of the then outstanding Common Shares of the same class, which
immediately after this offering will equal approximately Common
Shares assuming the over-allotment option is not exercised; or
• if
our Common Shares are listed on a national securities exchange
(such as the Nasdaq Capital Market), the average weekly trading
volume of our Common Shares, during the four calendar weeks
preceding the date on which notice of the sale is filed with the
SEC.
Sales by our affiliates under Rule
144 are also subject to certain requirements relating to manner of
sale, notice and the availability of current public information
about us.
NOTICE OF ARTICLES AND ARTICLES
OF OUR COMPANY
As discussed above under the
heading "Company Information", our company was incorporated under
the laws of the Province of British Columbia, Canada on April 10,
2015.
Remuneration of
Directors
Our directors are entitled to the
remuneration for acting as directors, if any, as the directors may
from time to time determine. If the directors so decide, the
remuneration of the directors will be determined by the
shareholders. That remuneration may be in addition to any salary or
other remuneration paid to a director in such director's capacity
as an officer or employee of ours.
Number of Directors
According to Article 13.1 of our
Articles, the first directors are the persons designated as
directors of the Company in the Notice of Articles that applies to
the Company when it is recognized under the BCBCA. The number of
directors, excluding additional directors appointed under Article
14.8 is set at:
(a) subject
to paragraphs (b) and (c), the number of directors that is equal to
the number of our first directors;
(b) if
we are a public company, the greater of three and the most recently
set of:
a. the number of
directors set by a resolution of the directors (whether or not
previous notice of the resolution was given); and
b. the number of
directors in office pursuant to Article 14.4;
(c) if
we are not a public company, the number most recently set of:
a. the number of
directors set by a resolution of the directors (whether or not
previous notice of the resolution was given); and
b. the number of
directors in office pursuant to Article 14.4.
Directors
Our directors are elected annually
at each annual meeting of our company's shareholders. Our Articles
provide that the Board of Directors may, between annual meetings
appoint one or more additional directors to serve until the next
annual meeting, but the number of additional directors must not at
any time exceed:
(a) one-third
of the number of first directors, if, at the time of the
appointments, one or more of the first directors have not yet
completed their first term of office; or
(b) in
any other case, one-third of the number of the current directors
who were elected or appointed as directors under Article 14.8.
Our Articles provide that our
directors may from time to time on behalf of our company, without
shareholder approval:
• create
one or more classes or series of shares or, if none of the shares
of a class or series of shares are allotted or issued, eliminate
that class or series of shares;
• increase,
reduce or eliminate the maximum number of shares that we are
authorized to issue out of any class or series of shares or
establish a maximum number of shares that we are authorized to
issue out of any class or series of shares for which no maximum is
established;
• subdivide
or consolidate all or any of its unissued, or fully paid issued
shares;
• if
we are authorized to issue shares of a class of shares with par
value:
-
decrease the par value of those shares; or
-
if none of the shares of that class of shares are allotted or
issued, increase the par value of those shares;
• change
all or any of its unissued or fully paid issued shares with par
value into shares without par value or all or any of its unissued
shares without par value into shares with par value;
• alter
the identifying name of any of its shares;
• otherwise
alter it shares or authorized share structure when required or
permitted to do so by the BCBCA it does not specify by a special
resolution; and
• if
applicable, alter our Notice of Articles accordingly.
Our Articles also provide that, we
may by resolution of the directors authorize an alteration to our
Notice of Articles to change our name or adopt or change any
translation of that name.
Our Articles provide that the
directors may meet together for the conduct of business, adjourn
and otherwise regulate their meetings as they think fit, and
meetings of the Board held at regular intervals may be held at the
place and at the time that the Board may by resolution from time to
time determine. Questions arising at any meeting of directors are
to be decided by a majority of votes and, in the case of an
equality of votes, the chair of the meeting does not have a second
or casting vote. A director may participate in a meeting of the
directors or of any committee of the directors in person, or by
telephone or other communications medium, if all directors
participating in the meeting, whether in person or by telephone or
by other communications medium are able to communicate with each
other. A director who participates in a meeting in a manner
contemplated by such provisions of our Articles is deemed for all
purposes of the BCBCA and our Articles to be present at the meeting
and to have agreed to participate in that manner.
Our Articles provide that the
quorum necessary for the transaction of the business of the
directors may be set by the directors and, if not so set, is deemed
to be a majority of the directors or, if the number of directors is
set at one, is deemed to be set at one director, and that director
may constitute a meeting.
The Articles provide that a
director or senior officer who holds a disclosable interest (as
that term is used in the BCBCA) in a contract or transaction in to
which the Company has entered or proposes to enter is liable to
account to the Company for any profit that accrues to the director
or senior officer under or as a result of the contract or
transaction only if and to the extent provided in the BCBCA.
Additionally, a director who holds a disclosable interest in a
contract or transaction into which the Company has entered or
proposes to enter is not entitled to vote on any directors'
resolution to approve that contract or transaction, unless all the
directors have a disclosable interest in that contract or
transaction, in which case any or all of those directors may vote
on such resolution. A director or senior officer who holds any
office or possess any property, right or interest that materially
conflicts with that individual's duty or interest as a director or
senior officer, must disclose the nature and extent of the conflict
as required by the BCBCA.
Our Articles do not set out a
mandatory retirement age for our directors. Our directors are not
required to own securities of our company to serve as
directors.
Authorized Capital
Our Notice of Articles provide that
our authorized capital consists of an unlimited number of Common
Shares, without par value.
Rights, Preferences and
Restrictions Attaching to Our Shares
The BCBCA provides the following
rights, privileges, restrictions and conditions attaching to our
Common Shares:
• to
vote at meetings of shareholders, except meetings at which only
holders of a specified class of shares are entitled to vote;
• subject
to the rights, privileges, restrictions and conditions attaching to
any other class of shares of our company, to share equally in the
remaining property of our company on liquidation, dissolution or
winding-up of our company; and
• the
Common Shares are entitled to receive dividends if, as, and when
declared by the Board of Directors.
The provisions in our Articles
attaching to our Common Shares may be altered, amended, repealed,
suspended or changed by the affirmative vote of the holders of not
less than two-thirds of the outstanding Common Shares.
With the exception of special
resolutions (i.e. resolutions in respect of fundamental changes to
our company, including: the sale of all or substantially all
of our assets, a merger or other arrangement or an alteration to
our authorized capital that is not allowed by resolution of the
directors) that require the approval of holders of two-thirds of
the outstanding Common Shares entitled to vote at a meeting, either
in person or by proxy, resolutions to approve matters brought
before a meeting of our shareholders require approval by a simple
majority of the votes cast by shareholders entitled to vote at a
meeting, either in person or by proxy.
Shareholder Meetings
Part 10 of the Articles regulates
the meetings of shareholders. Article 10.1 of the Articles provides
that, unless an annual general meeting is deferred or waived in
accordance with the BCBCA, an annual general meeting must be held
at least once in each calendar year and not more than 15 months
after the last annual reference date at such time and place as may
be determined by directors.
The notice for meetings of
Shareholders is contemplated in Article10.4 of the Articles and
provides that the Company must send notice of the date, time and
location of any meeting of shareholders, in the manner provided in
the Articles or in such other manner, if any, as may be prescribed
by ordinary resolution, to each shareholder entitled to attend the
meeting, to each director and to the auditor of the Company, unless
the Articles otherwise provide, at least 21 days before the
meeting. Article 10.5 provides that the directors may set a date as
the record date for the purpose of determining shareholders
entitled to notice of any meeting of shareholders and entitled to
vote at any meeting of shareholders, the record date must not
precede the date on which the meeting is to be held by more than
two months and at least 21 days before.
Generally, notice of a meeting of
the shareholders called for any purpose other than consideration of
the financial statements and any reports of the directors or
auditor, the setting and changing of the number of directors, the
election or appointment of directors and appointment of auditor,
the setting of the remuneration of the auditor, shall state the
general nature of the special business and if the special business
includes considering, approving, ratifying, adopting or authorizing
any document or the signing of or giving effect to any document,
have attached to it a copy of the document or state that a copy of
the document will be available for inspection by shareholders at
our records office or such other reasonably accessible location in
British Columbia.
The accidental omission to send
notice of any meeting to, or the non-receipt of any notice by, a
shareholder will not invalidate any proceedings at that
meeting. A shareholder may in any manner waive notice of or
otherwise consent to a meeting of shareholders.
LIMITATIONS ON RIGHTS OF
NON-CANADIANS
Algernon is incorporated pursuant
to the laws of the Province of British Columbia, Canada. There is
no law or governmental decree or regulation in Canada that
restricts the export or import of capital, or affects the
remittance of dividends, interest or other payments to a
non-resident holder of common shares, other than withholding tax
requirements. Any such remittances to United States residents are
generally subject to withholding tax, however no such remittances
are likely in the foreseeable future. See the section titled "Certain
Canadian Federal Income Tax Considerations For United States
Residents"
below.
There is no limitation imposed by
Canadian law or by the charter or other constituent documents of
our Company on the right of a non-resident to hold or vote common
shares of our company. However, the Investment Canada Act (Canada)
(the "Investment Act") has rules regarding certain acquisitions of
shares by non-Canadians, along with other requirements under that
legislation.
The following discussion summarizes
the principal features of the Investment Act for a "non-Canadian"
(as defined under the Investment Act) who proposes to acquire
common shares of our Company. The discussion is general only; it is
not a substitute for independent legal advice from an investor's
own advisor; and it does not anticipate statutory or regulatory
amendments.
The Investment Act is a federal
statute of broad application regulating the establishment and
acquisition of Canadian businesses by non-Canadians, including
individuals, governments or agencies thereof, corporations,
partnerships, trusts or joint ventures (each an "entity").
Investments by non-Canadians to acquire control over existing
Canadian businesses or to establish new ones are either reviewable
or notifiable under the Investment Act. If an investment by a
non-Canadian to acquire control over an existing Canadian business
is reviewable under the Investment Act, the Investment Act
generally prohibits implementation of the investment unless, after
review, the Minister of Innovation, Science and Economic
Development Canada (the "Minister") is satisfied that the
investment is likely to be of net benefit to Canada.
A non-Canadian would acquire
control of our Company for the purposes of the Investment Act
through the acquisition of common shares if the non-Canadian
acquired a majority of the common shares of our Company.
Further, the acquisition of less
than a majority but one-third or more of the common shares of our
Company by a non-Canadian would be presumed to be an acquisition of
control of our Company unless it could be established that, on the
acquisition, our Company was not controlled in fact by the acquirer
through the ownership of common shares.
For a direct acquisition that would
result in an acquisition of control of our Company, subject to the
exception for "WTO-investors" that are controlled by persons who
are nationals or permanent residents of World Trade Organization
("WTO") member nations, a proposed investment generally would be
reviewable where the value of the acquired assets is CAD$5 million
or more.
For a proposed indirect acquisition
by an investor other than a so-called "WTO investor" that would
result in an acquisition of control of our Company through the
acquisition of a non-Canadian parent entity, the investment
generally would be reviewable where the value of the assets of the
entity carrying on the Canadian business, and of all other entities
in Canada, the control of which is acquired, directly or indirectly
is CAD$50 million or more.
In the case of a direct acquisition
by a WTO investor, the threshold is significantly higher. An
investment in common shares of our Company by a WTO investor that
is not a state-owned enterprise would be reviewable only if it was
an investment to acquire control of the company and the enterprise
value of the assets of the company was equal to or greater than a
specified amount, which is published by the Minister after its
determination for any particular year. For 2022, this amount is
CAD$1.141 billion (unless the investor is controlled by persons who
are nationals or permanent residents of countries that are party to
one of a list of certain free trade agreements, in which case the
amount is CAD$1.711 billion for 2022); each January 1, both
thresholds are adjusted by a GDP (Gross Domestic Product) based
index.
The higher WTO threshold for direct
investments and the exemption for indirect investments do not apply
where the relevant Canadian business is carrying on a "cultural
business". The acquisition of a Canadian business that is a
"cultural business" is subject to lower review thresholds under the
Investment Act because of the perceived sensitivity of the cultural
sector.
In 2009, amendments were enacted to
the Investment Act concerning investments that may be considered
injurious to national security. If the Minister has reasonable
grounds to believe that an investment by a non-Canadian "could be
injurious to national security," the Minister may send the
non-Canadian a notice indicating that an order for review of the
investment may be made. The review of an investment on the grounds
of national security may occur whether or not an investment is
otherwise subject to review on the basis of net benefit to Canada
or otherwise subject to notification under the Investment Act.
Certain transactions, except those to which
the national security provisions of the Investment Act may apply,
relating to Common Shares of the Company are exempt from the
Investment Act, including:
(a) the
acquisition of our Common Shares by a person in the ordinary course
of that person's business as a trader or dealer in securities;
(b) the
acquisition of control of the Company in connection with the
realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions of the
Investment Act, if the acquisition is subject to approval under the
Bank Act, Cooperative Credit Associations Act, the
Insurance Companies Act or the Trust and Loan Companies
Act; and
(c) the
acquisition of control of the Company by reason of an amalgamation,
merger, consolidation or corporate reorganization following which
the ultimate direct or indirect control in fact of the Company
through the ownership of Common Shares, remained unchanged.
MATERIAL INCOME TAX
INFORMATION
Certain Canadian Federal Income
Tax Considerations For United States Residents
The following is a summary of
certain Canadian federal income tax considerations generally
applicable to the holding and disposition of Common Shares and
Warrants acquired by a purchaser of Units pursuant to this offering
who, at all relevant times, (a) for the purposes of the Income
Tax Act (Canada) (the "Tax Act") (i) is not resident, or
deemed to be resident, in Canada, (ii) deals at arm's length with
us, the underwriters and the Representative, and is not affiliated
with us, the underwriters or the Representative, (iii) acquires
Units as purchaser and beneficial owner pursuant to this offering
and acquires and holds such Units, Common Shares and Warrants as
capital property, (iv) does not use or hold the Units, Common
Shares or Warrants in the course of carrying on, or otherwise in
connection with, a business carried on or deemed to be carried on
in Canada, and (v) is not a "registered non-resident insurer" or
"authorized foreign bank" (each as defined in the Tax Act), or
other holder of special status, and (b) for the purposes of the
Canada-U.S. Tax Convention (the "Tax Treaty"), is a resident
of the United States, has never been a resident of Canada, does not
have and has not had, at any time, a permanent establishment or
fixed base in Canada, and who otherwise qualifies for the full
benefits of the Tax Treaty. Holders who meet all the criteria in
clauses (a) and (b) above are referred to herein as "U.S.
Holders", and this summary only addresses such U.S.
Holders.
This summary does not deal with
special situations, such as the particular circumstances of traders
or dealers, tax exempt entities, insurers or financial
institutions, or other holders of special status or in special
circumstances. Such holders, and all other holders who do not meet
the criteria in clauses (a) and (b) above, should consult their own
tax advisors.
This summary is based on the
current provisions of the Tax Act, the regulations thereunder in
force at the date hereof, the current provisions of the Tax Treaty,
and our understanding of the administrative and assessing practices
of the Canada Revenue Agency published in writing prior to the date
hereof. This summary takes into account all specific proposals to
amend the Tax Act and Regulations publicly announced by or on
behalf of the Minister of Finance (Canada) prior to the date hereof
(the "Proposed Amendments") and assumes that any such
Proposed Amendments will be enacted in the form proposed. However,
no assurance can be given that any such Proposed Amendments will be
enacted in the form proposed, or at all. This summary does not
otherwise take into account or anticipate any changes in law or
administrative or assessing practices, whether by legislative,
governmental or judicial decision or action, nor does it take into
account tax laws of any province or territory of Canada or of any
other jurisdiction outside Canada, which may differ significantly
from those discussed in this summary.
For the purposes of the Tax Act,
all amounts relating to the acquisition, holding or disposition of
our securities must generally be expressed in Canadian dollars.
Amounts denominated in United States currency generally must be
converted into Canadian dollars using the rate of exchange that is
acceptable to the Canada Revenue Agency.
This 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 U.S. Holder, and no
representation with respect to the Canadian federal income tax
consequences to any particular U.S. Holder or prospective U.S.
Holder is made. This summary is not exhaustive of all Canadian
federal income tax considerations. Accordingly, all prospective
purchasers (including U.S. Holders as defined above) should consult
with their own tax advisors for advice with respect to their own
particular circumstances.
Allocation of
Cost
A U.S. Holder who acquires Units
pursuant to this offering will be required to allocate the purchase
price paid for each Unit on a reasonable basis between the Unit
Share and the Warrant included in each Unit in order to determine
their respective costs to such Holder for the purposes of the Tax
Act. Similarly, a U.S. Holder who acquires pre-funded units
pursuant to this offering will be required to allocate the purchase
price paid for each pre-funded unit on a reasonable basis between
the Pre-Funded Warrant and the Warrant included in each pre-funded
unit in order to determine their respective costs to such Holder
for the purposes of the Tax Act.
For this purpose:
a) we
will allocate $[●] of the purchase price for each Unit to the
Common Share, and $[●] of the purchase price for each Unit to the
Warrant, included in such Unit; and
b) we
will allocate $[●] of the purchase price for each pre-funded unit
to the Pre-Funded Warrant, and $[●] of the purchase price for each
pre-funded unit to the Warrant, included in such pre-funded
unit.
However, our allocation of the
purchase price for each of the Units and the pre-funded units is
not binding on the CRA or on a U.S. Holder. Each U.S. Holder should
consult its own tax advisor regarding the allocation of the
purchase price for the Units and pre-funded units, as
applicable.
The adjusted cost base to a U.S.
Holder of each Common Share included in a Unit acquired pursuant to
this offering will be determined by averaging the cost of such
Common Share with the adjusted cost base to such U.S. Holder of all
other Common Shares (if any) held by the U.S. Holder as capital
property immediately prior to the acquisition. Similarly, the
adjusted cost base to a U.S. Holder of each Warrant included in a
Unit or a pre-funded unit acquired pursuant to this offering will
be determined by averaging the cost of such Warrant with the
adjusted cost base to such U.S. Holder of all other Warrants (if
any) held by the U.S. Holder as capital property immediately prior
to the acquisition, and the adjusted cost base to a U.S. Holder of
each Pre-Funded Warrant included in a pre-funded unit acquired
pursuant to this offering will be determined by averaging the cost
of such Pre-Funded Warrant with the adjusted cost base to such U.S.
Holder of all other Pre-Funded Warrants (if any) held by the U.S.
Holder as capital property immediately prior to the
acquisition.
Exercise of
Warrants
No gain or loss will be realized by
a U.S. Holder on the exercise of a Warrant or a Pre-Funded Warrant.
When a Warrant or Pre-Funded Warrant is exercised, the U.S.
Holder's cost of the Common Share acquired thereby will be the
aggregate of the U.S. Holder's adjusted cost base of such Warrant
or Pre-Funded Warrant, as applicable, for purposes of the Tax Act
and the exercise price paid for the Common Share upon exercise of
the Warrant or Pre-Funded Warrant, as applicable. The U.S. Holder's
adjusted cost base of the Common Share so acquired will be
determined by averaging such cost with the adjusted cost base (as
determined under the rules of the Tax Act) to the U.S. Holder of
all Common Shares held by the U.S. Holder as capital property
immediately prior to such acquisition.
Withholding Tax on
Dividends
Amounts paid or credited or deemed
to be paid or credited as, on account or in lieu of payment of, or
in satisfaction of, dividends on our Common Shares to a U.S. Holder
will be subject to Canadian withholding tax. The applicable rate of
Canadian withholding tax on such dividends is 25% unless reduced by
an applicable tax treaty. Under the Tax Treaty, the rate of
Canadian withholding tax on dividends paid or credited by us to a
U.S. Holder that beneficially owns such dividends and substantiates
eligibility for the benefits of the Tax Treaty is generally 15%
(unless the beneficial owner is a company that owns at least 10% of
our voting stock at that time, in which case the rate of Canadian
withholding tax is generally reduced to 5%).
Dispositions
In general terms, a U.S. Holder
will not be subject to tax under the Tax Act on a capital gain
realized on a disposition or deemed disposition of Warrants,
Pre-Funded Warrants or Common Shares unless such Warrants,
Pre-Funded Warrants or Common Shares are "taxable Canadian
property" to the U.S. Holder for purposes of the Tax Act and the
U.S. Holder is not entitled to relief under the Tax Treaty.
If and provided that the Common
Shares are listed on a "designated stock exchange" as defined in
the Tax Act (which currently includes the CSE and Nasdaq Capital
Market) at the time of disposition or deemed disposition, the
Common Shares, Warrants and Pre-Funded Warrants generally will not
constitute "taxable Canadian property" of a U.S. Holder at that
time unless, at any time during the 60 month period immediately
preceding the disposition or deemed disposition, the following two
conditions were met concurrently: (i) the U.S. Holder,
persons with whom the U.S. Holder did not deal at arm's length,
partnerships in which the U.S. Holder or such non-arm's length
person holds a membership interest (either directly or indirectly
through one or more partnerships), or the U.S. Holder together with
all such persons, owned 25% or more of the issued shares of any
class or series of shares of our company; and (ii) more than 50% of
the fair market value of the Common Shares of the company was
derived directly or indirectly from one or any combination of real
or immovable property situated in Canada, Canadian resource
properties (as defined in the Tax Act), timber resource properties
(as defined in the Tax Act) or options in respect of, or interests
in, or for civil law rights in, property described in any of the
foregoing whether or not the property exists. Notwithstanding the
foregoing, in certain other circumstances set out in the Tax Act,
Common Shares, Warrants or Pre-Funded Warrants could also be deemed
to be "taxable Canadian property".
U.S. Holders who may hold Common
Shares, Warrants or Pre-Funded Warrants as "taxable Canadian
property" should consult their own tax advisors with respect to the
application of Canadian capital gains taxation, any potential
relief under the Tax Treaty, and Canadian tax compliance procedures
under the Tax Act, none of which is described in this summary.
Material United States Federal
Income Tax Considerations
The following is a general summary
of certain U.S. federal income tax considerations applicable to a
U.S. Holder (as defined below) arising from and relating to the
acquisition, ownership and disposition of Units or pre-funded units
acquired pursuant to this offering, the acquisition, ownership, and
disposition of Common Shares acquired as part of the Units, the
acquisition, ownership, and disposition of Pre-Funded Warrants
acquired as part of the pre-funded units, the exercise,
disposition, and lapse of Warrants acquired as part of the Units or
pre-funded units, the acquisition, ownership, and disposition of
Common Shares received upon exercise of the Pre-Funded Warrants,
and the acquisition, ownership, and disposition of Common Shares
received upon exercise of the Warrants (the "Warrant
Shares").
This summary is for general
information purposes only and does not purport to be a complete
analysis or listing of all potential U.S. federal income tax
considerations that may apply to a U.S. Holder as a result of the
acquisition of Units or pre-funded units pursuant to this offering.
In addition, this summary does not take into account the individual
facts and circumstances of any particular U.S. Holder that may
affect the U.S. federal income tax consequences to such U.S.
Holder, including specific tax consequences to a U.S. Holder under
an applicable tax treaty. Accordingly, this summary is not intended
to be, and should not be construed as, legal or U.S. federal income
tax advice with respect to any particular U.S. Holder. This summary
does not address the U.S. federal net investment income, U.S.
federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and non-U.S. tax consequences to U.S. Holders of
the acquisition, ownership, and disposition of Units, pre-funded
units, Common Shares, Pre-Funded Warrants, Warrants and Warrant
Shares. This summary also does not discuss the potential effects,
whether adverse or beneficial, of any proposed legislation that, if
enacted, could be applied on a retroactive or prospective basis. In
addition, except as specifically set forth below, this summary does
not discuss applicable tax reporting requirements. Each U.S. Holder
should consult its own tax advisor regarding the U.S. federal, U.S.
federal net investment income, U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, and non-U.S.
tax consequences relating to the acquisition, ownership and
disposition of Units, pre-funded units, Common Shares, Pre-Funded
Warrants, Warrants, and Warrant Shares.
No opinion from legal counsel or
ruling from the Internal Revenue Service (the "IRS") has
been requested, or will be obtained, regarding the U.S. federal
income tax considerations applicable to U.S. Holders as discussed
in this summary. This summary is not binding on the IRS, and the
IRS is not precluded from taking a position that is different from,
and contrary to, the positions taken in this summary. In addition,
because the authorities on which this summary is based are subject
to various interpretations, the IRS and the U.S. courts could
disagree with one or more of the positions taken in this
summary.
Scope of this
Summary
Authorities
This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations (whether final, temporary, or proposed)
promulgated under the Code, published rulings of the IRS, published
administrative positions of the IRS and U.S. court decisions, that
are in effect and available, as of the date of this document. Any
of the authorities on which this summary is based could be changed
in a material and adverse manner at any time, and any such change
could be applied retroactively. This summary does not discuss the
potential effects, whether adverse or beneficial, of any proposed
legislation that, if enacted, could be applied on a retroactive or
prospective basis.
U.S. Holder
For purposes of this summary, the
term "U.S. Holder" means a beneficial owner of Units, pre-funded
units, Common Shares, Pre-Funded Warrants, Warrants or Warrant
Shares acquired pursuant to this offering that is for U.S. federal
income tax purposes:
• a
citizen or individual resident of the United States;
• a
corporation (or other entity treated as a corporation for U.S.
federal income tax purposes) organized under the laws of the United
States, any state thereof or the District of Columbia;
• an
estate whose income is subject to U.S. federal income taxation
regardless of its source; or
• a
trust that (1) is subject to the primary supervision of a court
within the United States and the control of one or more U.S.
persons for all substantial decisions or (2) has a valid election
in effect under applicable Treasury Regulations to be treated as a
U.S. person.
Transactions Not
Addressed
This summary does not address the
tax consequences of transactions effected prior or subsequent to,
or concurrently with, any purchase of Units or pre-funded units
pursuant to this prospectus (whether or not any such transactions
are undertaken in connection with the purchase of Units or
pre-funded units pursuant to this prospectus).
U.S. Holders Subject to Special
U.S. Federal Income Tax Rules Not Addressed
This summary does not address the
U.S. federal income tax considerations applicable to U.S. Holders
that are subject to special provisions under the Code, including
U.S. Holders that: (a) are tax-exempt organizations, qualified
retirement plans, individual retirement accounts, or other
tax-deferred accounts; (b) are financial institutions,
underwriters, insurance companies, real estate investment trusts,
or regulated investment companies; (c) are brokers or dealers in
securities or currencies or U.S. Holders that are traders in
securities that elect to apply a mark-to-market accounting method;
(d) have a "functional currency" other than the U.S. dollar; (e)
own Units, pre-funded units, Common Shares, Pre-Funded Warrants,
Warrants or Warrant Shares as part of a straddle, hedging
transaction, conversion transaction, constructive sale, or other
integrated transaction; (f) acquired Units, pre-funded units,
Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares in
connection with the exercise of employee stock options or otherwise
as compensation for services; (g) hold Units, pre-funded units,
Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares
other than as a capital asset within the meaning of Section 1221 of
the Code (generally, property held for investment purposes); (h)
are partnerships and other pass-through entities (and investors in
such partnerships and entities); (i) are S corporations (and
shareholders thereof); (j) are subject to special tax accounting
rules; (k) own, have owned or will own (directly, indirectly, or by
attribution) 10% or more of the total combined voting power or
value of our outstanding shares; (l) are U.S. expatriates or former
long-term residents of the U.S.; or (m) are subject to taxing
jurisdictions other than, or in addition to, the United States.
U.S. Holders that are subject to special provisions under the Code,
including U.S. Holders described immediately above, should consult
their own tax advisors regarding the U.S. federal, U.S. federal net
investment income, U.S. federal alternative minimum, U.S. federal
estate and gift, U.S. state and local, and non-U.S. tax
consequences relating to the acquisition, ownership and disposition
of Units, pre-funded units, Common Shares, Pre-Funded Warrants,
Warrants or Warrant Shares.
If an entity or arrangement that is
classified as a partnership for U.S. federal income tax purposes
holds Units, pre-funded units, Common Shares, Pre-Funded Warrants,
Warrants or Warrant Shares, the U.S. federal income tax
consequences to such entity or arrangement and the owners of such
entity or arrangement generally will depend on the activities of
such entity or arrangement and the status of such owners. This
summary does not address the tax consequences to any such entity or
arrangement or owner. Owners of entities or arrangements that are
classified as partnerships for U.S. federal income tax purposes
should consult their own tax advisor regarding the U.S. federal
income tax consequences arising from and relating to the
acquisition, ownership, and disposition of Units, pre-funded units,
Common Shares, Pre-Funded Warrants, Warrants and Warrant
Shares.
U.S. Federal Income Tax
Consequences of the Acquisition of Units or Pre-Funded
Units
For U.S. federal income tax
purposes, the acquisition by a U.S. Holder of a Unit will be
treated as the acquisition of one Common Share and one Warrant. The
purchase price for each Unit will be allocated between these two
components in proportion to their relative fair market values at
the time the Unit is purchased by the U.S. Holder. This allocation
of the purchase price for each Unit will establish a U.S. Holder's
initial tax basis for U.S. federal income tax purposes in the
Common Share and one Warrant that comprise each Unit.
For this purpose, we will allocate
$[●] of the purchase price for the Unit to the Common Share and
$[●] of the purchase price for each Unit to the Warrant. However,
the IRS will not be bound by such allocation of the purchase price
for the Units, and therefore, the IRS or a U.S. court may not
respect the allocation set forth above. Each U.S. Holder
should consult its own tax advisor regarding the allocation of the
purchase price for the Units.
For U.S. federal income tax
purposes, the acquisition by a U.S. Holder of a pre-funded unit
will be treated as the acquisition of one Pre-Funded Warrant and
one Warrant. The purchase price for each pre-funded unit will be
allocated between these two components in proportion to their
relative fair market values at the time the pre-funded unit is
purchased by the U.S. Holder. This allocation of the purchase price
for each pre-funded unit will establish a U.S. Holder's initial tax
basis for U.S. federal income tax purposes in the Pre-Funded
Warrant and one Warrant that comprise each pre-funded unit.
For this purpose, we will allocate
$[●] of the purchase price for the pre-funded unit to the
Pre-Funded Warrant and $[●] of the purchase price for each
pre-funded unit to the Warrant. However, the IRS will not be bound
by such allocation of the purchase price for the pre-funded units,
and therefore, the IRS or a U.S. court may not respect the
allocation set forth above. Each U.S. Holder should consult
its own tax advisor regarding the allocation of the purchase price
for the pre-funded units.
Treatment of Pre-Funded Warrants
Although it is not entirely free
from doubt, we believe that a Pre-Funded Warrant should be treated
as a separate class of our common shares for U.S. federal income
tax purposes and a U.S. Holder of Pre-Funded Warrants should
generally be taxed in the same manner as a holder of Common Shares
except as described below. Accordingly, no gain or loss should be
recognized upon the exercise of a Pre-Funded Warrant and, upon
exercise, the holding period of a Pre-Funded Warrant should carry
over to the Common Shares received. Similarly, the tax basis of the
Pre-Funded Warrant should carry over to the Common Shares received
upon exercise, increased by the exercise price of $0.0001 per
share. However, such characterization is not binding on the IRS,
and the IRS may treat the Pre-Funded Warrants as warrants to
acquire Common Shares. If so, the amount and character of a U.S.
Holder's gain with respect to an investment in Pre-Funded Warrants
could change, and a U.S. Holder may not be entitled to make the
"QEF Election" or "Mark-to-Market Election" described below with
respect to the Pre-Funded Warrants to mitigate PFIC consequences in
the event that the Company is classified as a PFIC. Accordingly,
each U.S. Holder should consult its own tax advisor regarding the
risks associated with the acquisition of a Pre-Funded Warrant
pursuant to this Offering (including potential alternative
characterizations). The balance of this discussion generally
assumes that the characterization described above is respected for
U.S. federal income tax purposes.
Passive Foreign Investment
Company Rules
If we are considered a "passive
foreign investment company" within the meaning of Section 1297 of
the Code (a "PFIC") at any time during a U.S. Holder's
holding period, the following sections will generally describe the
potentially adverse U.S. federal income tax consequences to U.S.
Holders of the acquisition, ownership, and disposition of Units,
pre-funded units, Common Shares, Pre-Funded Warrants, Warrants or
Warrant Shares.
Based on current business plans and
financial expectations, we anticipate that we may be a PFIC for the
current tax year and future tax years. No opinion of legal counsel
or ruling from the IRS concerning our status as a PFIC has been
obtained or is currently planned to be requested. The determination
of whether any corporation was, or will be, a PFIC for a tax year
depends, in part, on the application of complex U.S. federal income
tax rules, which are subject to differing interpretations. In
addition, whether any corporation will be a PFIC for any tax year
depends on the assets and income of such corporation over the
course of each such tax year and, as a result, our PFIC status for
the current year and future years cannot be predicted with
certainty as of the date of this document. Accordingly, there can
be no assurance that the IRS will not challenge any PFIC
determination made by us (or by one of our subsidiaries). Each U.S.
Holder should consult its own tax advisor regarding our status as a
PFIC and the PFIC status of each or our non-U.S. subsidiaries.
In any year in which we are
classified as a PFIC, a U.S. Holder will be required to file an
annual report with the IRS containing such information as Treasury
Regulations and/or other IRS guidance may require. In addition to
penalties, a failure to satisfy such reporting requirements may
result in an extension of the time period during which the IRS can
assess a tax. U.S. Holders should consult their own tax
advisors regarding the requirements of filing such information
returns under these rules, including the requirement to file an IRS
Form 8621.
We generally will be a PFIC for any
tax year in which (a) 75% or more of our gross income for such tax
year is passive income (the "PFIC income test") or (b) 50%
or more of the value of our assets either produce passive income or
are held for the production of passive income, based on the
quarterly average of the fair market value of such assets (the
"PFIC asset test"). "Gross income" generally includes
sales revenues less the cost of goods sold, plus income from
investments and from incidental or outside operations or sources,
and "passive income" generally includes, for example, dividends,
interest, certain rents and royalties, certain gains from the sale
of stock and securities, and certain gains from commodities
transactions. Active business gains arising from the sale of
commodities generally are excluded from passive income if
substantially all of a foreign corporation's commodities are stock
in trade or inventory, depreciable property used in a trade or
business, or supplies regularly used or consumed in the ordinary
course of its trade or business, and certain other requirements are
satisfied.
For purposes of the PFIC income
test and PFIC asset test described above, if we own, directly or
indirectly, 25% or more of the total value of the outstanding
shares of another corporation, we will be treated as if we (a) held
a proportionate share of the assets of such other corporation and
(b) received directly a proportionate share of the income of such
other corporation. In addition, for purposes of the PFIC income
test and PFIC asset test described above, "passive income" does not
include any interest, dividends, rents, or royalties that are
received or accrued by us from a "related person" (as defined in
Section 954(d)(3) of the Code), to the extent such items are
properly allocable to the income of such related person that is not
passive income.
Under certain attribution rules, if
we are a PFIC, U.S. Holders will be deemed to own their
proportionate share of any of our subsidiaries which is also a PFIC
(a "Subsidiary PFIC"), and will generally be subject to U.S.
federal income tax under the "Default PFIC Rules Under Section 1291
of the Code" discussed below on their proportionate share of any
(i) distribution on the shares of a Subsidiary PFIC and (ii)
disposition or deemed disposition of shares of a Subsidiary PFIC,
both as if such U.S. Holders directly held the shares of such
Subsidiary PFIC. Accordingly, U.S. Holders should be aware
that they could be subject to tax under the PFIC rules even if no
distributions are received and no redemptions or other dispositions
of Units, Common Shares, Warrants or Warrant Shares are made.
In addition, U.S. Holders may be subject to U.S. federal income tax
on any indirect gain realized on the stock of a Subsidiary PFIC on
the sale or disposition of Units, pre-funded units, Common Shares,
Pre-Funded Warrants, Warrants or Warrant Shares.
Default PFIC Rules Under Section
1291 of the Code
If we are a PFIC, the U.S. federal
income tax consequences to a U.S. Holder of the purchase of Units
and the acquisition, ownership, and disposition of Common Shares,
Pre-Funded Warrants, Warrants and Warrant Shares will depend on
whether such U.S. Holder makes a "qualified electing fund" or "QEF"
election (a "QEF Election") with respect to the Common
Shares, Pre-Funded Warrants or Warrant Shares or makes a
mark-to-market election under Section 1296 of the Code (a
"Mark-to-Market Election") with respect to Common Shares or
Warrant Shares. A U.S. Holder that does not make either a QEF
Election or a Mark-to-Market Election (a "Non-Electing U.S.
Holder") will be taxable as described below.
A Non-Electing U.S. Holder will be
subject to the rules of Section 1291 of the Code with respect to
(a) any gain recognized on the sale or other taxable disposition of
Common Shares, Pre-Funded Warrants, Warrants and Warrant Shares and
(b) any excess distribution received on the Common Shares,
Pre-Funded Warrants and Warrant Shares. A distribution generally
will be an "excess distribution" to the extent that such
distribution (together with all other distributions received in the
current tax year) exceeds 125% of the average distributions
received during the three preceding tax years (or during a U.S.
Holder's holding period for the Common Shares, Pre-Funded Warrants
and Warrant Shares, if shorter).
Under Section 1291 of the Code, any
gain recognized on the sale or other taxable disposition of Common
Shares, Pre-Funded Warrants, Warrants and Warrant Shares of a PFIC
(including an indirect disposition of shares of a Subsidiary PFIC),
and any excess distribution received on such Common Shares,
Pre-Funded Warrants and Warrant Shares (or a distribution by a
Subsidiary PFIC to its shareholder that is deemed to be received by
a U.S. Holder) must be ratably allocated to each day in a
Non-Electing U.S. Holder's holding period for the Common Shares,
Pre-Funded Warrants or Warrant Shares. The amount of any such gain
or excess distribution allocated to the tax year of disposition or
distribution of the excess distribution and to years before the
entity became a PFIC, if any, would be taxed as ordinary income
(and not eligible for certain preferential tax rates, as discussed
below). The amounts allocated to any other tax year would be
subject to U.S. federal income tax at the highest tax rate
applicable to ordinary income in each such year, and an interest
charge would be imposed on the tax liability for each such year,
calculated as if such tax liability had been due in each such year.
A Non-Electing U.S. Holder that is not a corporation must treat any
such interest paid as "personal interest," which is not
deductible.
If we are a PFIC for any tax year
during which a Non-Electing U.S. Holder holds Common Shares,
Pre-Funded Warrants, Warrant Shares or Warrants, we will continue
to be treated as a PFIC with respect to such Non-Electing U.S.
Holder, regardless of whether we cease to be a PFIC in one or more
subsequent tax years. If we cease to be a PFIC, a Non-Electing U.S.
Holder may terminate this deemed PFIC status with respect to Common
Shares, Pre-Funded Warrants and Warrant Shares by electing to
recognize gain (which will be taxed under the rules of Section 1291
of the Code as discussed above) as if such Common Shares,
Pre-Funded Warrants and Warrant Shares were sold on the last day of
the last tax year for which we were a PFIC. No such election,
however, may be made with respect to the Warrants.
Under proposed Treasury
Regulations, if a U.S. Holder has an option, warrant, or other
right to acquire stock of a PFIC (such as the Warrants), such
option, warrant or right is considered to be PFIC stock subject to
the default rules of Section 1291 of the Code. Under rules
described below, the holding period for the Warrant Shares will
begin on the date a U.S. Holder acquires the Units. This will
impact the availability of the QEF Election and Mark-to-Market
Election with respect to the Warrant Shares. Thus, a U.S. Holder
will have to account for Warrant Shares, Pre-Funded Warrants and
Common Shares under the PFIC rules and the applicable elections
differently.
QEF Election
A U.S. Holder that makes a QEF
Election for the first tax year in which its holding period of its
Common Shares or Pre-Funded Warrants begins generally will not be
subject to the rules of Section 1291 of the Code discussed above
with respect to its Common Shares or Pre-Funded Warrants. However,
a U.S. Holder that makes a QEF Election will be subject to U.S.
federal income tax on such U.S. Holder's pro rata share of (a) our
net capital gain, which will be taxed as long-term capital gain to
such U.S. Holder, and (b) our ordinary earnings, which will be
taxed as ordinary income to such U.S. Holder. Generally, "net
capital gain" is the excess of (a) net long-term capital gain over
(b) net short-term capital loss, and "ordinary earnings" are the
excess of (a) "earnings and profits" over (b) net capital gain. A
U.S. Holder that makes a QEF Election will be subject to U.S.
federal income tax on such amounts for each tax year in which we
are a PFIC, regardless of whether such amounts are actually
distributed to such U.S. Holder by us. However, for any tax
year in which we are a PFIC and have no net income or gain, U.S.
Holders that have made a QEF Election would not have any income
inclusions as a result of the QEF Election. If a U.S. Holder that
made a QEF Election has an income inclusion, such a U.S. Holder
may, subject to certain limitations, elect to defer payment of
current U.S. federal income tax on such amounts, subject to an
interest charge. If such U.S. Holder is not a corporation, any such
interest paid will be treated as "personal interest," which is not
deductible.
A U.S. Holder that makes a timely
QEF Election generally (a) may receive a tax-free distribution from
us to the extent that such distribution represents "earnings and
profits" that were previously included in income by the U.S. Holder
because of such QEF Election and (b) will adjust such U.S. Holder's
tax basis in the Common Shares or Pre-Funded Warrants to reflect
the amount included in income or allowed as a tax-free distribution
because of such QEF Election. In addition, a U.S. Holder that makes
a QEF Election generally will recognize capital gain or loss on the
sale or other taxable disposition of Common Shares or Pre-Funded
Warrants.
The procedure for making a QEF
Election, and the U.S. federal income tax consequences of making a
QEF Election, will depend on whether such QEF Election is timely. A
QEF Election will be treated as "timely" for purposes of avoiding
the default PFIC rules discussed above if such QEF Election is made
for the first year in the U.S. Holder's holding period for the
Common Shares or Pre-Funded Warrants in which we were a PFIC. A
U.S. Holder may make a timely QEF Election by filing the
appropriate QEF Election documents at the time such U.S. Holder
files a U.S. federal income tax return for such year.
A QEF Election will apply to the
tax year for which such QEF Election is made and to all subsequent
tax years, unless such QEF Election is invalidated or terminated or
the IRS consents to revocation of such QEF Election. If a U.S.
Holder makes a QEF Election and, in a subsequent tax year, we cease
to be a PFIC, the QEF Election will remain in effect (although it
will not be applicable) during those tax years in which we are not
a PFIC. Accordingly, if we become a PFIC in another subsequent tax
year, the QEF Election will be effective and the U.S. Holder will
be subject to the QEF rules described above during any subsequent
tax year in which we qualify as a PFIC.
As discussed above, under proposed
Treasury Regulations, if a U.S. Holder has an option, warrant or
other right to acquire stock of a PFIC (such as the Warrants), such
option, warrant or right is considered to be PFIC stock subject to
the default rules of Section 1291 of the Code. However, a U.S.
Holder of an option, warrant or other right to acquire stock of a
PFIC may not make a QEF Election that will apply to the option,
warrant or other right to acquire PFIC stock. In addition, under
proposed Treasury Regulations, if a U.S. Holder holds an option,
warrant or other right to acquire stock of a PFIC, the holding
period with respect to shares of stock of the PFIC acquired upon
exercise of such option, warrant or other right will include the
period that the option, warrant or other right was held.
Consequently, under the proposed
Treasury Regulations, if a U.S. Holder of Common Shares makes a QEF
Election, such election generally will not be treated as a timely
QEF Election with respect to Warrant Shares and the rules of
Section 1291 of the Code discussed above will continue to apply
with respect to such U.S. Holder's Warrant Shares. However, a U.S.
Holder of Warrant Shares should be eligible to make a timely QEF
Election if such U.S. Holder makes a "purging" or "deemed sale"
election to recognize gain (which will be taxed under the rules of
Section 1291 of the Code discussed above) as if such Warrant Shares
were sold for fair market value. As a result of the "purging" or
"deemed sale" election, the U.S. Holder will have a new basis and
holding period in the Warrant Shares acquired upon the exercise of
the Warrants for purposes of the PFIC rules. In addition, gain
recognized on the sale or other taxable disposition (other than by
exercise) of the Warrants by a U.S. Holder will be subject to the
rules of Section 1291 of the Code discussed above. Each U.S. Holder
should consult its own tax advisor regarding the application of the
PFIC rules to the Units, pre-funded units, Common Shares,
Pre-Funded Warrants, Warrants, and Warrant Shares.
For each tax year that we qualify
as a PFIC as determined by us based on our reasonable analysis,
upon the written request of a U.S. Holder, we will make publicly
available: (a) a "PFIC Annual Information Statement" as described
in Treasury Regulation Section 1.1295-1(g) (or any successor
Treasury Regulation) and (b) all information and documentation that
a U.S. Holder is required to obtain for U.S. federal income tax
purposes in making a QEF Election with respect to us. We may elect
to provide such information on our website. However, U.S. Holders
should be aware that we can provide no assurances that we will
provide any such information relating to any Subsidiary PFIC and as
a result, a QEF Election may not be available with respect to any
Subsidiary PFIC. Because we may own shares in one or more
Subsidiary PFICs at any time, U.S. Holders will continue to be
subject to the rules discussed above with respect to the taxation
of gains and excess distributions with respect to any Subsidiary
PFIC for which the U.S. Holders do not obtain such required
information. Each U.S. Holder should consult its own tax advisors
regarding the availability of, and procedure for making, a QEF
Election with respect to us and any Subsidiary PFIC.
A U.S. Holder makes a QEF Election
by attaching a completed IRS Form 8621, including a PFIC Annual
Information Statement, to a timely filed U.S. federal income tax
return. However, if we do not provide the required
information with regard to us or any of our Subsidiary PFICs, U.S.
Holders will not be able to make a QEF Election for such entity and
will continue to be subject to the rules of Section 1291 of the
Code discussed above that apply to Non-Electing U.S. Holders with
respect to the taxation of gains and excess
distributions.
Mark-to-Market Election
A U.S. Holder may make a
Mark-to-Market Election with respect to Common Shares and Warrant
Shares only if the Common Shares and Warrant Shares are marketable
stock. The Common Shares and Warrant Shares generally will be
"marketable stock" if the Common Shares and Warrant Shares are
regularly traded on (a) a national securities exchange that is
registered with the SEC, (b) the national market system established
pursuant to Section 11A of the U.S. Exchange Act or (c) a foreign
securities exchange that is regulated or supervised by a
governmental authority of the country in which the market is
located, provided that (i) such foreign exchange has trading
volume, listing, financial disclosure, and other requirements and
the laws of the country in which such foreign exchange is located,
together with the rules of such foreign exchange, ensure that such
requirements are actually enforced and (ii) the rules of such
foreign exchange ensure active trading of listed stocks. If such
stock is traded on such a qualified exchange or other market, such
stock generally will be considered "regularly traded" for any
calendar year during which such stock is traded, other than in de
minimis quantities, on at least 15 days during each calendar
quarter. Provided that the Common Shares and Warrant Shares are
"regularly traded" as described in the preceding sentence, the
Common Shares and Warrant Shares are expected to be marketable
stock. We believe that our common shares were "regularly
traded" in the fourth calendar quarter of 2021 and expect that the
Common Shares should be "regularly traded" in the first calendar
quarter of 2022. However, there can be no assurance that the Common
Shares will be "regularly traded" in subsequent calendar
quarters. U.S. Holders should consult their own tax advisors
regarding the marketable stock rules. A Mark-to-Market Election
will likely not be available with respect to the Pre-Funded
Warrants and Warrants.
A U.S. Holder that makes a
Mark-to-Market Election with respect to its Common Shares generally
will not be subject to the rules of Section 1291 of the Code
discussed above with respect to such Common Shares. However, if a
U.S. Holder does not make a Mark-to-Market Election beginning in
the first tax year of such U.S. Holder's holding period for the
Common Shares and such U.S. Holder has not made a timely QEF
Election, the rules of Section 1291 of the Code discussed above
will apply to certain dispositions of, and distributions on, the
Common Shares.
Any Mark-to-Market Election made by
a U.S. Holder for the Common Shares will also apply to such U.S.
Holder's Warrant Shares. As a result, if a Mark-to-Market Election
has been made by a U.S. Holder with respect to Common Shares, any
Warrant Shares received will automatically be marked-to-market in
the year of exercise. Because, under the proposed Treasury
Regulations, a U.S. Holder's holding period for Warrant Shares
includes the period during which such U.S. Holder held the
Warrants, a U.S. Holder will be treated as making a Mark-to-Market
Election with respect to its Warrant Shares after the beginning of
such U.S. Holder's holding period for the Warrant Shares unless the
Warrant Shares are acquired in the same tax year as the year in
which the U.S. Holder acquired its Units. Consequently, the default
rules under Section 1291 described above generally will apply to
the mark-to-market gain realized in the tax year in which Warrant
Shares are received upon the exercise of the Warrants. However, the
general mark-to-market rules will apply to subsequent tax
years.
Any Mark-to-Market Election made by
a U.S. Holder for the Common Shares will also apply to such U.S.
Holder's Common Shares received upon exercise of a Pre-Funded
Warrant. As a result, if a Mark-to-Market Election has been made by
a U.S. Holder with respect to Common Shares, any Common Shares
received upon exercise of a Pre-Funded Warrant will automatically
be marked-to-market in the year of exercise. Because a U.S.
Holder's holding period for Common Shares received upon exercise of
a Pre-Funded Warrant should include the period during which such
U.S. Holder held the Pre-Funded Warrant, a U.S. Holder will be
treated as making a Mark-to-Market Election with respect to such
Common Shares after the beginning of such U.S. Holder's holding
period for such Common Shares unless such Common Shares are
acquired in the same tax year as the year in which the U.S. Holder
acquired its pre-funded units. Consequently, the default rules
under Section 1291 described above generally will apply to the
mark-to-market gain realized in the tax year in which such Common
Shares are received upon the exercise of the Pre-Funded Warrants.
However, the general mark-to-market rules will apply to subsequent
tax years.
A U.S. Holder that makes a
Mark-to-Market Election will include in ordinary income, for each
tax year in which we are a PFIC, an amount equal to the excess, if
any, of (a) the fair market value of the Common Shares and any
Warrant Shares, as of the close of such tax year over (b) such U.S.
Holder's tax basis in the Common Shares and any Warrant
Shares. A U.S. Holder that makes a Mark-to-Market Election
will be allowed a deduction in an amount equal to the excess, if
any, of (i) such U.S. Holder's adjusted tax basis in the Common
Shares and any Warrant Shares, over (ii) the fair market value of
such Common Shares and any Warrant Shares (but only to the extent
of the net amount of previously included income as a result of the
Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a
Mark-to-Market Election generally also will adjust such U.S.
Holder's tax basis in the Common Shares and Warrant Shares to
reflect the amount included in gross income or allowed as a
deduction because of such Mark-to-Market Election. In addition,
upon a sale or other taxable disposition of Common Shares and
Warrant Shares, a U.S. Holder that makes a Mark-to-Market Election
will recognize ordinary income or ordinary loss (not to exceed the
excess, if any, of (a) the amount included in ordinary income
because of such Mark-to-Market Election for prior tax years over
(b) the amount allowed as a deduction because of such
Mark-to-Market Election for prior tax years).
A U.S. Holder makes a
Mark-to-Market Election by attaching a completed IRS Form 8621 to a
timely filed U.S. federal income tax return. A timely
Mark-to-Market Election applies to the tax year in which such
Mark-to-Market Election is made and to each subsequent tax year,
unless the Common Shares and Warrant Shares cease to be "marketable
stock" or the IRS consents to revocation of such election. Each
U.S. Holder should consult its own tax advisor regarding the
availability of, and procedure for making, a Mark-to-Market
Election.
Although a U.S. Holder may be
eligible to make a Mark-to-Market Election with respect to the
Common Shares and Warrant Shares, no such election may be made with
respect to the stock of any Subsidiary PFIC that a U.S. Holder is
treated as owning because such stock is not marketable. Hence, the
Mark-to-Market Election will not be effective to eliminate the
interest charge and other income inclusion rules described above
with respect to deemed dispositions of Subsidiary PFIC stock or
distributions from a Subsidiary PFIC to its shareholder.
Other PFIC Rules
Under Section 1291(f) of the Code,
the IRS has issued proposed Treasury Regulations that, subject to
certain exceptions, would cause a U.S. Holder that had not made a
timely QEF Election to recognize gain (but not loss) upon certain
transfers of Common Shares, Pre-Funded Warrants and Warrant Shares
that would otherwise be tax-deferred (e.g., gifts and exchanges
pursuant to corporate reorganizations). However, the specific
U.S. federal income tax consequences to a U.S. Holder may vary
based on the manner in which Common Shares, Pre-Funded Warrants,
Warrants, or Warrant Shares are transferred.
If finalized in their current form,
the proposed Treasury Regulations applicable to PFICs would be
effective for transactions occurring on or after April 1, 1992.
Because the proposed Treasury Regulations have not yet been adopted
in final form, they are not currently effective, and there is no
assurance that they will be adopted in the form and with the
effective date proposed. Nevertheless, the IRS has announced that,
in the absence of final Treasury Regulations, taxpayers may apply
reasonable interpretations of the Code provisions applicable to
PFICs and that it considers the rules set forth in the proposed
Treasury Regulations to be reasonable interpretations of those Code
provisions. The PFIC rules are complex, and the implementation of
certain aspects of the PFIC rules requires the issuance of Treasury
Regulations which in many instances have not been promulgated and
which, when promulgated, may have retroactive effect. U.S. Holders
should consult their own tax advisors about the potential
applicability of the proposed Treasury Regulations.
Certain additional adverse rules
will apply with respect to a U.S. Holder if we are a PFIC,
regardless of whether such U.S. Holder makes a QEF Election. For
example under Section 1298(b)(6) of the Code, a U.S. Holder that
uses Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares
as security for a loan will, except as may be provided in Treasury
Regulations, be treated as having made a taxable disposition of
such Common Shares, Pre-Funded Warrants, Warrants or Warrant
Shares.
In addition, a U.S. Holder who
acquires Common Shares, Pre-Funded Warrants, Warrants or Warrant
Shares from a decedent will not receive a "step up" in tax basis of
such Common Shares, Pre-Funded Warrants, Warrants or Warrant Shares
to fair market value.
Special rules also apply to the
amount of foreign tax credit that a U.S. Holder may claim on a
distribution from a PFIC. Subject to such special rules, foreign
taxes paid with respect to any distribution in respect of stock in
a PFIC are generally eligible for the foreign tax credit. The rules
relating to distributions by a PFIC and their eligibility for the
foreign tax credit are complicated, and a U.S. Holder should
consult with their own tax advisor regarding the availability of
the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and
each U.S. Holder should consult its own tax advisor regarding the
PFIC rules (including the applicability and advisability of a QEF
Election and Mark-to-Market Election) and how the PFIC rules may
affect the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of Common Shares, Pre-Funded Warrants,
Warrants and Warrant Shares.
U.S. Federal Income Tax
Consequences of the Exercise and Disposition of
Warrants
The following discussion describes
the general rules applicable to the ownership and disposition of
the Warrants but is subject in its entirety to the special rules
described above under the heading "Passive Foreign Investment
Company Rules."
Exercise of Warrants
A U.S. Holder should not recognize
gain or loss on the exercise of a Warrant and related receipt of a
Warrant Share (unless cash is received in lieu of the issuance of a
fractional Warrant Share). A U.S. Holder's initial tax basis in the
Warrant Share received on the exercise of a Warrant should be equal
to the sum of (a) such U.S. Holder's tax basis in such Warrant plus
(b) the exercise price paid by such U.S. Holder on the exercise of
such Warrant. It is unclear whether a U.S. Holder's holding period
for the Warrant Share received on the exercise of a Warrant would
commence on the date of exercise of the Warrant or the day
following the date of exercise of the Warrant. If we are a PFIC, a
U.S. Holder's holding period for the Warrant Share for PFIC
purposes will begin on the date on which such U.S. Holder acquired
its Units.
Disposition of Warrants
A U.S. Holder will recognize gain
or loss on the sale or other taxable disposition of a Warrant in an
amount equal to the difference, if any, between (a) the amount of
cash plus the fair market value of any property received and (b)
such U.S. Holder's tax basis in the Warrant sold or otherwise
disposed of. Subject to the PFIC rules discussed above, any
such gain or loss generally will be a capital gain or loss, which
will be long-term capital gain or loss if the Warrant is held for
more than one year. Deductions for capital losses are subject
to complex limitations under the Code.
Expiration of Warrants Without
Exercise
Upon the lapse or expiration of a
Warrant, a U.S. Holder will recognize a loss in an amount equal to
such U.S. Holder's tax basis in the Warrant. Any such loss
generally will be a capital loss and will be long-term capital loss
if the Warrants are held for more than one year. Deductions for
capital losses are subject to complex limitations under the
Code.
Certain Adjustments to the
Warrants
Under Section 305 of the Code, an
adjustment to the number of Warrant Shares that will be issued on
the exercise of the Warrants, or an adjustment to the exercise
price of the Warrants, may be treated as a constructive
distribution to a U.S. Holder of the Warrants if, and to the extent
that, such adjustment has the effect of increasing such U.S.
Holder's proportionate interest in the "earnings and profits" or
our assets, depending on the circumstances of such adjustment (for
example, if such adjustment is to compensate for a distribution of
cash or other property to the shareholders). Adjustments to
the exercise price of Warrants made pursuant to a bona fide
reasonable adjustment formula that has the effect of preventing
dilution of the interest of the holders of the Warrants should
generally not be considered to result in a constructive
distribution. Any such constructive distribution would be
taxable whether or not there is an actual distribution of cash or
other property. (See more detailed discussion of the rules
applicable to distributions made by us at "Distributions on Common
Shares and Warrant Shares" below).
General Rules Applicable to
U.S. Federal Income Tax Consequences of the Acquisition, Ownership,
and Disposition of Common Shares. Pre-Funded Warrants and Warrant
Shares
The following discussion describes
the general rules applicable to the ownership and disposition of
the Common Shares, Pre-Funded Warrants and Warrant Shares, but is
subject in its entirety to the special rules described above under
the heading "Passive Foreign Investment Company Rules."
Distributions on Common Shares,
Pre-Funded Warrants and Warrant Shares
A U.S. Holder that receives a
distribution, including a constructive distribution, with respect
to a Common Share, Pre-Funded Warrant or Warrant Share (as well as
any constructive distribution on a Warrant as described above) will
be required to include the amount of such distribution in gross
income as a dividend (without reduction for any Canadian income tax
withheld from such distribution) to the extent of our current and
accumulated "earnings and profits", as computed under U.S. federal
income tax principles. A dividend generally will be taxed to a U.S.
Holder at ordinary income tax rates if we are a PFIC for the tax
year of such distribution or the preceding tax year. To the extent
that a distribution exceeds our current and accumulated "earnings
and profits", such distribution will be treated first as a tax-free
return of capital to the extent of a U.S. Holder's tax basis in the
Common Shares, Pre-Funded Warrants or Warrant Shares and thereafter
as gain from the sale or exchange of such Common Shares, Pre-Funded
Warrants or Warrant Shares (see "Sale or Other Taxable Disposition
of Common Shares, Pre-Funded Warrants and/or Warrant Shares"
below). However, we may not maintain the calculations of earnings
and profits in accordance with U.S. federal income tax principles,
and each U.S. Holder may be required to assume that any
distribution by us with respect to the Common Shares, Pre-Funded
Warrants or Warrant Shares will constitute ordinary dividend
income. Dividends received on Common Shares, Pre-Funded Warrants or
Warrant Shares generally will not be eligible for the "dividends
received deduction" generally applicable to corporations.
Subject to applicable limitations and provided we are eligible for
the benefits of the Tax Treaty or the Common Shares are readily
tradable on a United States securities market, dividends paid by us
to non-corporate U.S. Holders, including individuals, generally
will be eligible for the preferential tax rates applicable to
long-term capital gains for dividends, provided certain holding
period and other conditions are satisfied, including that we not be
classified as a PFIC in the tax year of distribution or in the
preceding tax year. The dividend rules are complex, and each U.S.
Holder should consult its own tax advisor regarding the application
of such rules.
Sale or Other Taxable
Disposition of Common Shares, Pre-Funded Warrants and/or Warrant
Shares
Upon the sale or other taxable
disposition of Common Shares, Pre-Funded Warrants or Warrant
Shares, a U.S. Holder generally will recognize capital gain or loss
in an amount equal to the difference between (a) the amount of cash
plus the fair market value of any property received and (b) such
U.S. Holder's tax basis in such Common Shares, Pre-Funded Warrants
or Warrant Shares sold or otherwise disposed of. Gain or loss
recognized on such sale or other taxable disposition generally will
be long-term capital gain or loss if, at the time of the sale or
other taxable disposition, the Common Shares, Pre-Funded Warrants
or Warrant Shares have been held for more than one year.
Preferential tax rates may apply to long-term capital gain of a
U.S. Holder that is an individual, estate, or trust. There are no
preferential tax rates for long-term capital gain of a U.S. Holder
that is a corporation. Deductions for capital losses are subject to
significant limitations under the Code.
Additional Tax
Considerations
Receipt of Foreign
Currency
The amount of any distribution paid
to a U.S. Holder in foreign currency or on the sale, exchange or
other taxable disposition of Common Shares, Pre-Funded Warrants,
Warrants or Warrant Shares generally will be equal to the U.S.
dollar value of such foreign currency based on the exchange rate
applicable on the date of receipt (regardless of whether such
foreign currency is converted into U.S. dollars at that
time). If the foreign currency received is not converted into
U.S. dollars on the date of receipt, a U.S. Holder will have a tax
basis in the foreign currency equal to its U.S. dollar value on the
date of receipt. Any U.S. Holder who receives payment in foreign
currency and engages in a subsequent conversion or other
disposition of the foreign currency may have a foreign currency
exchange gain or loss that would be treated as ordinary income or
loss, and generally will be U.S. source income or loss for foreign
tax credit purposes. Different rules apply to U.S. Holders who use
the accrual method of tax accounting. Each U.S. Holder should
consult its own U.S. tax advisor regarding the U.S. federal income
tax consequences of receiving, owning, and disposing of foreign
currency.
Foreign Tax Credit
Subject to the PFIC rules discussed
above, a U.S. Holder that pays (whether directly or through
withholding) Canadian income tax with respect to dividends paid on
the Common Shares, Pre-Funded Warrants or Warrant Shares (or with
respect to any constructive dividend on the Warrants) generally
will be entitled, at the election of such U.S. Holder, to receive
either a deduction or a credit for such Canadian income tax
paid. Generally, a credit will reduce a U.S. Holder's U.S.
federal income tax liability on a dollar-for-dollar basis, whereas
a deduction will reduce a U.S. Holder's income subject to U.S.
federal income tax. This election is made on a year-by-year
basis and applies to all foreign taxes paid or accrued (whether
directly or through withholding) by a U.S. Holder during a
year. The foreign tax credit rules are complex and involve
the application of rules that depend on a U.S. Holder's particular
circumstances. Accordingly, each U.S. Holder should consult
its own tax advisor regarding the foreign tax credit rules.
Information Reporting; Backup
Withholding Tax
Under U.S. federal income tax laws
certain categories of U.S. Holders must file information returns
with respect to their investment in, or involvement in, a foreign
corporation. For example, U.S. return disclosure obligations (and
related penalties) are imposed on U.S. Holders that hold certain
specified foreign financial assets in excess of certain threshold
amounts. The definition of specified foreign financial assets
includes not only financial accounts maintained in foreign
financial institutions, but also, unless held in accounts
maintained by a financial institution, any stock or security issued
by a non-U.S. person. U. S. Holders may be subject to these
reporting requirements unless their Common Shares, Pre-Funded
Warrants, Warrants, and Warrant Shares are held in an account at
certain financial institutions. Penalties for failure to file
certain of these information returns are substantial. U.S.
Holders should consult their own tax advisors regarding the
requirements of filing information returns, including the
requirement to file IRS Form 8938.
Payments made within the U.S., or
by a U.S. payor or U.S. middleman, of dividends on, and proceeds
arising from the sale or other taxable disposition of the Common
Shares, Pre-Funded Warrants, Warrants and Warrant Shares generally
may be subject to information reporting and backup withholding tax,
currently at the rate of 24%, if a U.S. Holder (a) fails to furnish
its correct U.S. taxpayer identification number (generally on Form
W-9), (b) furnishes an incorrect U.S. taxpayer identification
number, (c) is notified by the IRS that such U.S. Holder has
previously failed to properly report items subject to backup
withholding tax, or (d) fails to certify, under penalty of perjury,
that it has furnished its correct U.S. taxpayer identification
number and that the IRS has not notified such U.S. Holder that it
is subject to backup withholding tax. However, certain exempt
persons, such as U.S. Holders that are corporations, generally are
excluded from these information reporting and backup withholding
tax rules. Any amounts withheld under the U.S. backup withholding
tax rules will be allowed as a credit against a U.S. Holder's U.S.
federal income tax liability, if any, or will be refunded, if such
U.S. Holder furnishes required information to the IRS in a timely
manner.
The discussion of reporting
requirements set forth above is not intended to constitute a
complete description of all reporting requirements that may apply
to a U.S. Holder. A failure to satisfy certain reporting
requirements may result in an extension of the time period during
which the IRS can assess a tax and, under certain circumstances,
such an extension may apply to assessments of amounts unrelated to
any unsatisfied reporting requirement. Each U.S. Holder should
consult its own tax advisors regarding the information reporting
and backup withholding rules.
THE ABOVE SUMMARY IS NOT
INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX
CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE
ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES, WARRANTS
AND WARRANT SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN LIGHT
OF THEIR OWN PARTICULAR CIRCUMSTANCES.
UNDERWRITING
In connection with this offering of
Units and pre-funded units, we have entered into an underwriting
agreement, dated as of [●], 2022 (the "Underwriting
Agreement") with Ladenburg Thalmann & Co. Inc., as
representative (the "Representative") of the underwriters in
this offering. Each underwriter named below has severally and not
jointly agreed to purchase from us, on a firm commitment basis, the
number of Units set forth opposite its name below, at the public
offering price less the underwriting discounts and commissions set
forth on the cover page of this prospectus:
|
Name of Underwriter
|
Number of Units
|
|
Ladenburg Thalmann & Co. Inc.
|
[●]
|
|
Total
|
[●]
|
The underwriters are committed to
purchase all the Units and/or pre-funded units offered by this
prospectus if they purchase any such units. The underwriting
agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be
increased or the offering may be terminated. The underwriters are
not obligated to purchase the Common Shares and/or Warrants covered
by the underwriters' over-allotment option to purchase Common
Shares and/or Warrants described below. The underwriters are
offering the Units and/or pre-funded units, Common Shares and
Warrants, subject to prior sale, when, as and if issued to and
accepted by them, subject to approval of legal matters by their
counsel, and other conditions contained in the Underwriting
Agreement, such as the receipt by the underwriters of officer's
certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject
orders in whole or in part.
We have been advised by the
underwriters that they propose to offer the securities directly to
the public at the public offering price set forth on the cover page
of this prospectus. Any securities sold by the underwriters to
securities dealers will be sold at the public offering price less a
selling concession not in excess of US$[●] per Common Share and US$[●]
per Warrant.
Over-Allotment Option
We have granted the underwriters a
45-day option (commencing from the date of this Prospectus) to
purchase up to an additional [●] Common Shares and/or up to an
additional [●] Warrants at the public offering price per Common
Share and per Warrant respectively, as set forth on the cover page
of this prospectus, less the underwriting discount and commissions,
solely to cover over-allotments, if any.
If any of the additional Common
Shares and/or Warrants are purchased, the underwriters will offer
the additional Common Shares and/or Warrants on the same terms as
those on which the other securities are being offered.
Discounts and
Commissions
The underwriters propose initially
to offer the securities to the public at the public offering price
set forth on the cover page of this prospectus. If all of the
securities offered by us are not sold at the public offering price,
the underwriters may change the offering price and other selling
terms by means of a supplement to this prospectus.
We will pay the underwriters a
success fee of 8.0% for the total gross proceeds of the
offering.
The following table shows the
public offering price, underwriting discounts, and proceeds, before
expenses, to us. The information assumes either no exercise or full
exercise of the over-allotment option to purchase additional Common
Shares and/or Warrants we granted to the Representative of the
underwriters.
|
|
Per Unit(1)
|
Per Pre-
funded Unit(2)
|
Total Without
Over-
Allotment
Option
|
Total With
Full
Over-
Allotment
Option
|
|
Public offering price
|
US$[●]
|
US$[●]
|
US$[●]
|
US$[●]
|
|
Underwriting discount
|
US$[●]
|
US$[●]
|
US$●]
|
US$[●]
|
|
Proceeds, before expenses, to us
|
US$[●]
|
US$[●]
|
US$[●]
|
US$[●]
|
(1) The
public offering price and underwriting discount corresponds to, in
respect of the Units, (i) a public offering price per Common Share
of US$[●] ($[●] net of the underwriting discount); and (ii) a
public offering price per Warrant of US$[●] (US$[●] net of the
underwriting discount).
(2) The
public offering price and underwriting discount in respect of the
pre-funded units corresponds to (i) public offering price per
Pre-Funded Warrant of US$[●] (US$[●] net of the underwriting
discount); and (ii) a public offering price per Warrant of US$[●]
(US$[●] net of the underwriting discount).
We have agreed to pay the
underwriters a cash fee equal to 8.0% of the aggregate gross
proceeds. We have also agreed to pay the Representative a
management fee equal to 1.0% of the gross proceeds of the
offering.
In addition, we have agreed to pay
all reasonable, out-of-pocket expenses incurred by the
Representative relating to the offering. We estimate the total
expenses payable by us for this offering to be approximately
US$[●], which amount includes (i) the underwriting discount of US$●
(US$● if the underwriters' over-allotment option is exercised in
full), (ii) the management fee of 1.0% of the gross proceeds of the
offering, (iii) the reimbursement of the expenses of the
Representative equal to approximately US$[●] including the legal
fees of the Representative being paid by us and (iv) other
estimated company expenses of approximately US$[●], which includes
legal, accounting, printing costs and various fees associated with
the registration of our securities.
We have also agreed to issue to the
Representative Compensation Warrants to purchase up to a total of
Common Shares equal to 5.0% of the Common Shares and/or Pre-Funded
Warrants sold in the offering. The Compensation Warrants will be
immediately exercisable from the date of issuance at a price per
Common Share equal to US$[●] and will expire five years from the
commencement of sales of the offering. Pursuant to FINRA Rule
5110(e), the Compensation Warrants and any Common Shares issued
upon exercise of the Compensation Warrants shall not be sold,
transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put or call transaction
that would result in the effective economic disposition of the
securities by any person for a period of 180 days immediately
following the date of commencement of sales of this offering,
except the transfer of any security: (i) by operation of law or by
reason of reorganization of the issuer; (ii) to any FINRA member
firm participating in the offering and the officers, partners,
registered persons or affiliates thereof, if all securities so
transferred remain subject to the lock-up restriction set forth
above for the remainder of the time period; (iii) if the aggregate
amount of our securities held by the Representative or related
persons does not exceed 1% of the securities being offered; (iv)
that is beneficially owned on a pro-rata basis by all equity owners
of an investment fund, provided that no participating member
manages or otherwise directs investments by the fund and the
participating members in the aggregate do not own more than 10% of
the equity in the fund; (v) the exercise or conversion of any
security, if all securities remain subject to the lock-up
restriction set forth above for the remainder of the time period;
(vi) if we meet the registration requirements of Forms S-3, F-3 or
F-10; or (vii) back to us in a transaction exempt from registration
with the SEC. The Compensation Warrants and the Common Shares
underlying the Compensation Warrants are being registered
hereby.
Discretionary Accounts
The underwriters do not intend to
confirm sales of the securities offered hereby to any accounts over
which they have discretionary authority.
Lock-Up Agreements
Pursuant to "lock-up" agreements,
we, our executive officers and directors, and certain of or holders
of Common Shares, have agreed, without the prior written consent of
the Representative and subject to certain customary exceptions, not
to directly or indirectly, offer to sell, sell, pledge or otherwise
transfer or dispose of any our Common Shares (or enter into any
transaction or device that is designed to, or could be expected to,
result in the transfer or disposition by any person at any time in
the future of), enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of shares of our Common
Shares, make any demand for or exercise any right or cause to be
filed a registration statement, including any amendments thereto,
with respect to the registration of any Common Shares or securities
convertible into or exercisable or exchangeable for Common Shares
or any other securities of the Company or publicly disclose the
intention to do any of the foregoing, subject to customary
exceptions, for a period of 180 days from the date of this
prospectus.
Right of First Refusal
We have granted the Representative
a right of first refusal, for a period of 12 months from the
closing of this offering, to act as sole bookrunner, exclusive
placement agent or exclusive sale agent in connection with any
financing of the Company on terms and conditions mutually
acceptable to the Company and the Representative.
Transfer Agent and
Registrar
The transfer agent and registrar
for our Common Shares is TSX Trust Company, located at 650 West
Georgia Street, Suite 2700, Vancouver, British Columbia, Canada,
V6B 4N9 and its telephone number is (604) 689-3334.
Indemnification
We have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act, the Exchange Act and any statute or
common law and to contribute to payments that the underwriters may
be required to make for these liabilities.
CSE, XBFR and OTCQB Marketplace
and Nasdaq Capital Market
Our Common Shares are currently
quoted on the CSE, XBFR and OTCQB Marketplace under the symbols
"AGN", "AGWO" and "AGNPF", respectively.
We intend on applying to have our
Common Shares and Warrants issued in the offering listed on the
Nasdaq Capital Market under the symbols "[●]" and "[●]",
respectively. Our application might not be approved. There is no
established public trading market for the Warrants included in the
offering, and such a market might never develop. The successful
listing of our Common Shares and Warrants on the Nasdaq Capital
Market is a condition of this offering.
Price Stabilization, Short
Positions and Penalty Bids
In order to facilitate the offering
of our securities, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of our
securities. In connection with the offering, the underwriters may
purchase and sell our securities in the open market. These
transactions may include short sales, purchases on the open market
to cover positions created by short sales and stabilizing
transactions. Short sales involve the sale by the underwriters of a
greater number of shares of securities than they are required to
purchase in the offering. "Covered" short sales are sales made in
an amount not greater than the underwriters' option to purchase
additional securities in the offering. The underwriters may close
out any covered short position by either exercising the
over-allotment option to purchase Common Shares and/or Warrants or
purchasing securities in the open market. In determining the source
of securities to close out the covered short position, the
underwriters will consider, among other things, the price of
securities available for purchase in the open market as compared to
the price at which they may purchase shares through the
over-allotment option to purchase Common Shares and/or Warrants.
"Naked" short sales are sales in excess of the over-allotment
option to purchase Common Shares and/or Warrants. The underwriters
must close out any naked short position by purchasing securities in
the open market. A naked short position is more likely to be
created if the underwriters are concerned that there may be
downward pressure on the price of our securities in the open market
after pricing that could adversely affect investors who purchase in
the offering. Stabilizing transactions consist of various bids for
or purchases of securities made by the underwriters in the open
market before the completion of the offering.
Similar to other purchase
transactions, the underwriters' purchases to cover the syndicate
short sales may have the effect of raising or maintaining the
market price of our securities or preventing or retarding a decline
in the market price of our securities. As result, the price of our
securities may be higher than the price that might otherwise exist
in the open market.
The underwriters have advised us
that, pursuant to Regulation M under the Exchange Act, they may
also engage in other activities that stabilize, maintain or
otherwise affect the price of our securities, including the
imposition of penalty bids. This means that if the representative
of the underwriters purchases securities in the open market in
stabilizing transactions or to cover short sales, the
representative can require the underwriters that sold those shares
as part of this offering to repay the underwriting discount
received by them.
The underwriters make no
representation or prediction as to the direction or magnitude of
any effect that the transactions described above may have on the
price of our securities. In addition, neither we nor the
underwriters make any representation that the underwriters will
engage in these transactions or that these transactions, once
commenced, will not be discontinued without notice.
Electronic Offer, Sale and
Distribution of Securities
A prospectus in electronic format
may be made available on the websites maintained by one or more
underwriters or selling group members, if any, participating in the
offering. The underwriters may agree to allocate a number of shares
of securities to underwriters and selling group members for sale to
their online brokerage account holders. Internet distributions will
be allocated by the representative to underwriters and selling
group members that may make internet distributions on the same
basis as other allocations. Other than the prospectus in electronic
format, the information on the underwriters' websites and any
information contained in any other website maintained by the
underwriters is not part of this prospectus or the registration
statement of which this prospectus forms a part.
Other Relationships
From time to time, certain of the
underwriters and their affiliates may provide in the future,
various advisory, investment and commercial banking and other
services to us in the ordinary course of business, for which they
will receive customary fees and commissions. However, except as
disclosed in this prospectus, we have no present arrangements with
any of the underwriters for any further services.
Pricing of the Offering
The public offering price was
determined by negotiations between us and the Representative. Among
the factors considered in determining the public offering price
were our future prospects and those of our industry in general, our
sales, earnings, share price as quoted on the OTCQB and certain
other financial and operating information in recent periods, and
the price-earnings ratios, price-sales ratios, market prices of
securities, and certain financial and operating information of
companies engaged in activities similar to ours. Neither we nor the
underwriters can assure investors that an active trading market for
the Common Shares or the Warrants will develop, or that after the
offering the shares will trade in the public market at or above the
public offering price.
Offer Restrictions Outside the
United States
Other than in the United States, no
action has been taken by us or the underwriters that would permit a
public offering of the securities offered by this prospectus in any
jurisdiction where action for that purpose is required. The
securities offered by this prospectus may not be offered or sold,
directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer
and sale of any such securities be distributed or published in any
jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this prospectus comes
are advised to inform themselves about and to observe any
restrictions relating to this offering and the distribution of this
prospectus. This prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any securities offered by this
prospectus in any jurisdiction in which such an offer or a
solicitation is unlawful.
Australia
This prospectus is not a disclosure
document under Chapter 6D of the Australian Corporations Act, has
not been lodged with the Australian Securities and Investments
Commission and does not purport to include the information required
of a disclosure document under Chapter 6D of the Australian
Corporations Act. Accordingly, (i) the offer of the securities
under this prospectus is only made to persons to whom it is lawful
to offer the securities without disclosure under Chapter 6D of the
Australian Corporations Act under one or more exemptions set out in
section 708 of the Australian Corporations Act, (ii) this
prospectus is made available in Australia only to those persons as
set forth in clause (i) above, and (iii) the offeree must be sent a
notice stating in substance that by accepting this offer, the
offeree represents that the offeree is such a person as set forth
in clause (i) above, and, unless permitted under the Australian
Corporations Act, agrees not to sell or offer for sale within
Australia any of the securities sold to the offeree within 12
months after its transfer to the offeree under this prospectus.
China
The information in this document
does not constitute a public offer of the securities, whether by
way of sale or subscription, in the People's Republic of China
(excluding, for purposes of this paragraph, Hong Kong Special
Administrative Region, Macau Special Administrative Region and
Taiwan). The securities may not be offered or sold directly or
indirectly in the PRC to legal or natural persons other than
directly to "qualified domestic institutional investors".
European Economic
Area
In
relation to each Member State of the European Economic Area (each a
"Relevant State"), no shares have been offered or will be offered
pursuant to the offering to the public in that Relevant State prior
to the publication of a prospectus in relation to the shares which
has been approved by the competent authority in that Relevant State
or, where appropriate, approved in another Relevant State and
notified to the competent authority in that Relevant State, all in
accordance with the Prospectus Regulation, except that it may make
an offer to the public in that Relevant State of any shares at any
time under the following exemptions under the Prospectus
Regulation:
|
|
(a)
|
to any
legal entity which is a qualified investor as defined under the
Prospectus Regulation;
|
|
|
(b)
|
to
fewer than 150 natural or legal persons (other than qualified
investors as defined under the Prospectus Regulation), subject to
obtaining the prior consent of representatives for any such offer;
or
|
|
|
(c)
|
in any
other circumstances falling within Article 1(4) of the Prospectus
Regulation,
|
provided that no such offer of the shares shall require the Issuer
or any Manager to publish a prospectus pursuant to Article 3 of the
Prospectus Regulation or supplement a prospectus pursuant to
Article 23 of the Prospectus Regulation.
For the
purposes of this provision, the expression an "offer to the public"
in relation to the shares in any Relevant State means the
communication in any form and by any means of sufficient
information on the terms of the offer and any shares to be offered
so as to enable an investor to decide to purchase or subscribe for
any shares, and the expression "Prospectus Regulation" means
Regulation (EU) 2017/1129.
France
This document is not being
distributed in the context of a public offering of financial
securities (offre au public de titres financiers) in France within
the meaning of Article L.411-1 of the French Monetary and Financial
Code (Code monétaire et financier) and Articles 211-1 et seq. of
the General Regulation of the French Autorité des marchés
financiers ("AMF"). The securities have not been offered or
sold and will not be offered or sold, directly or indirectly, to
the public in France.
This document and any other
offering material relating to the securities have not been, and
will not be, submitted to the AMF for approval in France and,
accordingly, may not be distributed or caused to distributed,
directly or indirectly, to the public in France.
Such offers, sales and
distributions have been and shall only be made in France to (i)
qualified investors (investisseurs qualifiés) acting for their own
account, as defined in and in accordance with Articles L.411-2-II-2
and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French
Monetary and Financial Code and any implementing regulation and/or
(ii) a restricted number of non-qualified investors (cercle
restreint d'investisseurs) acting for their own account, as defined
in and in accordance with Articles L.411-2-II-2° and D.411-4,
D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial
Code and any implementing regulation.
Pursuant to Article 211-3 of the
General Regulation of the AMF, investors in France are informed
that the securities cannot be distributed (directly or indirectly)
to the public by the investors otherwise than in accordance with
Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the
French Monetary and Financial Code.
Hong Kong
The common shares have not been
offered or sold and will not be offered or sold in Hong Kong, by
means of any document, other than (a) to "professional investors"
as defined in the Securities and Futures Ordinance (Cap. 571 of the
Laws of Hong Kong) (the "SFO") of Hong Kong and any rules made
thereunder; or (b) in other circumstances which do not result in
the document being a "prospectus" as defined in the Companies
(Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of
Hong Kong) (the "CO") or which do not constitute an offer to the
public within the meaning of the CO. No advertisement, invitation
or document relating to the common shares has been or may be issued
or has been or may be in the possession of any person for the
purposes of issue, whether in Hong Kong or elsewhere, which is
directed at, or the contents of which are likely to be accessed or
read by, the public of Hong Kong (except if permitted to do so
under the securities laws of Hong Kong) other than with respect to
common shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to "professional investors" as
defined in the SFO and any rules made thereunder.
Ireland