TIDMPRTC
RNS Number : 9495W
PureTech Health PLC
25 August 2015
25 August 2015
PureTech Health plc
Half-Yearly Report for the six months ended 30 June 2015
Maiden results: transformational period with significant
fundraising, enhanced Board of Directors and well-positioned
operating companies
PureTech Health plc ("PureTech" or the "Company", LSE: PRTC), a
science-driven healthcare company seeking to solve some of the
toughest health challenges in disruptive ways, today announces its
half-yearly results for the six months ended 30 June 2015.
Operational Highlights
-- PureTech raised gross proceeds of $196m in its initial public
offerring on the Main Market of the London Stock Exchange
(including full exercise of the overallotment option post
period-end), having closed a private round for gross proceeds of
$52.2m earlier in the period
-- Elected two new members to the Board of Directors: Chris
Viehbacher, former Chief Executive Officer of Sanofi, and Marjorie
Scardino, former Chief Executive Officer of Pearson
-- Appointed Joi Ito, MIT Media Lab's Director, as Chairman of
the Board of Directors, succeeding Ben Shapiro, former Executive
Vice President Merck Research Laboratories, who will remain on the
Board
-- Portfolio company highlights:
o Vedanta Biosciences entered into a licensing agreement with
Janssen Biotech for a non-refundable upfront payment and milestone
payments of up to $339m plus tiered royalties to develop and
commercialise one of Vedanta's microbiome product candidates
VE202
o Gelesis raised $22.3m, of which PureTech invested $3m
o Tal Medical raised $14.5m, of which PureTech invested $5m
o Akili Interactive Labs entered into a collaboration with
leading Autism patient advocacy group, Autism Speaks, to run a
clinical study in paediatric autism
o The Sync Project announced a partnership with one of the
world's leading colleges of contemporary music, Berklee College of
Music
o Gelesis completed the acquisition of Academica Life Sciences
for $1.1m
o Sonde Health launched to develop voice-based tools for the
remote assessment and tracking of patient health
Financial Highlights
-- Cash and short term investments at 30 June 2015 of $291.1m
-- Total assets increased by $232.5m
-- Operating loss of $11.6m ($4.9m in HY2014)
Post-period Highlights
-- Gelesis expanded its ongoing weight loss study into the U.S.
to serve as a pivotal trial following a non-signficant risk
designation from the U.S. Food and Drug Administration (FDA),
accelerating timelines for FDA submission by approximately one
year
-- Karuna Pharmaceuticals received a Translation Fund Award from
the Wellcome Trust of up to $3.84m
-- The Sync Project named Marko Ahtisaari, former Chief of
Design at Nokia and entrepreneur, as Chief Executive Officer
Commenting on the Company's half year results, Daphne Zohar,
Chief Executive Officer of PureTech, said: "The first half-year of
2015 was a transformational period: we raised approximately $250
million, made significant appointments to the Board of Directors
and enhanced the position of our portfolio of operating companies.
We are extremely excited about the future prospects for the
Company."
For more information, please contact:
PureTech
Daphne Zohar, Chief Executive Officer
Stephen Muniz, Executive Vice President, Legal,
Finance and Operations
Julie DiCarlo, Senior Vice President, Communications
and Investor Relations +1 617 456 0032
FTI Consulting (Communications adviser to PureTech)
Ben Atwell
Matthew Cole
Rob Winder +44 (0) 20 3727
Natalie Garland-Collins 1000
For more information, visit www.puretechhealth.com and connect
with PureTech on Twitter and LinkedIn.
This half-yearly results release may contain forward-looking
statements. These statements reflect the Board's current view, are
subject to a number of material risks and uncertainties and could
change in the future. Factors that could cause or contribute to
such changes include, but are not limited to, the general economic
climate and market conditions, as well as specific factors relating
to the financial or commercial prospects or performance of
individual operating companies within the Company's businesses.
Throughout this half-yearly results release, the Company's
ownership interests in operating companies are calculated on a
diluted basis, including issued and outstanding shares, warrants
and (and written commitments to issue options) options to purchase
shares, but excluding unallocated shares authorised to be issued
pursuant to equity incentive plans and any shares issuable upon
conversion of outstanding convertible promissory notes.
Interim Management Report
Summary
PureTech is a science-driven healthcare company, seeking to
solve some of today's toughest health challenges through disruptive
approaches. Based in Boston, Massachusetts, PureTech has a pipeline
of 12 operating companies, seven of which are "growth stage" with
external validation including strategic partnerships, outside
funding, clinical proof-of-concept and/or peer review in
prestigious scientific journals. PureTech is problem-focused and
solution-agnostic, looking beyond traditional disciplines and
approaching healthcare problems from a new perspective. Focusing on
areas of significant unmet medical need, PureTech evaluates more
than 650 ideas per year, prioritizing, selecting and testing what
it believes to be the most scientifically and commercially
promising concepts to advance. PureTech's leading team and board,
along with an advisory network of more than 50 experts across
multiple disciplines, gives PureTech access to potentially
groundbreaking science and technological innovations.
The global annual public and industry expenditure on the study
of health and disease increased from $209 billion in 2004 to $265
billion in 2011. The U.S. National Institutes of Health alone
invests nearly $30 billion annually on research within the U.S. The
Directors believe that PureTech has assembled the infrastructure,
knowledge, personnel and approach to commercialise promising
technologies from this international pool of scientific research.
The Directors also believe that PureTech's cross disciplinary
approach is particularly suited to addressing a healthcare
environment where convergence of previously unrelated disciplines
is becoming especially prominent, as is demonstrated by technology
and other traditionally non--healthcare companies (such as Apple,
Google, Nestlé, Qualcomm and Samsung) having become participants in
the healthcare market in recent years.
On 24 June 2015, PureTech Health plc was admitted to the premium
listing segment of the Official List of the UK Listing Authority
and began trading on the Main Market of the London Stock Exchange
for listed securities under the ticker "PRTC". The Directors
believe that the IPO will: increase PureTech's public profile and
status with existing and potential partners; diversify sources of
funding to support PureTech's long-term growth; assist in the
incentivisation and retention of key management and employees; and
provide investors with an opportunity to gain exposure to
PureTech's innovative companies and pipeline programs.
During the first half of 2015, PureTech also expanded its Board
of Directors by electing two new members to the Board: Chris
Viehbacher, former CEO of Sanofi, and Marjorie Scardino, former CEO
of Pearson. They join PureTech's existing non-executive Board
members, Mr. Joi Ito, PureTech Chairman and Director of the MIT
Media Lab and board member of Sony, the MacArthur Foundation, The
New York Times, the Knight Foundation and Mozilla; Dr. Robert
Langer, PureTech Co-founder and David H. Koch Institute Professor
at MIT; Dr. Ben Shapiro, former Executive Vice President Merck
Research Laboratories; Dr. John LaMattina, former President of
R&D at Pfizer Global Research and Development; and Dr. Raju
Kucherlapati, Paul C. Cabot Professor in the Harvard Medical School
Department of Genetics, co-founder of Millennium Pharmaceuticals
and Abgenix, and Member of President Obama's Commission for the
Study of Bioethical Issues. The Company also added a Senior VP of
Communications and Investor Relations and a VP of Talent
Acquisition to the management team.
PureTech and its operating companies have been positively
engaging with potential industrial and financial partners, and have
received numerous expressions of interest in their products. This
interest has translated into several new relationships for
PureTech's companies. In January 2015, Vedanta Biosciences entered
into a collaboration agreement with Janssen Biotech, a subsidiary
of Johnson & Johnson, out-licensing one of Vedanta's product
candidates VE202 in a licensing deal valued at up to $339 million.
Vedanta Biosciences continues to receive industry interest in its
other microbiome candidates and technologies. In the same month,
Akili also entered into a collaboration with Autism Speaks, a
leading patient advocacy group, to run a clinical study in autism.
In March 2015, both Gelesis and Tal closed financing rounds of
$22.3 million and $14.5 million, respectively, including the
conversion of promissory notes. In August 2015, Karuna received the
Translation Fund Award from the Wellcome Trust comprising an
unsecured convertible loan to Karuna of up to $3.84 million.
Existing collaborations, such as Akili's collaboration with Pfizer
and Entrega, Inc.'s ("Entrega") collaboration with Google X, also
continue to be on track.
(MORE TO FOLLOW) Dow Jones Newswires
August 25, 2015 02:00 ET (06:00 GMT)
PureTech's operating companies have also made strong progress in
their research and development programs. Following receipt of
non-significant risk designation from the FDA for its on-going
weight loss study, Gelesis expanded the study into the U.S. to
serve as a pivotal study in the U.S thereby accelerating timelines
for FDA submission by approximately one year. Gelesis also
completed its $1.1 million acquisition of Academica Life Sciences
S.r.l. providing for the expansion of certain of its intellectual
property rights. In terms of near-term clinical milestones, Akili
remains on track for the announcement of the results of its proof
of concept ADHD study data later this year, and Tal remains on
track for the read-out of its depression proof of concept data in
the first half of 2016.
PureTech has also continued to develop its five project phase
operating companies and 10 concept stage initiatives. For example,
the Sync Project, Inc., a PureTech operating company that is
building a platform to scientifically measure and harness music to
improve health, announced a partnership with Berklee College of
Music's Institute for Creative Entrepreneurship which will center
on collaboration on original research. Berklee College of Music is
one of the world's leading colleges of contemporary music. The Sync
Project also hired Marko Ahtisaari, former top designer at Nokia
and entrepreneur, as CEO. In addition, PureTech formed Sonde
Health, Inc., an operating company that is developing voice-based
tools for the remote assessment and tracking of patient health.
Also in the first half of 2015, PureTech, its management and its
operating companies have been recognized in the industry through
publications, awards, and media coverage. A few of these are
highlighted below:
-- PureTech and its operating companies have been featured in
publications, including: The Wall Street Journal, The Financial
Times, The Boston Globe, Reuters, National Public Radio, Fast
Company, The Atlantic, The Economist, Scientific American, Nature
Biotechnology, and Nature Medicine;
-- PureTech's Entrega Bio was named a 2015 Global Game Changer
by The Boston Globe; PureTech's Vedanta Biosciences and Tal Medical
were recognized as potential "next biotech breakthroughs" by the
Boston Globe;
-- PureTech launched a recurring column in Nature Biotechnology.
The first article, "Defining Digital Medicine," ranked first in
online and mainstream media attention among articles of a similar
age in the publication. Also published was an article "A regulatory
framework emerges for digital medicine";
-- PureTech Co-Founder and Non-Executive Director, Dr. Robert
Langer was awarded the 2015 Queen Elizabeth Prize for Engineering
and was awarded the Scheele Award for his extraordinary achievement
in Pharmaceutical Sciences. Dr. Langer was also honoured with CEO
Daphne Zohar and Independent Non-Executive Director Dr. Raju
Kucherlapati among the top 100 biotech visionaries by Scientific
American. PureTech Vice President Dr. Bernat Olle was honoured with
the prestigious Princess of Girona Award from the King of
Spain.
To access the latest news coverage, please visit the news page
on PureTech's web site.
The Directors are pleased by these and other advancements across
the Group, in particular, the continued positive engagement with
potential strategic and financial partners to fund and/or
co-develop existing or new technologies.
PureTech and Operating Company Review
Overview
During the first half of 2015, PureTech raised gross proceeds of
approximately $250 million through its successful IPO (including
the exercise in full of the over-allotment option post period end)
and a prior round of private financing. PureTech deployed $9.2
million of capital into the Company's businesses, with the
expectation to ramp up deployment in a milestone-driven manner in
the second half of 2015 going into 2016.
PureTech currently has a 75 per cent average shareholding in its
twelve operating companies on a diluted basis, and plans to
continue to invest in and support its most promising companies.
Additionally, PureTech has ten concept-phase initiatives which the
Company is actively pursuing and has obtained options to a number
of promising technologies. These concept-phase initiatives have the
potential to develop into the Group's future operating companies.
Below we provide an overview of existing operating companies,
including key financings completed and other significant
updates.
Operating Companies
Ownership
Growth stage Interest as of 30 June 2015 (direct
operating company and indirect) Overview
--------------------- ------------------------------------- --------------------------------------------------------
Vedanta Biosciences 86.9% A preclinical stage company developing a microbiome
immune system drug--discovery platform
and drug candidates for the treatment of
immune--mediated diseases, with a partnership with
Janssen Biotech
Gelesis 22.6% A clinical stage company developing products that seek
to induce weight loss and improve glycaemic
control through an orally administered capsule whose
contents are released and expand in the
GI tract as they absorb water
Akili 59.8% A clinical stage company developing technology and
products for the screening, diagnosis and
treatment of neurological disorders such as ADHD,
autism and depression through computer software,
with a collaboration with Pfizer and an investment from
Shire
Tal Medical 55.0% A clinical stage medical device company developing an
innovative, noninvasive neurostimulation
treatment for psychiatric disorders including
depression and bipolar disorder
Karuna 81.4% A clinical stage company developing an innovative
combination therapy for the treatment of
schizophrenia with an investment from the Wellcome
Trust
Entrega 68.6% A preclinical stage company developing a drug delivery
platform for the oral administration
of proteins, peptides and other difficult--to--deliver
payloads, including magnetic nanoparticles,
with a collaboration with Google X
Follica Incorporated 59.3% A clinical stage company developing products to
generate new human hair follicles and hair
Ownership
interest
Project phase (direct
operating company and indirect) Overview
------------------- --------------- ---------------------------------------------------
The Sync Project 98.2% Developing a platform and products that seek
to explore and leverage the health potential
of music by utilising a platform that takes
in physiological data from sensors and correlates
that data with musical data components (e.g.
beat and rhythm)
Sonde Health 96.4% Developing voice--based tools for the passive
assessment and tracking of patient health
CommenSe, Inc. 100.0% Developing commensal organism--based products
for the improvement of human health in, for
example, early childhood
Knode, Inc. 82.0% Developing a technology platform to identify
experts in healthcare and other research--based
disciplines based on the content they have
produced
Appeering, Inc. 100.0% Identifying healthcare expert networks and
reviewing their conversations and content on
social media
Operational Highlights
Vedanta Biosciences
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August 25, 2015 02:00 ET (06:00 GMT)
Vedanta Biosciences is developing an innovative class of drugs
based on research into the human microbiome (the population of
micro--organisms that inhabit the human body). In January 2015,
Vedanta Biosciences entered into a collaboration, license and
option agreement with Janssen Biotech to develop and commercialise
a microbiome product candidate VE202. The agreement included a
non-refundable upfront payment and development and
commercialisation milestone payments of up to $339 million plus
tiered royalties from the high single digits to the low teens. The
non-refundable upfront payment is being used to support further
development of Vedanta Bioscience's platform and other product
candidates.
Gelesis
Gelesis is a clinical stage biotechnology company focused on the
development of innovative products to induce weight loss and
potentially improve glycaemic control in overweight and obese
patients, including those that are pre--diabetic and those that
have type 2 diabetes. Its lead product candidate is Gelesis100,
which is based on Gelesis' proprietary hydrogel technology that
works mechanically (rather than chemically) and exclusively in the
GI tract. Gelesis has completed a three month proof--of--concept
study of Gelesis100 that demonstrated statistically significant
weight loss in overweight and obese patients, including
pre--diabetic patients. In March 2015, Gelesis closed a $22.3
million financing, including the conversion of promissory notes,
with PureTech investing $3 million in the financing. The funding
will help support further development of Gelesis' lead product,
Gelesis100, as well as Gelesis200.
Tal
Tal is a clinical stage medical device company developing an
innovative, noninvasive treatment for depression and other
psychiatric disorders based on a proprietary low field magnetic
stimulation (LFMS) technology, delivered through a small table--top
device. LFMS utilises a rapidly--oscillating magnetic field, which
the Directors believe has the ability to affect brain
neurocircuitry that plays a role in depression. In two randomised
controlled studies, a single 20--minute LFMS treatment has
demonstrated rapid onset of action in depression patients, without
any observed major side effects. In March 2015, Tal closed a
financing round of $14.5 million, including the conversion of
promissory notes, with PureTech investing $5 million in the
financing. The funding will help support further research and
development of Tal's LFMS technology in both depression and bipolar
disorder.
Post-period Highlights
Gelesis
In July 2015, Gelesis received non-significant risk designation
from the U.S. Food and Drug Administration (FDA) for its ongoing
study, GLOW (Gelesis Loss of Weight). As a result of this
designation, Gelesis can now recruit U.S. patients into the GLOW
study. Gelesis anticipates recruiting at least an additional 168
patients from the U.S. and expanding the study to at least 336
patients. The expanded study can serve as the pivotal study for FDA
approval, with the submission for FDA approval of Gelesis100 now
scheduled for the first half of 2017, rather than the first half of
2018.
Karuna
Karuna is a clinical stage company developing an innovative
therapy, KarXT, for the potential treatment of schizophrenia. KarXT
targets the muscarinic system through a proprietary combination of
xanomeline, an in--licensed small molecule drug, and a muscarinic
antagonist (trospium chloride) that does not cross the blood--brain
barrier. Xanomeline has already demonstrated human efficacy
proof--of--concept. The Directors believe that combining xanomeline
with trospium chloride may reduce the side effects typically seen
with xanomeline. In August 2015, Karuna received a Translation Fund
Award from the Wellcome Trust comprising an unsecured convertible
loan of up to $3.84 million. The funding will help support Karuna's
safety proof of concept study in 2016.
Summary and Outlook
PureTech has enjoyed a transformational period: the Company has
raised gross proceeds of approximately $250 million, significantly
expanded its Board of Directors and is driving its operating
companies forward toward commercialization. This fundraising and
the position of the operating companies set the stage for the next
chapter in the development of the Company.
Operating Company Overview and Valuation
PureTech currently has a 75 per cent average shareholding in its
operating companies on a diluted basis. PureTech's operating
companies are fully consolidated in PureTech's consolidated
financial statements prepared in accordance with IFRS. As a result,
the consolidated statements of financial position incorporated
within PureTech's consolidated financial statements do not include
current valuations of the Group's operating companies. Because of
this and given the Company's limited revenue thus far given that
its products are still in clinical development, the Directors
believe that the Group's consolidated financial statements do not
currently provide a meaningful standalone basis for assessing the
value or performance of PureTech.
As a result, at the close of each annual financial period, the
Directors plan to estimate, and formally approve, the value of all
growth stage operating companies in the Group, which is used to
derive the Aggregate Value of Growth Stage Operating Company
Holdings ("Aggregate Holdings"). The Aggregate Holdings was $222.4
million as of 31 December 2014 based on the PureTech's holdings in
its seven growth stage companies. The Aggregate Holdings value does
not include PureTech's five project phase companies, its 10 concept
phase initiatives or the amount of cash and short term investments
held at the parent company level. The Directors believe that the
performance of the Group can be assessed by reference to the
movement in the valuation of its growth stage operating companies
over time. Further details about the Aggregate Holdings and the
Group valuation methodology are disclosed in the consolidated
financial information in the prospectus prepared in connection with
the offer of ordinary shares of the Company on the Main Market of
the London Stock Exchange (the "Prospectus").
FINANCIAL REVIEW
Condensed Consolidated Statement of Loss and Other Comprehensive
Loss
For the six months ended: 30 June 2015 30 June 2014
(unaudited) (unaudited)
--------------------------------------------------- --- ------------- -------------
$'000 $'000
Revenue 10,989 1,140
Operating expenses(1):
General and administrative expenses(2) (15,890) (4,123)
Research and development expenses (6,705) (1,935)
Operating loss (11,606) (4,918)
Net finance costs (3,869) (27,919)
Loss before taxes (15,475) (32,837)
-------------------------------------------------------- ------------- -------------
Income taxes (1,759) -
--------------------------------------------------- --- ------------- -------------
Loss for the period (17,234) (32,837)
Other comprehensive income (loss), net of tax (268) (3)
Total comprehensive loss for the period (17,502) (32,840)
-------------------------------------------------------- ------------- -------------
Comprehensive loss attributable to:
Owners of the Company (9,595) (16,401)
Non-controlling interest (7,907) (16,439)
-------------------------------------------------------- ------------- -------------
Total comprehensive income/ (loss) for the period (17,502) (32,840)
(1) Operating expenses include non-cash share-based compensation
charges of $4.3 million in H12015 and $0.3 million in H12014.
(2) General and administrative expenses include $3.4 million of
IPO related expenses in H12015.
Revenue increased by $9.8 million to $10.9 million during the
first half of 2015 (HY14: $1.1 million). This increase is primarily
attributable to a $10.0 million non-refundable payment Vedanta
Biosciences received as part of its collaboration with Janssen
Biotech to develop and commercialise VE202, a microbiome product
candidate.
Operating expenses, comprised of general and administrative and
research and development expenses, increased by $16.5 million to
$22.6 million during the first half of 2015 (HY14: $6.1 million)
reflecting the significant expansion of activities at Growth Stage
Operating Companies, parent company IPO preparation costs and
business development efforts to identify new technologies and
start-up investments in operating companies. Non-cash share based
compensation accounted for $4.0 million of the increase in
operating expenses. The number of persons employed by the Group
increased by 22 or 56% to 61 during the first half of 2015 (HY14:
39), with an 83% increase in the number of R&D personnel to 33
(HY14: 18) and a 33% increase in the number of G&A personnel to
28 (HY14: 21). The Directors expect the number of persons employed
by the group to further increase in the second half of 2015. The
drivers of the increase in general and administrative expenses and
research and development expenses are highlighted below.
General and administrative expenses increased $11.8 million to
$15.9 million during the first half of 2015 (HY14: $4.1 million).
The increase is primarily attributable to:
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August 25, 2015 02:00 ET (06:00 GMT)
$5.8 million related to personnel expenses, of which $4.1
million represents non-cash share based compensation and $1.2
million of incentive compensation, primarily related to the June
2015 PureTech Health plc IPO;
$3.4 million to professional services associated with the June
2015 PureTech Health plc IPO, which were not otherwise offset
against the net proceeds of the offering and with the Gelesis'
filing of a registration statement on Form S-1 with the SEC
relating to a proposed initial public offering of its common stock
on the NASDAQ Global Market. Gelesis will consider general market
conditions at the time if the company decides to proceeds with the
initial public offering; and
$2.6 million for all other G&A expenses supporting program
expansion and advancement at the operating companies and PureTech
Health plc's public company costs.
Research and development expenses increased $4.8 million to $6.7
million during the first half of 2015 (HY14: $1.9 million). The
increase is mainly due to:
$1.4 million related to Gelesis clinical studies and support
costs;
$1.2 million related to personnel expenses at operating
companies supporting advancement in research and development
programs;
$1.2 million of non-personnel expenses invested in Akili, Tal,
Entrega and The Sync Project programs; and
$1.0 million sublicense fee to the University of Tokyo in
relation to the $10.0 million payment received by Vedanta
Biosciences from Janssen Biotech
Operating loss increased by $6.7 million to $11.6 million during
the first half of 2015 (HY14: $4.9 million) reflecting the factors
above and the overall growth of the Group and its accelerating
research and development activities across its Growth Stage
Operating Companies.
The Group's net finance costs decreased by $24 million to $3.9
million during the first half of 2015 (HY14: $27.9 million). This
decrease results from a $23.4 million decline in finance costs to
$4.5 million and a $0.6 million increase in finance income. The
decline in finance costs is primarily due to lower IAS 39 fair
value non-cash accounting charges in 2015 related to the fair value
of subsidiary preferred stock, warrant and convertible note
derivatives.
The Group incurred a loss before taxes of $15.5 million during
the first half of 2015 (HY14: $32.8 million). The $17.3 million
decrease in the first half of 2015 results from a $6.7 million
increase in operating loss offset by a decline of $24 million in
net finance costs. The loss before income taxes pre IAS 39 fair
value accounting adjustments was $13.8 million during the first
half of 2015 (HY14: $5.3 million).
The Group recorded a provision for income taxes of $1.8 million
during the first half of 2015 (FY14: nil). The provision for income
taxes primarily relates to U.S. federal and state income taxes on
the $10.0 million of revenue recognised by Vedanta Biosciences, net
of available net operating losses.
Other comprehensive loss results from foreign currency
translation differences in an Italian subsidiary of Gelesis, whose
functional currency is the Euro. The Group incurred other
comprehensive loss of $0.3 million during the first half of 2015
(FY14: de minimis).
As a result of the factors discussed above, total comprehensive
loss for the first half of 2015 decreased by $15.3 million to $17.5
million (HY14: $32.8 million).
Loss and other comprehensive loss for the half year are
attributable to the Company and to the non--controlling interest
shareholders according to their proportionate share of interest in
the Group's operating companies. Changes in the non--controlling
interest reflect the allocation of the company loss for the period
to non--controlling interest shareholders, as well as adjustments
for changes in ownership during the respective period. Loss and
other comprehensive loss for the first half of 2015 attributable to
the Company were $9.6 million (HY14: $16.4 million) and $7.9
million (HY14: $16.4 million) to non-controlling interest
shareholders.
Condensed Consolidated Statements of Financial Position
Total assets increased significantly by $232.5 million during
the first half of 2015 to $303.5 million (FY14: $71.0 million)
primarily as a result of PureTech's June 2015 IPO which resulted in
net proceeds of $159.0 million, a pre-IPO private equity financing
resulting in net proceeds of $52.2 million and $24.5 million of
subsidiary equity financings. As a result of these financings,
cash, cash equivalents and short term investments increased by
$228.5 million during the first half of 2015.
Non-current assets increased by $3.0 million during the first
half of 2015, primarily as a result of $1.9 million of
manufacturing equipment purchased by Gelesis and leasehold
improvements related to PureTech Health plc's new offices located
in Boston, Massachusetts, and the $1.1 million acquisition of
intellectual property from Academica Life Science S.r.l.
Current liabilities increased by $25.1 million during the first
half of 2015 to $118.8 million (FY14: $93.7 million) resulting
primarily from a $19.5 million net increase in subsidiary
securities and related derivative liabilities. This increase
results mainly from equity financings offset by conversions of
convertible notes into equity of Tal and Gelesis during the first
half of 2015 and IAS 39 fair value accounting adjustments.
Cash, cash equivalents and short term investments
Mainly as a result of PureTech Health plc and subsidiary equity
offerings totalling net proceeds of $235.8 million (comprising
PureTech's $211.5 million equity financings during the 2015 half
year and $24.3 million of subsidiary equity financings), cash, cash
equivalents and short-term investments increased to $291.1 million
at 30 June 2015 compared to $62.6 million at 31 December 2014.
Subsequent to 30 June 2015, the Group received additional IPO
proceeds of $24.1 million upon the exercise in full of the IPO
underwriter's over-allotment option.
The other principal constituents of the movements in cash during
the half year periods presented are as follows:
30 June
-------------------
2015 2014
--------- --------
$'000 $'000
Net cash outflow from operating activities (2,054) (3,325)
Net cash (outflow)/ inflow from investing
activities (73,044) 50
Net cash inflow from financing activities 234,387 6,226
Effect of exchange rates on cash and
cash equivalents 54 (8)
--------- --------
Movement during the half year 159,343 2,943
The Group's net cash used in operating activities was $2.1
million for first half of 2015 (HY14: $3.3 million). This net
outflow was due to net operating losses of $17.2 million during the
first half of 2015 (HY14: $32.8 million) offset from the movements
in non-cash items of $8.2 million and changes in operating assets
and liabilities of $6.9 million.
The Group had a net cash outflow from investing activities of
$73.0 million during the first half of 2015 (HY14: $0.05 million
net inflow) resulting from $69.6 million of net purchases of short
term investments and $3.4 million for leasehold improvements,
purchases of equipment and intangible assets during the first half
of 2015.
The net cash inflow from financing activities during the first
half of 2015 was $235.8 million from equity financings discussed
above offset by $1.4 million of deferred subsidiary IPO costs, net
subsidiary debt repayments and subsidiary dividends.
As a result of the movements above, cash and cash equivalents at
30 June 2015 increased by $159.3 million (HY14: $2.9 million) to
$221.3 million (HY14: $10.1 million). In addition, at 30 June 2015,
short term investments amounted to $69.8 million (HY14: $0.7
million), which are invested in U.S. Treasury instruments.
Principal Risks and Uncertainties
The principal risks and uncertainties surrounding the Group's
business are set out in detail in Part II - Risk Factors of the
Prospectus.
Those risks can be summarised as follows:
-- Clinical Trials Risk: Clinical studies are typically
expensive, complex and time consuming and generally have a high
rate of failure. All of the growth stage operating companies are
subject to such clinical trial risks, including those with near
term clinical trial data read outs (e.g. Akili and Tal) from trials
designed to validate their product candidates' safety and
efficacy.
-- Growth Risk: The Group currently has 12 operating companies
and constantly seeks new opportunities to identify and develop
promising technologies. There is no guarantee that the Group can
maintain its historical operating company growth rate, select
promising technologies for its themed initiatives which are capable
of achieving accelerated development, or continue to manage future
growth through new themes.
-- Key Personnel: The industries in which the Group operates are
specialised and the Group therefore requires highly qualified
management, clinical and scientific personnel. The Group currently
has a highly qualified and experienced team, and may not be
successful if it cannot retain its current personnel and attract
new qualified and experienced personnel.
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-- Competition: The Group has competitors in the UK, the U.S.
and internationally, both in relation to identifying and developing
early stage technologies as well as in the discovery and
development of product candidates. The Company's competitors
include universities and other research institutions as well as
established pharmaceutical companies and biotechnology companies.
The degree of competition in the market sectors where the Group is
seeking to develop its products could materially adversely affect
the Group's operating companies, prospects, financial condition and
results of operations.
-- Concentration of Value: A large proportion of the overall
value of the Group may at any time reside in a small proportion of
the Group's various businesses. Accordingly, there is a risk that
if one or more of the clinical trials or intellectual property
rights relevant to a valuable business were impaired this would
have a material adverse impact on the overall value of the
Group.
-- Intellectual Property: The Group's operating companies are
highly dependent upon intellectual property. The failure of any of
Group' operating companies to obtain patent protection for its
intellectual property would have a material adverse impact on the
value of such operating company.
-- Product Liability: If serious adverse side effects are
identified for any of the Group's operating companies' product
candidates, the Group may need to abandon or limit its development
of that product candidate, which may delay or prevent marketing
approval, or, if approval is already received for the product
candidate, require them to be taken off the market, require them to
include safety warnings or otherwise limit or prevent their
sales.
-- Regulation: The Group cannot commercialise a product
candidate whose sale requires regulatory approval until the
appropriate regulatory authorities have reviewed and approved it
and its marketing. Even if the product candidate meets endpoints in
the clinical studies by, inter alia, demonstrating safety and
efficacy, such regulatory agencies may not complete their review
processes in a timely manner, or the Group may not be able to
obtain regulatory approval.
-- Sector Exposure: Intellectual property commercialisation is a
relatively new business sector and consequently there is a
relatively small number of companies with comparable business
models, and even fewer that are specialised in healthcare.
Accordingly, any event which detrimentally affects the companies in
this comparator group may adversely affect the value of the Group
and the value of the Ordinary Shares.
-- Lock-up Expiration: A substantial number of the Ordinary
Shares remain subject to lock-up restrictions prohibiting their
sale. However, sales of substantial numbers of Ordinary Shares
following any relaxation of the lock--up restrictions or time
expiration of the lock--up periods or sales by shareholders could
adversely affect the prevailing market price of the Ordinary
Shares.
A copy of the Prospectus is available, subject to certain
restrictions, on the Company's website at www.puretechhealth.com
under "Investors-IPO Documents".
Independent review report to PureTech Health plc
Introduction
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2015 which comprises the condensed
consolidated statement of loss and other comprehensive loss,
condensed consolidated statement of financial position, condensed
consolidated statement of changes in equity, condensed consolidated
statements of cash flows (together, the "consolidated interim
financial statements") and the related explanatory notes. We have
read the other information contained in the half-yearly financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA"). Our review
has been undertaken so that we might state to the company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
The company has not previously produced a half-yearly report
containing a condensed set of consolidated interim financial
statements. As a consequence, the review procedures set out above
have not been performed in respect of the comparative period for
the six months ended 30 June 2014.
The company has not previously produced an annual report
containing a set of consolidated financial statements. As such, the
information presented as at 31 December 2014 has not been extracted
from a set of financial statements that have previously been
subject to an audit by an independent auditor.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2015 are not prepared, in all material respects, in accordance
with IAS 34 as adopted by the EU and the DTR of the UK FCA.
Charles le Strange Meakin
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
Canary Wharf
London
E14 5GL
21 August 2015
Condensed Consolidated Statement of Loss and Other Comprehensive
Loss
For the six months ended: 30 June 2015 30 June 2014
(unaudited) (unaudited)
---------------------------------------------------------- ----- ------------- -------------
Note $'000 $'000
Revenue 10,989 1,140
Operating expenses:
General and administrative expenses (15,890) (4,123)
Research and development expenses (6,705) (1,935)
Operating loss (11,606) (4,918)
Finance income 609 25
Finance costs - contractual (2,802) (372)
Finance costs - IAS 39 fair value accounting (1,676) (27,572)
---------------------------------------------------------- ----- ------------- -------------
Net finance costs 5 (3,869) (27,919)
Loss before taxes pre IAS 39 fair value accounting (13,799) (5,265)
Finance costs - IAS 39 fair value accounting (1,676) (27,572)
---------------------------------------------------------- ----- ------------- -------------
Loss before taxes (15,475) (32,837)
---------------------------------------------------------- ----- ------------- -------------
Income taxes 6 (1,759) -
---------------------------------------------------------- ----- ------------- -------------
Loss for the period (17,234) (32,837)
Other comprehensive loss:
Items that are or may be re-classified as profit or loss
Foreign currency translation differences (268) (3)
Total other comprehensive loss (268) (3)
Taxes - -
---------------------------------------------------------- ----- ------------- -------------
Other comprehensive loss, net of tax (268) (3)
---------------------------------------------------------- ----- ------------- -------------
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Total comprehensive loss for the period (17,502) (32,840)
Loss attributable to:
Owners of the Company (9,327) (16,398)
Non-controlling interests 12 (7,907) (16,439)
---------------------------------------------------------- ----- ------------- -------------
(17,234) (32,837)
Comprehensive loss attributable to:
Owners of the Company (9,595) (16,401)
Non--controlling interest 12 (7,907) (16,439)
---------------------------------------------------------- ----- ------------- -------------
(17,502) (32,840)
Loss per share
Basic loss per share 3 (0.06) (0.26)
Diluted loss per share 3 (0.06) (0.26)
Condensed Consolidated Statement of Financial Position
As of the period ended: Note 30 June 2015 31 December
2014
(unaudited) (unaudited)
-------------------------------- ----- ------------- -------------
$'000 $'000
Assets
Non-current assets
Property and equipment, net 8 3,163 1,227
Available for sale investments 77 78
Intangible assets, net 7 4,016 2,999
Other non-current assets 14 5
-------------------------------- ----- ------------- -------------
Total non-current assets 7,270 4,309
-------------------------------- ----- ------------- -------------
Current assets
Trade and other receivables 1,147 1,750
Prepaid expenses and other
current assets 3,464 1,836
Other financial assets 472 472
Short-term investments 69,836 701
Cash and cash equivalents 221,303 61,960
Total current assets 296,222 66,719
-------------------------------- ----- ------------- -------------
Total assets 303,492 71,028
-------------------------------- ----- ------------- -------------
Equity and liabilities
Equity
Share capital 4,219 2,362
Merger reserve 138,506 86,755
Share premium 157,893 -
Translation reserve (99) 169
Other reserve 7,475 3,139
Accumulated deficit (80,591) (70,421)
-------------------------------- ----- ------------- -------------
Equity attributable to owners
of the Company 9 227,403 22,004
Non-controlling interests 12 (43,674) (45,317)
-------------------------------- ----- ------------- -------------
Total equity 183,729 (23,313)
-------------------------------- ----- ------------- -------------
Non-current liabilities
Deferred revenue 373 561
Other long-term liabilities 571 107
-------------------------------- ----- ------------- -------------
Total non-current liabilities 944 668
-------------------------------- ----- ------------- -------------
Current liabilities
Deferred revenue 2,797 3,293
Trade and other payables 10,834 4,731
Other current liabilities
Subsidiary: 377 288
Notes payable 10 3,329 6,948
Derivative liability 13 53,881 52,794
Warrant liability 13 14,538 14,125
Preferred shares 11 33,063 11,494
Total current liabilities 118,819 93,673
-------------------------------- ----- ------------- -------------
Total liabilities 119,763 94,341
-------------------------------- ----- ------------- -------------
Total equity and liabilities 303,492 71,028
================================ ===== ============= =============
See accompanying notes to the condensed consolidated interim
financial statements.
Condensed Consolidated Statement of Changes in Equity
Share Capital
Shares Amount Share Merger Translation Other Accumulated Total Non--controlling Total
Premium reserve reserve reserve deficit Parent interests equity
equity (see Note
11)
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
----------------- ------------ ------- ------- -------- ----------- ------- ----------- -------- ---------------- ---------
Balance at
1 January
2014 63,658,930 1,273 - 31,238 111 1,558 (35,064) (884) (7,143) (8,027)
----------------- ------------ ------- ------- -------- ----------- ------- ----------- -------- ---------------- ---------
Net loss -- -- -- -- -- -- (16,398) (16,398) (16,439) (32,837)
Foreign currency
exchange -- -- -- -- (3) -- -- (3) -- (3)
Total
comprehensive
loss for
the six months
ended 30
June 2014 -- -- -- -- (3) -- (16,398) (16,401) (16,439) (32,840)
Conversion
of convertible
notes -- -- -- -- -- -- 320 320 -- 320
New funds
into
non--controlling
interests -- -- -- -- -- -- -- 889 889
Gain arising
from change
in NCI -- -- -- -- -- -- 1,194 1,194 (1,194) --
Amount
re-classified
to realised
gain included
in earnings -- -- -- -- -- (143) - (143) -- (143)
Dividends -- -- -- -- -- -- (96) (96) -- (96)
Equity--settled
share--based
payments -- -- - -- -- 315 -- 315 -- 315
----------------- ------------ ------- ------- -------- ----------- ------- ----------- -------- ---------------- ---------
Balance at
30 June 2014 63,658,930 1,273 - 31,238 108 1,730 (50,044) (15,695) (23,887) (39,582)
----------------- ------------ ------- ------- -------- ----------- ------- ----------- -------- ---------------- ---------
Balance at
1 January
2014 63,658,930 1,273 -- 31,238 111 1,558 (35,064) (884) (7,143) (8,027)
----------------- ------------ ------- ------- -------- ----------- ------- ----------- -------- ---------------- ---------
Net loss -- -- -- -- -- -- (41,643) (41,643) (34,300) (75,943)
Foreign currency
exchange -- -- -- -- 58 -- -- 58 -- 58
Total
comprehensive
loss for
the period -- -- -- -- 58 -- (41,643) (41,585) (34,300) (75,885)
Issuance
of shares
(net of issuance
costs of
$414,000) 37,402,400 748 -- 55,093 -- -- -- 55,841 -- 55,841
Conversion
of convertible
notes 331,560 7 -- 493 -- - 390 890 -- 890
Issuance
of shares
for services 175,730 4 -- 261 -- -- -- 265 -- 265
Conversion
of partnership
and profits
interests 16,065,690 321 -- (321) -- -- -- -- -- --
Issuance
of shares
as equity
incentives 464,657 9 -- (9) -- -- -- -- -- --
New funds
into
non--controlling
interests -- -- -- -- -- -- -- -- 1,031 1,031
Gain arising
from change
in NCI -- -- -- -- -- -- 5,992 5,992 (5,992) --
Amount
re-classified
to realised
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gain included
in earnings -- -- -- -- -- (143) -- (143) -- (143)
Dividends -- -- -- -- -- -- (96) (96) -- (96)
Equity--settled
share--based
payments -- -- -- -- -- 1,724 -- 1,724 1,087 2,811
----------------- ------------ ------- ------- -------- ----------- ------- ----------- -------- ---------------- ---------
Balance at
31 December
2014 118,098,967 2,362 -- 86,755 169 3,139 (70,421) 22,004 (45,317) (23,313)
----------------- ------------ ------- ------- -------- ----------- ------- ----------- -------- ---------------- ---------
Net loss -- -- -- -- -- -- (9,327) (9,327) (7,907) (17,234)
Foreign currency
exchange -- -- -- -- (268) -- -- (268) -- (268)
Total
comprehensive
loss for
the period -- -- -- -- (268) -- (9,327) (9,595) (7,907) (17,502)
Issuance
of shares 24,006,500 480 - 51,751 - - - 52,231 - 52,231
Issuance
of IPO Shares
(net of issuance
costs of
$11.8M) 67,599,621 1,352 157,918 - - - - 159,270 - 159,270
New funds
into
non--controlling
interests -- -- -- -- -- -- -- -- 8,661 8,661
Loss arising
from change
in NCI -- -- -- -- -- -- (889) (889) 889 --
Issuance
of shares
as equity
incentives 1,248,017 25 (25) -- -- -- -- -- - --
Conversion
of convertible
notes -- -- -- -- -- -- 88 88 -- 88
Dividends -- -- -- -- -- -- (42) (42) -- (42)
Equity--settled
share--based
payments -- -- -- -- -- 4,336 - 4,336 -- 4,336
Balance at
30 June 2015 210,953,105 4,219 157,893 138,506 (99) 7,475 (80,591) 227,403 (43,674) 183,729
================= ============ ======= ======= ======== =========== ======= =========== ======== ================ =========
See accompanying notes to the condensed consolidated interim
financial statements.
Condensed Consolidated Statements of Cash Flows
For the six months ended: Note 30 June 2015 30 June 2014
(unaudited) (unaudited)
$'000 $'000
------------------------------------------ ------ ------------- -------------
Cash flows from operating activities:
Net operating loss (17,234) (32,837)
Adjustments to reconcile net
operating loss to net cash used
in operating activities:
Non--cash items:
Depreciation and amortisation 283 222
Equity--settled share--based
payment expense 4 4,336 315
(Gain)/loss on foreign currency
transactions (291) 15
Finance costs 5 3,869 27,919
Changes in operating assets and
liabilities:
Accounts receivable, net 570 792
Other financial assets (9) (4)
Prepaid expenses and other current
assets (155) (232)
Deferred revenues (639) 283
Other long-term liabilities 464 1
Accounts payable and accrued
expenses 6,752 201
Net cash used in operating activities (2,054) (3,325)
------------------------------------------ ------ ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (2,247) (67)
Purchases of intangible assets 7 (1,155) --
Proceeds from sale of available-for-sale
investments -- 185
Purchase of short-term investments (100,895) (1,768)
Proceeds from maturity of short--term
investments 31,253 1,700
------------------------------------------ ------ ------------- -------------
Net cash provided (used in)/by
investing activities (73,044) 50
------------------------------------------ ------ ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of subsidiary
convertible notes 200 5,994
Repayments of long-term debt (307) (10)
Proceeds from the issuance of
shares, net of issuance costs 9 211,501 -
Proceeds from issuance of share
capital and warrants in subsidiaries 12,11 24,271 338
Subsidiary deferred initial public (1,236) --
offering costs
Dividends paid (42) (96)
Net cash provided by financing
activities 234,387 6,226
------------------------------------------ ------ ------------- -------------
Effect of exchange rates on cash
and cash equivalents 54 (8)
Net increase in cash and cash
equivalents 159,343 2,943
Cash and cash equivalents at
beginning of period 61,960 7,171
------------------------------------------ ------ ------------- -------------
Cash and cash equivalents at
end of period 221,303 10,114
------------------------------------------ ------ ------------- -------------
See accompanying notes to the condensed consolidated interim
financial statements.
Notes to the Condensed Consolidated Interim Financial
Statements
1. General information
a.) Reporting entity
PureTech is comprised of PureTech Health plc and its
subsidiaries (together, "the Group" or the "Company"). The Company
is publicly listed on the Main Market of the London Stock Exchange.
PureTech Health plc is a scientifically driven research and
development company that conceptualises, sources, validates and
commercialises unexpected and potentially disruptive approaches to
advance the needs of human health. The Company has a theme--driven
approach to creating and developing its initiatives, proposing
innovative solutions rooted in academic research and developing
them together with a creative group of cross disciplinary experts.
The Company structures its themed initiatives as independent
operating companies, to enable those initiatives to reach their
full potential and attract and incentivise skilled personnel,
investors and partners. The Group provides a combination of
experienced management and administrative support to its operating
companies in which it typically holds a significant ownership
interest. Cash contributed by PureTech Health plc to its
subsidiaries is used to fund research and to create a management
structure and operations.
The Group seeks third party validation of its operating
companies and concept-phase initiatives through strategic
collaboration, industry partnerships and grants. Use of
partnerships, grants and external debt and equity investments in
its operating companies enables the Group to distribute development
and financial risk, while preserving its significant equity
ownership and control of operating companies.
The Company was formed on 8 May 2015. On 18 June 2015, PureTech
Health plc completed a reorganisation of the corporate structure of
the group of companies controlled by its predecessor PureTech
Health, LLC ("PureTech LLC") pursuant to which PureTech Health plc
became the holding company of the Group. Preceding this
reorganisation, on 18 June 2015 each outstanding PureTech LLC
preferred share was converted into one Series 1 Common Share of
PureTech LLC. Thereafter, pursuant to an agreement entered into
between the Company, PureTech LLC and each of the members of
PureTech LLC who had signed a joint signature page, issued and
outstanding PureTech LLC Common Shares were exchanged as follows:
(i) each Series 1 Common Share was exchanged for ten Ordinary
Shares; (ii) each Series 2 Common Share was exchanged for Ordinary
Shares in the Company on the basis of an exchange ratio calculated
by reference to ten Ordinary Shares for each Series 2 Common Share,
adjusted for the currency exchange rate of GBP1:$1.5648 and to take
account of the Series 2 Common Share floor price of $4.31 per share
associated with each Series 2 Common Share so exchanged, with each
such number of Ordinary Shares to be issued by the Company being
rounded down to the nearest whole number; and (iii) each Series 3
Common
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Share was exchanged for Ordinary Shares in the Company on the
basis of an exchange ratio calculated by reference to ten Ordinary
Shares for each Series 3 Common Share, adjusted for the currency
exchange rate of GBP1:$1.5648 and to take account of the Series 3
Common Share floor price of $11.45 per share associated with each
Series 3 Common Share so exchanged, with each such number of
Ordinary Shares to be issued by the Company being rounded down to
the nearest whole number.
On 24 June 2015 the Company's entire issued ordinary share
capital of 227,248,008 ordinary shares of one pence each was
admitted to the premium listing segment of the Official List of the
UK Listing Authority and to trading on the Main Market of the
London Stock Exchange for listed securities.
b.) Basis of preparation
These interim financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34
Interim Financial Reporting. They do not include all the
information required for a complete set of IFRS financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and
performance since the last annual consolidated financial
information included in the Prospectus as at and for the year ended
31 December 2014.
The merger of PureTech Health plc and PureTech LLC was performed
so that existing shareholders of PureTech LLC obtained ownership in
PureTech Health plc in order to facilitate listing on the premium
listing segment of the Official List of the UK Listing Authority
and admission to the main market of the London Stock Exchange.
Ownership before and after the merger remained the same. As a
result, this has been accounted for under the principles of reverse
acquisition accounting. Share capital movements are shown as
occurred prior to the merger but in denominations consistent with
post-merger share capital. In addition the merger reserve records
amounts previously recorded as share premium net of differences
arising between share capital on the restructured basis and the
former basis.
Subsidiaries are fully consolidated from the date of
acquisition, being the date on which the Group obtains control and
continue to be consolidated until the date when such control
ceases. The financial information of the subsidiaries is prepared
for the same reporting period as the parent Company, using
consistent accounting policies. All intra-group balances,
transactions, unrealised gains and losses resulting from
intra-group transactions and dividends are eliminated in full.
Non-controlling interests ("NCI") are measured at their
proportionate share of the acquiree's identifiable net assets at
the acquisition date. If there is an obligation to deliver cash or
other assets, the investment is classified as subsidiary preferred
stock. Changes in the Group's interest in a subsidiary that do not
result in a loss of control are accounted for as equity
transactions.
This financial information presented in these half-yearly
results has been prepared under the historical cost convention. The
reporting currency adopted by the Company is U.S. dollar ('$') as
this is the functional currency of the majority of the entities in
the group. In preparing these interim financial statements,
management has made judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
The Company has prepared trading and cash flow forecasts for the
Group covering the period to 31 December 2016. After making
enquiries and considering the impact of risks and opportunities on
expected cash flows, the Directors have a reasonable expectation
that the Group has adequate cash to continue in operational
existence for the foreseeable future. For this reason, they have
adopted the going concern basis in preparing the half-yearly
results.
The financial information contained in this half-yearly report
does not constitute full statutory accounts as defined in section
434 of the Companies Act 2006. The condensed consolidated financial
statements are not audited and the results for the six months ended
30 June 2015 are not necessarily indicative of results for future
operating periods.
Although PureTech Health plc has not yet had to prepare
statutory accounts (its first accounting reference date will be 31
December 2015), it has prepared consolidated financial information
for the year ended 31 December 2014 for the purposes of preparing
its Prospectus. This information has been extracted and included
for comparative purposes in this Half-Yearly report.
These interim financial statements are unaudited and were
approved by the Board of Directors and authorised for issue on 21
August 2015.
c.) Use of judgments and estimates
In preparing this consolidated financial information, management
has made judgments, estimates and assumptions that affect the
application of the Group's accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from those estimates.
Estimates and underlying assumptions are reviewed on an
on--going basis. Revisions to estimates are recognised
prospectively.
Significant estimates are made by the Group when determining the
appropriate methodology for valuing the subsidiary businesses for
disclosure purposes and then in deriving the estimated fair value
including making certain estimates of the future earnings potential
of the businesses and determining the appropriate discount rate.
Significant judgment is applied in determining the valuation of
share--based payments, derivative instruments and warrants and in
determining the value and point of capitalisation of intangible
assets. Significant judgment is also applied in determining where
control over subsidiaries exists. Information about these critical
judgments and estimates is included in the following notes.
d.) Accounting policies
The accounting policies applied by the Group in these
half-yearly results are the same as those applied by the Group in
its consolidated financial information for the year ended 31
December 2014 included in the Prospectus and which will form the
basis of the 2015 Annual Report and Accounts. No new standards that
have become effective in the period have had a material effect on
the Group's financial statements.
2. Segment information
2.1 Basis for segmentation
The Directors are the Group's strategic decision--makers. The
Group's operating segments are reported based on the financial
information provided to the Directors at least quarterly for the
purposes of allocating resources and assessing performance. The
Directors monitor the results of two operating segments. Each
operating segment is considered a distinct unit by the Directors.
The Group's operating segments, which are also reportable segments,
are outlined below. Substantially all of the revenue and profit
generating activities of the Group are generated within the U.S.
and accordingly, no geographical disclosures are provided.
2.1.1 Growth stage operating companies -- subsidiaries in this
segment are those whose activities focus on actively developing
products to solve major healthcare problems in varied markets.
2.1.2 Project phase and sourcing companies - subsidiaries in
this segment are those whose activities are focused on financing,
sourcing and creating new operating companies and newly created
operating companies whose technologies are in the process of
validation.
2.2 Information about reportable segments
30 June 2015 (unaudited)
-------------------------------------------------------------------------------------------
Growth stage operating Project phase & Parent company & other Consolidated
companies sourcing companies
$'000 $'000 $'000 $'000
------------------------- ------------------------ ----------------------- -------------
Consolidated Statement
of Loss and Other
Comprehensive
Loss
Revenue 10,082 907 -- 10,989
Loss from continuing
operations, before
taxes (6,605) (218) (8,652) (15,475)
------------------------- ------------------------- ------------------------ ----------------------- -------------
Consolidated Statement
of Financial Position
Total assets 47,936 5,546 250,010 303,492
Total liabilities (118,088) (6,448) 4,773 (119,763)
------------------------- ------------------------- ------------------------ ----------------------- -------------
Net
(liabilities)/assets (70,152) (902) 254,783 183,729
========================= ========================= ======================== ======================= =============
31 December 2014 (unaudited)
------------------------------------------------------------------------------------------
Growth stage operating Project phase & Parent company & other Consolidated
companies sourcing companies
$'000 $'000 $'000 $'000
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------------------------ ------------------------ ----------------------- -------------
Consolidated Statement
of Financial Position
Total assets 15,710 1,421 53,897 71,028
Total liabilities (95,749) (2,067) 3,475 (94,341)
-------------------------- ------------------------ ------------------------ ----------------------- -------------
Net (liabilities)/assets (80,039) (646) 57,372 (23,313)
========================== ======================== ======================== ======================= =============
30 June 2014 (unaudited)
-------------------------------------------------------------------------------------
Growth stage Project phase & sourcing Parent company & other Consolidated
operating companies
companies
$'000 $'000 $'000 $'000
Consolidated Statement
of Loss and Other
Comprehensive
Loss
Revenue 120 1,020 -- 1,140
Loss from continuing
operations, before
taxes (32,138) (223) (476) (32,837)
=============================== ============= ============================== ======================= =============
The activity between the parent company and the reporting
segments has been eliminated in consolidation. These elimination
amounts are included in the parent company and other amounts shown
above.
2.3 Growth stage operating company valuation
At the close of each annual financial period, the Directors
estimate, and formally approve, the value of all growth stage
operating companies in the Group, which is used to derive the
Aggregate Value of Growth Stage Operating Company Holdings
("Aggregate Holdings"). The Aggregate Holdings is a
sum--of--the--parts valuation of all the growth stage companies in
the Group.
The Aggregate Holdings was $222.4 million as at 31 December 2014
and takes into account the value implied by the following: (i) the
closing by Vedanta Biosciences of a licensing agreement with
Janssen Biotech for a non-refundable upfront payment and milestone
payments of up to $339 million plus tiered royalties to develop and
commercialise its microbiome product candidate VE202 in early
January 2015, (ii) the closing of a $14.5 million financing of
which PureTech invested $5 million, by Tal Medical in March 2015
and (iii) the closing of a $22.3 million financing, of which
PureTech invested $3 million, by Gelesis in March 2015. The
Directors believe there has been no significant change in the
Aggregate Holdings value since 31 December 2014 through 30 June
2015 outside of those items described in the immediately preceding
sentence. Further details about the Aggregate Holdings and the
Group valuation methodology are disclosed in the consolidated
financial information included in the Prospectus.
Notwithstanding the fact that the valuation methodologies
applied are based on the AICPA Guidelines and while the Board
considers the methodologies and assumptions adopted in each
valuation are supportable, reasonable and robust, because of the
inherent uncertainty of valuation, those estimated values may
differ significantly from the values that would have been used had
a ready market for the investment existed and the differences could
be significant. The AICPA Guidelines do not represent, but are
consistent with, valuation principles adopted under, IFRS. The
operating company valuations are not presented as alternative
measures to, and should be read in conjunction with, the Group's
consolidated financial information.
In addition to the Aggregate Holdings Value, the Directors
believe that PureTech's established partner network and significant
pipeline of future opportunities to form and develop new subsidiary
companies will enable it to create and realise further value for
shareholders. The Directors believe that PureTech has created
significant brand value and name recognition providing access to
new deal opportunities and potential partners for its subsidiaries,
together with a suite of operational standards, processes and know
how that enable the Group to apply its business model and create
shareholder value in a capital efficient manner.
3. Earnings per share
The calculation of basic and diluted earnings per share has been
calculated by dividing the loss for the period attributable to
ordinary shareholders of $9.3 million (HY14: $16.4m), by the
weighted average number of ordinary shares outstanding of
146,105,740 (HY14: 63,658,930) during the six-month period ended 30
June 2015:
Loss attributable to ordinary shareholders:
For the six months ended: 30 June 2015 30 June 2014
(unaudited) (unaudited)
----------------------------------- ------------------ --------------------
Basic Diluted Basic Diluted
$'000 $'000 $'000 $'000
-------- -------- --------- ---------
Loss for the period, attributable
to the owners of the Company (9,327) (9,327) (16,398) (16,398)
Loss attributable to ordinary
shareholders (9,327) (9,327) (16,398) (16,398)
----------------------------------- -------- -------- --------- ---------
Weighted average number of ordinary shares:
For the six months ended: 30 June 2015 30 June 2014
(unaudited) (unaudited)
------------------------------------- -------------------------- ------------------------
Basic Diluted Basic Diluted
$'000 $'000 $'000 $'000
------------ ------------ ----------- -----------
Issued ordinary shares on 1 January 118,098,967 118,098,967 63,658,930 63,658,930
Effect of shares issued 28,006,773 28,006,773 - -
Weighted average ordinary shares 146,105,740 146,105,740 63,658,930 63,658,930
------------------------------------- ------------ ------------ ----------- -----------
The following potentially dilutive securities (which are
ordinary shares issued pursuant to the PureTech LLC Incentive
Compensation arrangements detailed in note 4) have been excluded
(on a weighted average basis for the period) from the computation
of diluted weighted-average shares outstanding as they are subject
to vesting conditions:
30 June 2015 30 June 2014
-------------------------------------------------- ------------- -------------
Weighted average unvested equity incentive shares 13,316,511 -
-------------------------------------------------- ------------- -------------
Loss per share:
For the six months ended: 30 June 2015 30 June 2014
(unaudited) (unaudited)
--------------------------- ----------------- -----------------
Basic Diluted Basic Diluted
$'000 $'000 $'000 $'000
------- -------- ------- --------
Loss per share (0.06) (0.06) (0.26) (0.26)
4. Share--based payments
The share-based payments expense for the period was $4.3 million
(HY14: $315,000) comprising charges related to the PureTech Health
plc incentive stock issuances and subsidiary plans, as disclosed in
the Prospectus.
The Performance Share Plan ("PSP")
In June 2015, the Company adopted the PSP. Under the PSP, awards
over Ordinary Shares may be made to the Directors, senior managers
and employees of, and other individuals providing services to the
Company and its operating companies up to a maximum authorised
amount of 22,724,800 ordinary shares. As of the six months ended 30
June 2015, no awards have been granted under this plan. Refer to
complete details of the plan within the Prospectus.
PureTech LLC Incentive Compensation
In May 2015 and August 2014, PureTech LLC's Directors approved
the issuance of shares to management, the directors and advisors of
PureTech LLC, subject to vesting restrictions. For the six months
ended 30 June 2015 and 30 June 2014, there were 18,007,537 shares
and nil shares granted respectively, of which 16,294,863 shares
remain unvested as at 30 June 2015. The fair value of the shares
awarded was estimated as of the date of grant. The Company recorded
an expense of $2.7 million and nil for the six months ended 30 June
2015 and 30 June 2014.
Subsidiaries plans
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Certain subsidiaries of the Group have adopted stock option
plans. A summary of unaudited stock option activity in these
subsidiaries for the six months ended 30 June 2015 and 2014,
respectively, is presented in the following table:
Vedanta
Gelesis Akili Karuna Tal Biosciences Knode Entrega Total
-------------------- ---------- -------- --------- ---------- ------------- -------- --------- ----------
Outstanding
as of 1 January
2014 1,114,049 643,000 541,927 290,000 -- -- 687,500 3,276,476
-------------------- ---------- -------- --------- ---------- ------------- -------- --------- ----------
Granted during
the year 489,131 -- -- 1,203,397 550,000 194,063 -- 2,436,591
Exercised
during the
year -- (5,000) -- -- -- -- -- (5,000)
Forfeited
during the
year -- -- -- (263,597) -- -- (25,000) (288,597)
-------------------- ---------- -------- --------- ---------- ------------- -------- --------- ----------
Outstanding
as of 31 December
2014 1,603,180 638,000 541,927 1,229,800 550,000 194,063 662,500 5,419,470
-------------------- ---------- -------- --------- ---------- ------------- -------- --------- ----------
Granted during
the period 97,700 -- -- 232,500 -- -- -- 330,200
Exercised -- -- -- -- -- -- -- --
during the
year
Forfeited
during the
year -- -- (45,000) -- -- -- - (45,000)
-------------------- ---------- -------- --------- ---------- ------------- -------- --------- ----------
Outstanding
as of 30 June
2015 1,700,880 638,000 496,927 1,462,300 550,000 194,063 662,500 5,704,670
-------------------- ---------- -------- --------- ---------- ------------- -------- --------- ----------
Vedanta
Gelesis Akili Karuna Tal Biosciences Knode Entrega Total
------------------ ---------- -------- -------- -------- ------------- -------- -------- ----------
Outstanding
as of 1 January
2014 1,114,049 643,000 541,927 290,000 -- -- 687,500 3,276,476
------------------ ---------- -------- -------- -------- ------------- -------- -------- ----------
Granted during
the year -- -- -- -- 550,000 194,063 -- 744,063
Exercised -- -- -- -- -- -- -- --
during the
year
Forfeited -- -- -- -- -- -- -- --
during the
year
------------------ ---------- -------- -------- -------- ------------- -------- -------- ----------
Outstanding
as of 30 June
2014 1,114,049 643,000 541,927 290,000 550,000 194,063 687,500 4,020,539
------------------ ---------- -------- -------- -------- ------------- -------- -------- ----------
Gelesis fair value measurements
The fair value of the stock options awarded under the Gelesis
2006 Stock Incentive Plan (the "Gelesis Plan") was estimated at the
grant date using the Black--Scholes option valuation model, taking
into account the terms and conditions upon which options are
granted, with the following weighted--average assumptions:
For the six months ended: 30 June 2015 30 June 2014
(unaudited) (unaudited)
(1)
------------------------------------------- ------------- -------------
Expected volatility 72.4% n/a
Expected term (in years) 8.3 n/a
Risk--free interest rate 2.2% n/a
Expected dividend yield 0% n/a
Weighted average share price at grant date $9.76 n/a
Weighted average exercise price $7.13 n/a
=========================================== ============= =============
No stock options were granted during the six months ended 30
June 2014.
Gelesis used an average historical share price volatility based
on an analysis of reported data for a peer group of comparable
companies which were selected based upon industry similarities. As
there is not sufficient historical share exercise data to calculate
the expected term of the options, Gelesis elected to use the
"simplified" method for all options granted at the money-to-value
share option grants. Under this approach, the weighted average
expected life is presumed to be the average of the vesting term and
the contractual term of the option.
The Company recorded stock compensation expense related to the
Gelesis Plan of $1.6 million and $0.3 million for the six months
ended 30 June 2015 and 30 June 2014.
Share--based payment expense
The following table provides the classification of the Group's
consolidated share--based payment expense as reflected in the
condensed consolidated statement of loss and other comprehensive
loss (in thousands):
Six months Six months
ended 30 ended 30 June
June 2015 2014
(unaudited) (unaudited)
$'000 $'000
---------------------------- ------------- ---------------
General and administrative 4,044 15
Research and development 292 300
------------- ---------------
Total 4,336 315
============================ ============= ===============
There was no income tax benefit recognised for share--based
payment arrangements during the periods present due to operating
losses.
5. Financial costs
The following table shows the breakdown of finance income and
costs:
30 June 2015 30 June 2014
For the six months ended: (unaudited) (unaudited)
------------- -------------
$'000 $'000
Finance income
Realised gain on available for sale investments............................ - 8
Interest income on bank deposits............................................. 609 17
------------- -------------
Total finance income.......................................................... 609 25
Finance costs...................................................................
Interest expense on other borrowings........................................ 392 212
Other expenses and fees........................................................ 250 -
Non-cash interest expense on convertible notes............................ 361 160
Loss on extinguishment of subsidiary notes payable....................... 1,799 -
------------- -------------
Total finance costs contractual................................................ 2,802 372
Loss from change in fair value of warrant liability......................... 413 7,018
Loss on fair value measurement of derivative liability..................... 1,263 20,554
------------- -------------
Total finance costs............................................................. 4,478 27,944
============= =============
Finance costs, net............................................................... 3,869 27,919
============= =============
During the six months ended 30 June 2015, Gelesis recognised a
loss on extinguishment of $1.8 million upon the conversion of
outstanding convertible notes into preferred shares in conjunction
with its March 2015 private financing, as further described in note
11. Refer to note 13 for further details of warrant and derivative
mark to market charge.
6. Tax expense
Tax expense is recognised based on management's best estimate of
the weighted-average annual income tax rate expected for the full
financial year multiplied by the pre-tax income of the interim
reporting period.
The Group's consolidated effective tax rate in respect of
continuing operations for the six months ended 30 June 2015 was 10%
(six months ended 30 June 2014: 1%). The change in effective tax
rate was caused mainly by the following factors:
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-- Vedanta Biosciences generated taxable income for the six
months ended 30 June 2015 resulting in a year to date current tax
expense of $1.7 million.
7. Intangible assets
Academica Life Sciences
In February 2015, Gelesis S.r.l, a wholly-owned subsidiary of
Gelesis, completed the acquisition of Academica Life Sciences S.r.l
(Academica) for $1.1 million. Gelesis concluded that the purchase
of Academica represents the purchase of intellectual property which
meets the definition of an intangible asset. Gelesis has recorded
the initial cost of the acquisition of $1.1 million as an
intangible asset which will be amortised over the remaining useful
life of the intellectual property on a straight line basis.
8. Property and equipment
During the six months ended 30 June 2015, the Company entered
into an office lease agreement for office space in Boston,
Massachusetts. The Company capitalised leasehold improvements in
the amount of $1.1 million associated with the build out of the
office space which represents the majority of the $1.9 million
increase in property and equipment from 30 June 2014 to 30 June
2015.
9. Equity
In January 2015, the Company completed a private financing round
with Invesco Asset Management Limited as the lead investor and
issued 24,006,500 ordinary shares resulting in cash proceeds of
$52.2 million.
On 24 June 2015 the Company's entire issued ordinary share
capital of 227,248,008 ordinary shares of one pence each were
admitted to the premium listing segment of the Official List of the
UK Listing Authority and to trading on the Main Market of the
London Stock Exchange for listed securities. The IPO was for
67,599,621 new ordinary shares issued by the Company at 160 pence
per ordinary share. This resulted in approximately $159 million of
net proceeds from the IPO (net of issue cost of approximately $11.8
million) reflected in the share premium balance as of 30 June
2015.
The Group may, at its absolute discretion, pay an incentive fee
to the IPO underwriter equal to 1.25% of the IPO proceeds,
GBP1,554,791 ($2,444,925), 90 days after admission to the London
Stock Exchange. The Group has not yet made a determination on the
payment of this incentive fee.
The IPO also included an over-allotment option equivalent to 15%
of the total number of new ordinary shares, or 10,139,943. The
stabilisation manager gave notice to exercise in full its
over-allotment option after the reporting period on 2 July 2015. As
a result, the Company issued 10,139,943 Shares at the offer price
of 160 pence per share achieving further net proceeds for the
Company of GBP15.7 million, or approximately USD $24.1 million. The
total number of issued ordinary shares and voting rights in the
Company after issuing the over-allotment shares is 237,387,951.
Movements below explain the movements in share capital taking
into account the reorganisation. Each movement in share capital
reflects the number of shares and nominal value of the shares as if
the reorganisation had been in place at that date and the shares
were those of PureTech Health plc.
30 June 31 December
2015 2014
(unaudited) (unaudited)
Equity Note $'000 $'000
----------------------------------------------------- ----- ------------- -------------
Share capital, GBP0.01 par value, issued and
fully paid 227,248,008 and 118,098,967 as
of 30 June 2015, and 31 December 2014 respectively 4,219 2,362
Share premium 157,893 -
Merger reserve 138,506 86,755
Translation reserve (99) 169
Other reserves 7,475 3,139
Accumulated deficit (80,591) (70,421)
----------------------------------------------------- ----- ------------- -------------
Equity attributable to owners of the Group 227,403 22,004
Non--controlling interests 12 (43,674) (45,317)
----------------------------------------------------- ----- ------------- -------------
Total equity 183,729 (23,313)
===================================================== ===== ============= =============
At 30 June 2015 outstanding ordinary shares were 210,953,105 and
exclude 16,294,863 unvested ordinary shares issued pursuant to
PureTech LLC Incentive Compensation arrangements detailed in note
4.
10. Notes payable
In conjunction with its March 2015 private financing, Gelesis
converted $3.9 million of convertible notes plus accrued interest
into preferred shares. During the same month, Tal, also in
conjunction with its private financing, converted $0.5 million of
convertible notes plus accrued interest into preferred shares.
These conversions resulted in the recognition of $0.9 million of
related derivatives. Vedanta Biosciences repaid $0.3 million of
convertible notes payable 31 May 2015. The decrease in the notes
payable balance from 31 December 2014 to 30 June 2015 is primarily
driven by these transactions.
11. Subsidiary preferred shares
Certain of the Group's subsidiaries have outstanding preferred
shares which have been classified as a liability as the
subsidiaries have a contractual obligation to deliver cash or other
assets to the holders under certain future events. The preferred
shares do not contain mandatory dividend rights and are not
mandatorily redeemable. The preferred shares are convertible into
common stock of the subsidiary at the option of the holder and
mandatorily convertible into common stock of the subsidiary upon a
subsidiary qualified financing or upon the vote of the holders of a
majority of the subsidiary preferred shares. The conversion feature
has been accounted for as a derivative liability at fair value with
the residual proceeds allocated to the subsidiary preferred share
at issuance. The preferred shares are entitled to a vote with
holders of common stock on an as-converted basis. The holders of
the preferred shares are entitled to a liquidation preference
amount in the event of a liquidation or a deemed liquidation event
of the respective subsidiary.
The following summarises the subsidiary preferred share
balance:
30 June 2015 31 December
2014
---------------- ------------
$'000 $'000
---------------------- ---------------- ------------
Subsidiary preferred
shares 33,063 11,494
====================== ================ ============
In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of a subsidiary, the holders of
subsidiary preferred shares then outstanding shall be entitled to
be paid out of the assets of the subsidiary available for
distribution to stockholders and before any payment shall be made
to holders of common stock. A merger, acquisition, sale of voting
control or other transaction of a subsidiary in which the
shareholders of the subsidiary do not own a majority of the
outstanding shares of the surviving company shall be deemed to be a
liquidation event. Additionally, a sale, lease, transfer or other
disposition of all or substantially all of the assets of the
subsidiary shall also be deemed a liquidation event.
The minimum liquidation preference that would be payable to the
subsidiary preferred holders upon a liquidation event of the
subsidiaries, is as follows:
30 June 2015 31 December
2014
--------------- ------------
$'000 $'000
----------------- --------------- ------------
Akili 4,613 4,613
----------------- --------------- ------------
Follica 2,020 2,020
----------------- --------------- ------------
Gelesis 35,569 14,451
----------------- --------------- ------------
Total 42,202 21,084
================= =============== ============
For the six months ended 30 June 2015, the Group recognised the
following changes in subsidiary preferred shares:
In March 2015, Gelesis closed an $18.0 million private equity
financing with Invesco Asset Management Limited as the lead
investor. PureTech invested $3.0 million in the financing. Also, in
conjunction with this transaction, preferred shares were issued
upon conversion of $4.3 million of outstanding convertible
notes.
12. Non-controlling interest
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The following summarises the changes in the equity classified
non-controlling ownership interest in subsidiaries by reportable
segment:
Growth Project Parent Consolidated
stage operating phase & company
companies sourcing & other
companies
$'000 $'000 $'000 $'000
----------------- ----------- --------- -------------
Non--controlling interest
as of 31 December 2014 (45,322) 5 -- (45,317)
-------------------------------- ----------------- ----------- --------- -------------
New funds into non-controlling
interest 8,661 -- -- 8,661
-------------------------------- ----------------- ----------- --------- -------------
Share of comprehensive
loss (7,908) 1 -- (7,907)
-------------------------------- ----------------- ----------- --------- -------------
Effect of change in Group's
ownership interest 889 -- -- 889
-------------------------------- ----------------- ----------- --------- -------------
Non--controlling interest
as of 30 June 2015 (43,680) 6 -- (43,674)
================================ ================= =========== ========= =============
A portion of the non-controlling ownership interests in Tal and
Karuna are held in preferred shares which entitles the holders to a
liquidation preference amount in the event of a liquidation or a
deemed liquidation event of the respective subsidiary. The minimum
liquidation preference that would be payable to the non-controlling
interest holders upon a liquidation event of the subsidiaries is as
follows:
30 June 2015 31 December 2014
$'000 $'000
-------- ------------- -----------------
Karuna 313 313
Tal 11,430 1,160
-------- ------------- -----------------
Total 11,743 1,473
======== ============= =================
For the six months ended 30 June 2015, the Group recognised the
following changes in ownership in subsidiaries:
In March 2015, Tal closed a $14.5 million private equity
financing with Invesco Asset Management Limited as the lead
investor. PureTech invested $5.0 million in the financing. Also, in
conjunction with this transaction, preferred shares were issued
upon conversion of outstanding convertible notes.
13. Financial instruments
All of the Group's financial assets and liabilities, with the
exception of the derivative and warrant liabilities, are measured
at amortised cost. The derivative and warrant liabilities are
carried at fair value with changes recognised in through finance
costs, net in the consolidated statement of loss and other
comprehensive loss.
A summary of the changes in the Group's embedded derivative
liabilities and warrant liabilities measured at fair value using
significant unobservable inputs (Level 3) as of and for the year
ended 31 December 2014 and the six months ended 30 June 2015 is as
follows:
Derivative liability Derivative liability - convertible notes Warrant liability
- preferred stock
conversion
$'000 $'000 $'000
---------------------- --------------------- ----------------------------------------- ------------------
Balance as of
31 December 2013 2,075 504 2,548
Value of derivatives
at issuance 4,159 2,675 145
Change in fair
value 45,487 (414) 11,432
Settlement of - (1,692) -
derivatives
---------------------- --------------------- ----------------------------------------- ------------------
Balance as of
31 December 2014 51,721 1,073 14,125
---------------------- --------------------- ----------------------------------------- ------------------
Value of derivatives
at issuance 752 40 -
Change in fair
value 1,254 9 413
Settlement of - (968) -
derivatives
---------------------- --------------------- ----------------------------------------- ------------------
Balance as of
30 June 2015 53,727 154 14,538
---------------------- --------------------- ----------------------------------------- ------------------
The change in the fair value of derivatives and warrants is
recorded in finance costs, net in the consolidated statement of
loss and other comprehensive loss.
At each measurement date, the fair value of the conversion
rights embedded in the preferred shares was determined using with
and without framework which consisted of a three-step process.
First, the value of each company within the Group was determined
using a discounted cash flow model, guideline transaction method,
or through a recent arm's length financing round. Second, the value
of the subject preferred shares was determined using either an
option pricing allocation model or a probability weighted expected
return model, where the conversion rights of the preferred
shareholders were included and then excluded. Third, the fair value
of conversion rights was calculated as the difference of value
between the concluded values of preferred shares with and without
the conversion rights.
Quantitative information about the significant unobservable
inputs used in the fair value measurement of the Group's embedded
derivative liability related to the subsidiary preferred shares
designated as Level 3 as follows:
Option Pricing Model Inputs
Range of Values
-------------------------------------------
Expiration Risk--Free
Measurement Date Date Volatility Rate
----------------------------------------------------- ----------------- ----------- -----------
4/30/2011.......................................... 1 year 70.0% 0.22%
12/31/2011......................................... 1 year 71.0% 0.12%
6/30/2012.......................................... 1 year 70.0% 0.21%
12/31/2012......................................... 0.75 -- 5.0 0.67% -- 0.12% --
years 0.85% 0.72%
12/31/2013......................................... 5 years 75.0% 1.75%
2/28/2014.......................................... 3.5 years 60.0% 0.94%
3/31/2014.......................................... 5 years 75.0% 1.73%
12/31/2014......................................... 2.0 -- 5.0 0.67% --
years 60.0% 1.65%
6/30/2015.......................................... 35.0% - 0.48% --
1.5 - 4.5 years 65.0% 1.53%
Probability Weighted Expected Return Method Inputs
Range of Values
-----------------------------------------------------------------
Probability of IPO / M&A /
Measurement Date Time to Anticipated Exit Event Dissolution Sale
--------------------------------------------------- ------------------------------- --------------------------------
8/1/2013.......................................... 1.25 -- 1.34 years 30.0% / 55.0% / 15.0%
12/31/2013....................................... 1.25 years 30.0% / 55.0% / 15.0%
3/31/2014......................................... 1.0 year 40.0% / 45.0% / 15.0%
12/31/2014....................................... 0.33 years 70.0% / 25.0% / 5.0%
6/30/2015......................................... 0.38 - 0.50 years 70.0% / 30.0% / 0.0%
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Quantitative information about the significant unobservable
inputs used in the fair value measurement of the Group's embedded
derivative liability related to the convertible notes designated as
Level 3 is as follows:
Significant
Unobservable
Inputs At Issuance 12/31/2012 12/31/2013 12/31/2014 6/30/2015
--------------- ------------ ----------------------- ----------------------- ----------------------- ------------
Time to next
qualified
equity
financing..... 1.00 --
.............. 2.03 1.00 - 1.50
. years 0.50 -- 1.02 years 0.25 -- 1.01 years 0.16 -- 0.25 years years
Implied
discount 11.3% -- 13.3% --
rate.......... 2,459.0% 18.3% -- 34.8% 12.1% -- 34.8% 18.3% -- 34.8% 29.8%
Probabilities
of a
qualified
financing.... 50% / 50%
............. -- 100% /
.... 0% 50% / 50% -- 70% / 30% 50% / 50% -- 85% / 15% 50% / 50% -- 90% / 10% 50% - 75%
The following weighted average assumptions were used to
determine the fair value of the warrants at 30 June 2015:
Series
A--4
Series
Series A--1 A--3 (contingent)
Warrants Warrants Warrants
---------------- ---------- --------------
Expected term...................................................... 5.80 - 8.54 7.00
years years 8.10 years
Expected volatility................................................ 60.1% - 65.0% 73.0% 77.0%
Expected dividend yield.......................................... - - -
Risk free interest rate............................................. 1.9% - 2.2% 2.1% 2.1%
Estimated fair value of the convertible
preferred stock...... $1.19 - $12.41 $12.41 $12.41
Exercise price of warrants........................................ $0.14 - $4.44 $0.04 $0.04
The fair value of these embedded derivative liabilities may
differ significantly in the future from the carrying value as of 30
June 2015, and, accordingly, adjustments may be recorded in the
consolidated statement of loss and other comprehensive loss at that
time.
14. Related party transactions
14.1 Transactions with key management personnel
14.1.1 Key management personnel compensation
Key management includes directors and members of the executive
management team of the Group. The compensation of key management
personnel of the Group was as follows:
For the six months 30 June 2015 30 June
ended: 2014
$ 000 $ 000
----------------------- ------------- --------
Short--term employee
benefits 1,342 715
Share--based payments 666 -
----------------------- ------------- --------
Total 2,008 715
======================= ============= ========
Wages and employee benefits include salaries, health care and
other non--cash benefits. Share--based payments are subject to
vesting terms over future periods.
14.1.2 Convertible debt issued to key management personnel
Certain members of the Group have issued convertible notes to
employees, key management personnel and directors. Issuances to
related parties by subsidiary are presented below.
Subsidiary Investor Relationship Interest Rate 30 June 2015 30 June 2014 Total
$ 000 $ 000
--------------------- ----------------- -------------- -------------- ------------- ------------- ------
Vedanta Biosciences
Bennett Shapiro Director 10% -- 50 50
Akili
Bennett Shapiro Director 10% -- 50 50
Total -- 100 100
======================================================== ============== ============= ============= ======
14.1.3 Directors' and Senior Managers' shareholdings and share incentive awards
The Directors and senior managers hold beneficial interests in
shares in the following operating companies and sourcing companies
as at 30 June 2015:
Number of shares Number of options
Company name held as at 30 June held as at 30 June
(share class) 2015 2015 Ownership interest(1)
----------------------- --------------------- --------------------- ----------------------
Directors
Mr. Joichi Akili (Series
Ito............. A--2 preferred) 26,627 - 0.3%
Ms. Daphne Zohar(2)
.... Gelesis (common) 18,944 634,234 5.2%
Dame Marjorie
Scardino..............
.... - - - -
Dr. Bennett Shapiro(4) Akili (Series
... A--2 preferred)(3) 33,088 - 0.3%
Gelesis (common) 24,010 10,841 0.5%
Gelesis (Series
A--1 preferred)(5) 82,574 - 0.5%
Tal (Series
A--2 preferred)(3) 14,451 - 0.1%
Vedanta Biosciences
(common) - 25,000 0.5%
Dr. Robert
Langer........ Entrega (common) - 250,000 5.0%
Dr. Raju Enlight (Class
Kucherlapati... B common) 30,000 - 3.0%
Dr. John LaMattina(4) Akili (Series
.... A--2 preferred) 37,372 - 0.4%
Gelesis (common)(4) 54,120 63,052 1.3%
Gelesis (Series
A--1 preferred)(4)(5) 174,621 - 1.3%
Tal (Series
A--2 preferred) 114,411 - 1.2%
Vedanta Biosciences
(common) 25,000 - 0.5%
Mr. Christopher
Viehbacher...........
.... - - - -
Mr. Stephen
Muniz...... - - - -
Senior Managers
Dr. Eric
Elenko.......... - - - -
Mr. David
Steinberg.... - - - -
Notes:
(1) Ownership interests are as at 30 June 2015 calculated on a
diluted basis, including issued and outstanding shares, warrants
and options (and written commitments to issue options) to purchase
shares, but excluding unallocated shares authorised to be issued
pursuant to equity incentive plans, and any shares of common stock
issuable upon conversion of outstanding convertible promissory
notes. Unallocated shares authorised to be issued pursuant to
equity incentive plans are further discussed in the Group's
Prospectus.
(2) Common stock and options held by Yishai Zohar, the husband
of Ms. Zohar. Ms. Zohar does not have any direct interest in the
share capital of Gelesis. Ms. Zohar recuses herself from any and
all material decisions with regard to Gelesis.
(3) Shares held though Dr. Bennett M. Shapiro and Ms. Fredericka
F. Shapiro, JTWROS. 174,621 shares of common stock and 174,621
shares of Series A--1 preferred stock in Gelesis held by Dr. John
and Ms. Mary LaMattina. 12,642 shares in Gelesis held individually
by Dr. LaMattina.
(4) In addition, the following Directors hold convertible notes
issued by operating companies: (i) Dr. Bennett Shapiro holds
convertible notes issued by Vedanta Biosciences in the aggregate
principal amount of $50,000 and (ii) Dr. John LaMattina holds
convertible notes issued by Appeering in the aggregate principal
amount of $50,000, for further details refer to the Group's
Prospectus.
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