TIDMPRTC
RNS Number : 4386U
PureTech Health PLC
07 April 2016
7 April 2016
PureTech Health plc
PureTech Health announces annual results for year ended 31
December 2015
PureTech Health plc ("PureTech", LSE: PRTC), a
cross-disciplinary healthcare company tackling fundamental
healthcare needs, today announces its annual results for the year
ended 31 December 2015.
Period Highlights
Financial & Business Highlights
PureTech raised significant external validating capital and
established agreements and partnerships with a number of industry
leaders and influencers:
-- PureTech successfully raised $248M, including gross proceeds
of $196M in its initial public offering (IPO) on the Main Market of
the London Stock Exchange
-- PureTech's Vedanta Biosciences entered into an up to $339M
licensing agreement with Janssen, a subsidiary of Johnson &
Johnson, for one of its product candidates
-- $69.8M of cash raised by PureTech's growth stage businesses
over 2015, including $50.3M from outside investors
-- Gelesis raised $49.5M in financing, including from outside financial investors
-- Tal Medical raised $14.0M in financing, including from outside financial investors
-- Karuna Pharmaceuticals received a Translation Fund Award of
up to $3.8M from the Wellcome Trust
-- Akili established a collaboration with leading patient
advocacy group Autism Speaks, building on the company's
relationships with Shire Pharmaceuticals and Pfizer
-- The Sync Project formed partnerships with
internationally-renowned organisations Berklee College of Music and
HINTSA Performance
-- As of 31 December 2015, PureTech reports a consolidated cash
balance of approximately $314M with approximately $256M held at the
Parent Company
-- Aggregate Value of Growth Stage Business Holdings at 31
December 2015 increased to $291.7M from $222.4M, an increase of
31.2 percent*
-- PureTech has average holdings of approximately 73 percent in
its businesses, and effective control over all
Pipeline/Clinical Highlights
PureTech has 20 clinical studies across its advanced-stage
pipeline. A number of significant advancements were achieved over
the course of 2015, including:
-- Gelesis initiated a weight loss pivotal trial for Gelesis100
and accelerated its clinical timeline for its U.S. Food and Drug
Administration (FDA) submission by approximately one year following
positive confirmation from the FDA that the study is a
non-significant risk device study
-- Akili completed a pilot study in paediatric attention deficit
hyperactivity disorder ("ADHD") which showed statistically
significant improvements on multiple outcomes measuring attention,
impulsivity and working memory in children with ADHD
-- Tal Medical enrolled the first subjects in a dose
optimisation study and received positive confirmation from the FDA
that study meets the non-significant risk safety standards
-- The Sync Project initiated a clinical study of the impact of
personalised music on athletic performance, which may have
implications for management of and recovery from conditions such as
Parkinson's disease, stroke, pain, and chronic fatigue
Team Highlights
PureTech continues to expand its team to drive growth, filling a
number of key roles:
-- PureTech appointed Board members Chris Viehbacher, former
Chief Executive Officer of Sanofi, and Marjorie Scardino, former
Chief Executive Officer of Pearson, and named several distinguished
scientists, physicians and industry leaders to its advisory
network
-- PureTech successfully recruited 30 outstanding individuals
including Chief Financial Officer, Senior Vice President of
Communications and Investor Relations, Vice President of Company
Development and Operations, Vice President of Talent Acquisition
and several seasoned entrepreneurs in residence
-- In 2015 and the first quarter of 2016, several senior leaders
were appointed, including the Chief Executive Officer and Chief
Technology Officer of the Sync Project, Chief Scientific Officer
and Head of Intellectual Property for Vedanta Biosciences and Vice
President of Marketing for Tal Medical
New Business & Intellectual Property
In 2015, PureTech created three new Project Phase businesses.
Additionally, the Company nearly doubled its patents and patent
applications during the year, with 209 at the end of 2015
-- Alivio Therapeutics is centred around a proprietary drug
delivery platform for drugs that treat inflammation and underlying
disorders that cause inflammation
-- Vor BioPharma is a preclinical immuno-oncology business that
is developing novel targeted therapies for cancer
-- Sonde Health is developing a proprietary voice-based
technology platform with the potential to transform the way we
monitor and diagnose mental and physical health
-- Follica received a Notice of Allowance from the United States
Patent & Trademark Office ("USPTO") for a patent related to its
principal technology platform to treat hair loss
Post Year-end Highlights
PureTech continues its positive momentum in 2016:
-- In January 2016, Akili raised $30.5M, which includes $8.5M
from outside investors including JAZZ Venture Partners, Canepa
Advanced Healthcare Fund, to be funded in approximately two equal
tranches with the second tranche expected to be funded in September
2016
-- In January 2016, PureTech expanded its Scientific Advisory
Board of distinguished scientists and physicians and appointed new
Senior Advisors to the Company
-- In March 2016, Vedanta Biosciences signed a licence agreement
with RIKEN, the University of Tokyo and Azabu University for new
immune boosting microbiome technology
-- In March 2016, Commense advanced its discovery and
development platform, named its founding scientists and advisors
and executed an exclusive licence in the microbiome field
Commenting on the annual results, Daphne Zohar, CEO of PureTech
said:
"2015 was a significant year of transformation for PureTech. We
have $314 million in consolidated cash, following our successful
IPO as a Premium Listed company on the Main Market, giving us a
strong financial position to execute our strategy.
"We further strengthened and expanded our pipeline which is
focused on areas of escalating scientific and clinical importance,
including those at the intersection of the immune, gastrointestinal
and central nervous systems. We now have 20 ongoing clinical
studies and will have multiple pivotal study read-outs over the
next two years. In addition to our advanced programmes, we have 15
exciting project phase businesses and concept phase initiatives
that are progressing through our validation process.
"Additionally, we entered into agreements and formed four new
partnerships with industry leaders and influencers and raised
external validating capital. Vedanta Biosciences entered into a
licensing agreement with Janssen with upfront and milestone
payments up to $339 million, Tal Medical and Gelesis attracted a
number of new investors and raised an additional combined $64
million in successful fundraisings, and Akili raised $30.5 million
in the post period.
"We enter 2016 with a robust pipeline and strong fundamentals.
With our outstanding team and network, we are well positioned to
deliver significant value for our shareholders."
PureTech today released its Annual Report for the year ended 31
December 2015. In compliance with the Financial Conduct Authority's
Listing Rule 9.6.3, the following documents have today been
submitted to the National Storage Mechanism and will shortly be
available for inspection at http://www.morningstar.co.uk/uk/NSM
-- Annual Report and Accounts for the year ended 31 December 2015; and
-- Notice of 2016 Annual General Meeting.
Printed copies of these documents together with the Form of
Proxy have been posted to shareholders. Copies are also available
electronically on the Investor Relations section of the Company's
website at
http://puretechhealth.com/investors-reports-presentations.php.
PureTech's 2016 Annual General Meeting will be held at 17.00 BST
on Monday 9 May 2016 at the Mondrian Hotel, 20 Upper Ground, London
SE1 9PD, United Kingdom.
PureTech will also hold its first Capital Markets Meeting in
London on Tuesday 10 May 2016 from 13.00-17.00 BST. The meeting
will feature PureTech presenters including members of the Company's
Board of Directors and management from the Company's operating
business units. Please confirm if you would like to attend the
Capital Markets Meeting to PureTech.Event@fticonsulting.com
*does not include holdings in 5 project phase businesses or 10
concept phase initiatives, but does include $11.5M subsequently
invested by PureTech in the first tranche of the Akili financing
round in January 2016.
About PureTech Health
PureTech Health (PureTech Health plc, PRTC.L) is a
cross-disciplinary healthcare company developing innovative
products that could improve the lives of patients. PureTech is
focused on areas of growing scientific and technical insights that
it believes are at an important inflection point, including the
central nervous, gastro-intestinal and immune systems, and the
interactions and signalling between them. PureTech has a pipeline
of more than 30 programmes and has approximately 20 clinical
studies across its pipeline, targeting multi-billion dollar market
opportunities. PureTech's advanced programmes include five with
human proof of concept and multiple with pivotal or registration
study readouts in the next two years. PureTech's leading team and
board, along with an advisory network of more than 60 expert
founder-scientists and advisors across multiple disciplines, gives
PureTech access to potentially ground-breaking science and
technological innovation. With healthcare undergoing major
transformation, PureTech is well positioned to develop and launch
medicines for the 21st century. For more information, visit
www.puretechhealth.com and connect with us on Twitter.
# # #
(MORE TO FOLLOW) Dow Jones Newswires
April 07, 2016 02:33 ET (06:33 GMT)
For further information please contact:
PureTech
Julie DiCarlo, Senior Vice President, Communications
and Investor Relations +1 617 456 0032
FTI Consulting (Communications adviser to
PureTech)
Ben Atwell / Matthew Cole +44 (0)20 3727 1000
Notes
(i) Nature of announcement
The financial information set out in this Annual Results Release
does not constitute the company's statutory accounts for 2015 or
2014. Any references to page numbers in this announcement are to
pages within the Annual Report and Accounts. Statutory accounts for
the year ended 31 December 2015 have been reported on by the
Independent Auditor and will be delivered to the Registrar when
due.
(ii) Forward looking statements
This Annual Results Release and the Annual Report and Accounts
contain statements that are or may be forward-looking statements,
including statements that relate to the company's future prospects,
developments and strategies. The forward-looking statements are
based on current expectations and are subject to known and unknown
risks and uncertainties that could cause actual results,
performance and achievements to differ materially from current
expectations, including, but not limited to, those risks and
uncertainties described in the risk management section. These
forward-looking statements are based on assumptions regarding the
present and future business strategies of the company and the
environment in which it will operate in the future. Each
forward-looking statement speaks only as at the date of this Annual
Results Release. Except as required by law, regulatory requirement,
the Listing Rules and the Disclosure and Transparency Rules,
neither the company nor any other party intends to update or revise
these forward-looking statements, whether as a result of new
information, future events or otherwise.
Letter from the Chairman
PureTech is reinventing the pharmaceutical industry's
traditional approach to developing medicines. Our relationships
with global experts and inventors and our cross-disciplinary
approach and rigorous de-risking process gives us a unique ability
to bridge creative ideas and science and actualise the next
potential game-changers in healthcare.
In my role as an early participant in the development of the
technology industry, and my current role as the Director of the
Massachusetts Institute of Technology (MIT) Media Lab, I see the
potential of biotechnology to touch every aspect of our lives and
to impact businesses across industries. When the digital industry
was founded, it was made up of vertically integrated, niche
businesses that required significant investments and expertise and
whose applications didn't relate to most of the world. Today,
technology is part of our everyday lives.
Healthcare has traditionally been practiced by scientists and
physicians looking for single molecule interventions and performing
surgery in hospitals. As our knowledge of the human body increases,
we are beginning to appreciate the interrelated nature of our
biological systems and the connection between our activities and
our health. From our blood pressure and oxygen level to our brain
activity and sleep, there exist today over a dozen types of data
that can currently be collected on our physiology through wearable
sensors alone. This introduces vast complexity as we think about
our health, but also presents new opportunities.
Some big breakthroughs are likely to come from unexpected
sources and combinations. The future of healthcare will include new
players and technologies that will change the way we manage our
health and how we diagnose, monitor and treat disease. I believe
that PureTech is at a unique nexus point at the forefront of a
pioneering era in biology and medicine.
Led by Daphne Zohar, our outstanding Chief Executive Officer and
Co-founder, PureTech had a momentous year. In June 2015, we became
a publicly-traded company in London where a strong group of
investors supported our IPO in which we raised nearly $200 million.
This transformed the potential for PureTech and provides us with
the funds to execute our strategy. We made meaningful advancements
in our pipeline, signed on significant new strategic partners and
closed successful fundraising rounds for our businesses.
PureTech's impressive Board of Directors was further
strengthened in 2015 with the additions of Chris Viehbacher, former
Chief Executive Officer of Sanofi, and Marjorie Scardino, former
Chief Executive Officer of Pearson. We continued to build our
illustrious advisory team, which now includes more than 60 of the
brightest minds in science and technology across the globe.
Additionally, we established a Scientific Advisory Board of
distinguished scientists and physicians who work closely with the
senior leadership team and the Board of Directors to identify new
areas of focus and prioritise themes and new business concepts. The
group, led by PureTech Board Adviser and Nobel Laureate Bob
Horvitz, is made up of industry and scientific leaders:
-- Dennis Ausiello, M.D., Chief Emeritus of Medicine at
Massachusetts General Hospital and Jackson Distinguished Professor
of Clinical Medicine at Harvard Medical School;
-- Jim Collins, Ph.D., Termeer Professor of Medical Engineering
& Science and Professor of Biological Engineering at MIT;
-- Sam Gambhir, M.D., Ph.D., Ludwig Professor and Chair,
Department of Radiology and Director of the Molecular Imaging
Program at Stanford University;
-- Raju Kucherlapati, Ph.D., PureTech Board member, Paul C.
Cabot Professor of Genetics and Professor of Medicine at Harvard
Medical School;
-- Bob Langer, Sc.D., PureTech Co-founder and Board member,
David H. Koch Institute Professor at MIT; and
-- Ed Boyden, Ph.D., optogenetics pioneer, professor of
Biological Engineering and Brain and Cognitive Sciences at the
Massachusetts Institute of Technology (MIT) Media Lab and the MIT
McGovern Institute.
PureTech also continued to expand its management team in support
of the Company's growth. Daphne has built a world-class team that
continues to strike a delicate balance between cultivating creative
new ideas and driving scientific and clinical rigour. We have
started 2016 with great momentum and with a focus on execution. I'm
excited by our outlook for what lies ahead.
Just as the digital revolution made technology relevant to all
of us, I'm energised by the possibility for advancements in
biotechnology to change our everyday lives. As Nicholas Negroponte,
the founder of the MIT Media Lab, said, "Bio is the new
digital."
Thank you for your continued support as we build a new kind of
healthcare company, bringing a novel approach to harnessing
innovation to improve patients' lives.
Joichi Ito
Chairman
Strategic report
Letter from the Chief Executive Officer
This is a new era of healthcare and we have built a company
ideally positioned to launch new classes of therapeutics that will
be quite different from the medicines of the last century.
Increasing patient engagement, the changing regulatory environment
and a growing emphasis on drug safety and pricing require a new
approach to traditional drug development paradigms, while a surge
in scientific knowledge and technological innovation allows us the
opportunity to develop new treatment and prevention paradigms for
the 21st century.
PureTech has built a new model to develop the next generation of
medicines that we believe is uniquely suited to this changing
landscape. We have a robust and advanced pipeline of programmes
focused on novel approaches to targeting significant unmet medical
needs and large healthcare markets. In 2015, our first year as a
listed company in the UK, we raised $196 million and continued to
advance our pipeline while rapidly growing our organisation in
preparation for the commercialisation of our products.
The opportunity
Chronic diseases account for 86 percent of all healthcare
spending and at least seven of the 10 leading causes of death. Yet
our modern healthcare system is structured with an acute
disease-focused mind-set and continues to be plagued by
productivity declines.
The healthcare industry excels at pattern recognition, looking
at past history to predict future success. However, truly novel
approaches to disease management and treatment, those that will
change the paradigm, will most likely stem from creative approaches
that, by definition, break free from patterns.
At PureTech, we are working with global experts across
disciplines to target "blue sky" opportunities. We are focused on
healthcare markets with multi-billion dollar potential, if
successful. PureTech's approach enables us to discover
ground-breaking and often unexpected innovations, not confined to
specific disciplines or geographies. We rigorously filter
opportunities in pursuit of only those that have the potential to
have a big impact on healthcare addressing a major unmet need, are
highly novel and protected by strong intellectual property, and are
vetted by the leading experts in their fields. Our structure allows
us to diversify risk and attract the brightest minds to help us
create and launch medicines for the 21st century.
A transformational year
2015 was a transformative year for PureTech.
We raised gross proceeds of approximately $248 million,
including $196 million in our successful initial public offering in
June 2015, providing us with the funds to deliver on our
strategy.
We entered into agreements and formed partnerships with industry
leaders and influencers and raised external validating capital:
-- Vedanta Biosciences entered into a licensing agreement with
Janssen, a subsidiary of Johnson & Johnson, with upfront and
milestone payments up to $339 million;
-- Akili established a collaboration with leading patient
advocacy group Autism Speaks, building on the company's
relationships with Shire Pharmaceuticals and Pfizer;
(MORE TO FOLLOW) Dow Jones Newswires
April 07, 2016 02:33 ET (06:33 GMT)
-- Karuna Pharmaceuticals received a Translation Fund Award of
up to $3.8 million from the Wellcome Trust;
-- The Sync Project formed partnerships with
internationally-renowned organisations Berklee College of Music and
HINTSA Performance; and
-- Tal Medical and Gelesis attracted a number of new investors
and raised an additional combined $64 million in successful
fundraisings.
Importantly, we made significant progress across our pipeline in
2015, including:
-- Akili completed a pilot study in paediatric attention deficit
hyperactivity disorder (ADHD) which showed statistically
significant improvements on multiple outcomes measuring attention,
impulsivity and working memory in children with ADHD;
-- Gelesis initiated a weight loss pivotal trial for Gelesis100
following a non-significant risk designation from the U.S. Food and
Drug Administration (FDA) and accelerated its clinical timeline for
FDA submission by approximately one year;
-- Tal Medical enrolled the first subjects in a dose
optimisation study and received positive confirmation from the FDA
that study meets the non-significant risk safety standards;
-- Follica received a Notice of Allowance from the United States
Patent & Trademark Office (USPTO) for a patent related to its
principal technology platform to treat hair loss; and
-- The Sync Project initiated a clinical study of the impact of
personalised music on athletic performance, which may have
implications for management of and recovery from conditions such as
Parkinson's disease, stroke, pain, and chronic fatigue.
We also continue to develop our early-stage pipeline as we build
for the future, with new programmes undergoing quiet de-risking
experiments and our discovery team working closely with leading
scientists on the next big ideas. We are progressing Commense,
which is focused on early childhood microbiome, Sonde Health, which
is developing voice-based tools for the passive assessment and
tracking of patient health, Alivio, which is developing a
proprietary drug delivery platform for drugs that treat
inflammation and underlying disorders that cause inflammation, and
Vor, which is developing targeted immunotherapies for cancer.
Additionally, we are currently exploring and de-risking new
opportunities across 10 concept phase initiatives.
We have attracted some of the brightest minds to PureTech as we
expand our team to drive continued growth. In addition to our new
Board members Chris and Marjorie, we've successfully recruited 30
outstanding individuals in 2015. We've attracted top talent for a
number of key roles at PureTech, including Chief Financial Officer,
Senior Vice President of Communications and Investor Relations,
Vice President of Corporate Development, Vice President of Talent
Acquisition and several seasoned entrepreneurs in residence. We've
also appointed senior leaders including the Chief Executive Officer
and Chief Technology Officer of the Sync Project, Chief Scientific
Officer and Head of Intellectual Property for Vedanta Biosciences
and Vice President of Marketing for Tal Medical.
Focus on execution
We are now well positioned to execute against a number of
significant milestones in 2016 and beyond.
20 clinical studies are advancing through our pipeline. Over the
next two years, we have many catalysts, including the expected
completion of multiple pivotal or registration studies and six
clinical human proof-of-concept study read-outs as well as over a
dozen exploratory and pilot studies. While inevitably some
technologies will not advance to commercialisation, our approach
preserves our options as most of the cash resides on a PureTech
Parent Company level, enabling us to back the winners. Our model
also gives us many shots on goal with independent technologies,
avoiding the binary risk of a typical single platform biotechnology
company.
We've started 2016 well, including Akili's $30.5 million
successful financing as well as Vedanta's new licence agreement and
Chief Scientific Officer appointment.
As we prepare for the launch of our first products, we've
expanded our reimbursement and commercial expertise with the
addition of industry veterans on our advisory team, including Harry
Leider, Chief Medical Officer of Walgreens Co., Rob Perez, former
CEO of Cubist, and Sachin Jain, Chief Operating Officer and Chief
Medical Officer of CareMore Health and former Chief Medical
Information and Innovation Officer at Merck.
We enter 2016 with a robust pipeline and strong fundamentals.
With our fantastic team and network, we are well positioned to
deliver significant value for our shareholders.
We appreciate the tremendous response to our initial public
offering and are delighted to have met and involved so many
terrific new investors throughout the year. This has been a
remarkable year, and we are even more excited about our future.
Daphne Zohar
Chief Executive
How PureTech aims to build value for investors
Targeting markets with large unmet medical needs that will
benefit from a disruptive approach, PureTech works with its
distinguished Board of Directors and Scientific Advisory Board,
along with an unparalleled cross-disciplinary group of more than 60
expert advisors and global leaders in their fields, to identify and
access potentially ground-breaking science and technological
innovation ahead of others.
PureTech's process couples big science ideas with rigorous
testing, de-risking technologies through experiments that are
designed to probe the key unanswered questions.
The benefits of PureTech's structure
PureTech's structure has significant advantages over traditional
pharmaceutical companies:
-- Each technology is housed in an independent business at the
time that intellectual property is licensed or created, enabling
the management and advisors of that business to be compensated via
equity in the businesses they are working on.
-- Decisions about how to allocate funding to different
programmes are made by the PureTech senior leadership and Board of
Directors, whose primary compensation is through PureTech, thereby
ensuring complete alignment with PureTech's shareholders.
-- PureTech has a strict stage-gating of funding allocation,
with approximately $350,000 allocated during the "concept" phase,
approximately $2 million allocated during the "project" or
de-risking phase, and such amount allocated during the "growth"
stage as the Board of Directors of PureTech shall approve based
upon the businesses' operating plan, potential value inflection
milestones and budget.
PureTech currently has 10 concept phase initiatives and five
project phase businesses quietly advancing technologies through
this de-risking process. PureTech does not include its concept and
project phase assets in its calculation of the value of the
Aggregate Holdings of its growth stage businesses.
Emerging from this process, PureTech has seven growth stage
businesses focused on developing innovative medicines in billion
dollar healthcare markets and has ownership or exclusive control
over 200 patents and patent applications. PureTech has progressed
and increased support of these businesses as they achieved external
validation including strategic partnerships, outside funding,
technology proof of concept and/or peer review in prestigious
scientific journals.
The Company fully expects that even these de-risked programmes
will experience some attrition and PureTech maintains the cash and
decision making optionality to support the most promising
programmes as they grow and develop, allocating cash to those that
are successful when others are deprioritised based on clinical
results.
PureTech is deeply passionate about improving the lives of
patients, with a focus on operating with the highest level of
integrity and commitment to long term shareholder value.
Safe and efficacious approaches to chronic and infectious
diseases are urgently needed
In 2014, global health care costs were estimated to average 10.5
percent of Gross Domestic Product(1) . Chronic diseases, such as
those impacting the central nervous system (e.g. depression,
schizophrenia, ADHD, autism), the immune system (e.g. oncology,
auto-immune disorders) and the gastrointestinal system (e.g.
obesity, diabetes, metabolic disease) represent the leading cause
of mortality in the world(2) . PureTech is focused on these areas
of need as well as on adjacent areas like infectious diseases which
are recognised as a serious global threat by the World Health
Organisation due to growing bacterial resistance to existing
antibiotics and a dearth of new therapies on the horizon.
The barrier to innovation is increasing with regulators' and
society's greater emphasis on safety and perceived value. Adverse
drug reactions (ADRs) associated with conventional drugs have been
estimated to potentially cost in excess of $130 billion per year(3)
, 50 percent of total annual prescription costs(4) . All new
medicines will be challenged to adhere to higher safety
standards.
At a time when the need for new safe and effective medicines is
enormous, the pharmaceutical industry continues to struggle with an
"innovation gap". Pharmaceutical R&D returns declined from 10.1
percent in 2010 to 4.2 percent in 2015(5) .
PureTech believes traditional models must evolve to drive
healthcare innovation. For example, a compelling and unconventional
approach taken by PureTech includes utilising technologies to
provide a 'drug-like effect without drugs', leading to creation of
new classes of medicines with drug-like efficacy and a very high
intrinsic safety profile.
Cross-disciplinary R&D continues to drive medical
innovation
(MORE TO FOLLOW) Dow Jones Newswires
April 07, 2016 02:33 ET (06:33 GMT)
The challenge to developing new and safe medicines will likely
find solutions in cross-disciplinary thinking, which has
historically spawned major medical advances. Growing areas of
importance to medicine include the microbiome, which was once in
the realm of the food industry but is now being widely recognised
for its critical role in areas like immunity, host defence and
metabolism. Recently, bacterial biology gave rise to CRISPR-based
genome editing tools with wide-ranging health applications
including cancer, genetic disease and drug discovery. The discovery
of novel functions of exosomes opened a new frontier in cell
signalling and enables new strategies for drug delivery. Language
processing technologies developed to safeguard cyber security have
demonstrated potential in detecting vocal biomarkers for
disease.
With most biopharma companies operating within silos, PureTech's
approach of going between and beyond existing disciplines is a key
differentiator and central to PureTech's discovery and preclinical
process which is expected to yield two to four new project phase
businesses per year.
Digital medicines hold promise for safe, patient-centred
care
Digital medicine is a rapidly maturing cross-disciplinary field
that possesses exceptional potential for developing effective and
safe diagnostics and therapeutics. Driven by the convergence of
technology and healthcare, non-traditional players are changing the
healthcare M&A landscape. Fifty percent of the Fortune 50
companies entered the healthcare market in 2013(6) . Companies,
including Alphabet (Google), Nestlé, Apple, Samsung, Alibaba, IBM
and Walmart now have significant stakes in the healthcare
arena.
Ongoing, no- or low-burden monitoring, and the delivery of
customised, just-in-time therapeutic interventions in non-critical
settings provide tremendous potential to alter how, when and where
we test, diagnose and manage our health.
Just as combining continuous glucose monitors and insulin pumps
allowed diabetics precise closed-loop care, digital medicine could
realise closed-loop care for cognitive disorders including ADHD and
autism, mental health conditions, sleep, pain, post-traumatic
stress disorder, traumatic brain injury and Parkinson's disease,
among others. Such interventions could potentially avert
catastrophic health events that require hospitalisation, aligning
with the cost saving incentives of healthcare providers
transitioning to value-based reimbursement.
The rise of the well-informed patient-consumer offers a growing
market for digital medicine in addition to traditional payers.
Healthcare is the fastest growing on-demand sector, reflecting
heavy emphasis on patients' values of convenience, simplicity and
speed, with annual investment growing at a compounded annual growth
rate of 224 percent from 2010 to 2014 which is expected to
quadruple by 2017(7) . Digital medicine could become of central
importance as healthcare evolves towards a patient-centred,
prevention paradigm.
Surge in healthcare deals likely to funnel toward convergent,
clinically validated approaches
The healthcare sector led global mergers and acquisitions valued
at more than $723 billion in 2015, up 66 percent over 2014.
Following closely behind was the technology sector, with more than
$713 billion in M&A in 2015(8) .
The convergence of technology and health presents two new and
significant sources of funding and partnerships for life sciences
start-ups: traditional pharmaceutical companies and non-traditional
players. Pharmaceutical companies are transitioning to a fully
centralised model and they are looking to boost productivity by
outsourcing innovation and R&D to smaller companies.
Non-traditional players are entering healthcare with deep pockets,
wanting to establish early dominance in the gap between consumer
expectations and medical infrastructure.
Start-ups with a strong understanding of science, experience
navigating regulatory pathways and clinical sector expertise will
possess a strong advantage in this new era of converging
disciplines. PureTech is proactively tackling this with strong
management understanding of multiple sectors, leveraging rapid
prototyping and big data to achieve clinical validation for medical
applications, reimbursement and revenues.
1: World Healthcare Outlook, Economist Intelligence Unit, August
14, 2013
2: World Health Organizations:
http://www.who.int/topics/chronic_diseases/en/
3: Pharmacoeconomics, 1999,
http://www.ncbi.nlm.nih.gov/pubmed/10537962
4: Total Retail Sales for Prescription Drugs Filled at
Pharmacies, 2014 http://kaiserf.am/1XO68HF
5: Deloitte LLP, Measuring the return from pharmaceutical
innovation 2015
6: Strategy+Business. The Future of Health is More, Better,
Cheaper. http://bit.ly/1uEJ1FT
7: Accenture. Healthcare: For Here or To Go?
http://bit.ly/1QXTm98
8: Dealogic. Global M&A Volume Surpasses $5tn for the First
Time on Record. http://bit.ly/1pODgjV
PureTech's differentiated approach
Targeting areas of growing insight and significant need
PureTech focuses on areas of accelerating biological insight and
innovation coupled with substantial medical need. The Company's
current programmes are primarily directed to three such areas - the
central nervous system (CNS), the immune system, and the
gastrointestinal system (GI) - along with the interfaces and
interactions between and among those systems. For example, the
human microbiome is a significant area of focus for PureTech with
applications that span across the GI-CNS-immune axis.
Across these areas and interfaces, PureTech is exploring
creative, and often unexpected, modalities of impacting human
health outside of traditional drug development strategies. In
particular, we are developing therapies with the potential to
demonstrate 'drug-like effects without drugs' and advancing
engineering inspired by biology.
"Drug-like effects without drugs"
Digital medicine shows great promise in its potential to achieve
the efficacy of pharmaceuticals with an improved safety profile.
PureTech has invested a considerable effort in digital medicine,
which the Company defines as digital therapeutic modalities that
can modify the course of a disease or medical condition. Akili, the
Sync Project and Sonde have resulted from this focus area.
Additionally, PureTech is pursuing the potential for new modalities
with drug-like efficacy and a very high intrinsic safety profile to
be delivered to large markets like depression, cognitive disorders
and obesity. PureTech has been encouraged by the regulatory
feedback in these areas with Tal Medical, Gelesis and Akili all
receiving positive feedback from FDA regarding their plans and the
safety profiles of these approaches enabling accelerated paths to
market compared to drugs.
Engineering inspired by biology
PureTech is applying biological principles to develop new
engineering solutions for medicine. For example, Entrega's platform
to deliver injectable drugs orally is based on a new encapsulated
muco-adhesive patch and the Gelesis encapsulated device was enabled
by a breakthrough in polymer science. Also, Vedanta Biosciences is
developing one of the first drugs based on defined cocktails of
microbes that occur naturally in the gut for the treatment of
autoimmune conditions, infectious diseases and allergies. PureTech
is developing a number of new initiatives in synthetic biology,
co-opting natural systems to better design and deliver drugs.
A new kind of healthcare company
Advantages of PureTech's structure & process
PureTech's programmes originate from a systematic and rigorous
theme-driven process. First, the Company identifies a theme - an
area of significant unmet medical need where there exists rapidly
emerging scientific research and the potential for potentially
disruptive solutions.
PureTech then recruits leading scientists to establish a theme
specific Scientific Advisory Board (SAB). The Company works with
the SAB to cultivate new ideas and evaluate potential technologies,
to prioritise and only pursue those with strong scientific basis
and commercial and clinical potential. PureTech performs an
unbiased analysis of hundreds of scientific discoveries focused on
the particular healthcare problem - more than 650 per year - and
works with the leading experts in that therapeutic or technology
area and complementary fields to select the most promising
breakthroughs to advance. This unbiased approach proactively
involves perspectives from other fields - a reflection of
PureTech's recognition that improving health is a
cross-disciplinary endeavour.
Upon selecting and in-licensing the most promising technologies,
PureTech typically pursues further intellectual property protection
and conducts experiments to validate the technologies. Throughout
this process, it manages the new project phase businesses while
building a growth leadership team and providing capital to fund
development. Finally, project phase businesses are matured to the
growth stage upon achieving key milestones that grant strong
external validation of technology and unlock new funding
avenues.
This process has resulted in an advanced pipeline of seven
growth stage businesses, five project phase businesses and 10
concept phase initiatives. The Company plans to launch an
additional 2-4 new businesses per year. Across PureTech's pipeline
in the next two years, six additional human proof-of- concept
studies and multiple pivotal or registration studies are expected
to read-out.
Biotech-like upside without the binary risk profile
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The changing face of healthcare innovation requires new
infrastructures to bring promising solutions to market. PureTech's
approach has the potential upside of biotechnology while
diversifying its risk similar to a pharmaceutical company. The
Company's structure has significant advantages over pharmaceutical
companies as programmes are housed in independent operating
companies to maximise growth flexibility and align management
incentives. This structure enables PureTech to issue equity to the
leaders of the specific businesses and enables those leaders to
function in an entrepreneurial way, with all of the same motivating
factors as in an independent biotechnology business. At the same
time, PureTech's shared expertise and infrastructure across its
businesses provides capital discipline and limits the most common
risks associated with biotech, allowing PureTech to build value and
divert cash to its most successful programmes as milestones are
achieved.
PureTech's Board of Directors and senior leadership team are
focused on driving the greatest value for its shareholders. As
growth stage businesses near the stage of harvesting, PureTech
focuses on scenario planning to maximise value for PureTech and its
shareholders. In some cases, an inflection point followed by an
attractive acquisition offer may be the optimal way to increase
value, while in other cases, the launch of a product with
multi-billion dollar potential may be the ideal outcome. In
launching products, PureTech's leadership team will consider
benefits of commercial partnerships that help to drive value.
PureTech's decision-making group is compensated primarily through
equity at a PureTech level and is therefore completely aligned with
PureTech shareholders to make decisions that will drive the most
value for these shareholders. PureTech generally maintains the
majority share of the equity in its businesses and controls the
underlying business's board of directors to direct the strategy of
the business.
Management and network
Industry-leading, cross-disciplinary team
PureTech's recognition that improving health is a
cross-disciplinary endeavour drives its approach to solving
problems. PureTech's employees and Directors have collectively been
involved in the development of drugs, medical devices and
technologies which have been credited with an impact on millions of
people and in the launch of multi-billion dollar companies. This
wealth of experience is further boosted by PureTech's senior
advisors, expanded in 2015 to include Dr. Harry Leider (Chief
Medical Officer of Walgreens Co.), Dr. David Edwards (the Gordon
McKay Professor of the Practice of Idea Translation at the Harvard
John A. Paulson School of Engineering and Applied Sciences), Dr.
Donald Ingber (Founding Director of the Wyss Institute for
Biologically Inspired Engineering at Harvard University), Dr.
Sachin Jain (Chief Operating Officer and Chief Medical Officer of
CareMore Health and former Chief Medical Information and Innovation
Officer at Merck) and Mr. Robert Perez (former CEO at Cubist).
Finally, the PureTech multidisciplinary Scientific Advisory
Board was established in 2015, with experts in areas ranging from
synthetic biology (Jim Collins, Ph.D., Termeer Professor of Medical
Engineering & Science and Professor of Biological Engineering
at MIT), to optogenetics (Ed Boyden, Ph.D., professor of Biological
Engineering and Brain and Cognitive Sciences at the Massachusetts
Institute of Technology MIT Media Lab and the MIT McGovern
Institute), to medical imaging (Sam Gambhir, M.D., Ph.D., Ludwig
Professor and Chair, Department of Radiology and Director of the
Molecular Imaging Program at Stanford University). Each member was
chosen for their leadership in their respective fields, and shared
vision in addressing major healthcare problems in unexpected
ways.
Additionally, PureTech has selected its experienced team of
employees for their creativity and entrepreneurial skills from a
pool of candidates from top institutions. In addition to extensive
healthcare expertise, PureTech's internal team comprises
cross-disciplinary specialists with expertise in life, computer and
physical sciences as well as chemical and biomedical
engineering.
Industry-leading international advisory network
Alongside PureTech's internal team, the Company has established
an international advisory network comprising more than 60 experts
across multiple disciplines. The advisors contribute individual
expertise and also function as part of a broader, collaborative
network. The Directors believe that this network provides PureTech
with access to some of the most promising technologies within a
theme, at the stage where they are first being explored in the
laboratories of their origin. For example, these leading scientists
often introduce PureTech to up-and-coming scientists and
researchers who are potentially making breakthroughs in a
particular field. This network enhances PureTech's ability to
evaluate and validate those technologies that it believes show
strong commercial and clinical potential and ultimately focus on a
select few of some of the most promising within the selected theme.
PureTech's advisory network has international reach, complementing
PureTech's extensive relationships within Boston's healthcare
community.
Strong fundamentals
PureTech's differentiated business model allows for the Company
to support its existing businesses while actively identifying new
technologies. PureTech invests in the growth of its businesses in a
disciplined manner and its model affords the Company the ability to
build value and allocate funds to its successful businesses as
milestones are achieved. Having raised net proceeds of $236 million
during 2015, PureTech is well-positioned to achieve its strategic
goals, with approximately $256 million of cash and short term
investments at 31 December 2015. These funds enable PureTech to
drive forward its growth stage businesses to major milestones. This
capital also enables PureTech to develop its internal
infrastructure as well as to build and scale its pipeline.
PureTech's growth stage businesses maintain a strong cash position,
with PureTech and outside investor funding, reflected by the
consolidated cash and short term investments of approximately
$313.7 million.
One of PureTech's competitive advantages is its institutional
expertise in creating innovative new therapeutics and driving their
growth through strategic, operational and financial leadership. As
important as PureTech's strong cash position is its ability to
build its pipeline through the effective management and growth of
its businesses. With a structure to incentivise the teams that
drive forward its various businesses, PureTech guides the direction
of its businesses to help maximise value for its shareholders.
PureTech has average holdings of approximately 73 percent in its
businesses, and effective control over all.
PureTech's strong cash position in conjunction with its
controlling stakes in its businesses provides it alternatives with
regard to funding its businesses and optimising its capital
allocation strategy. Since its businesses are generally
majority-owned, PureTech has the flexibility to tune the level of
outside funding for each business depending on market conditions
with an emphasis on those investors who contribute value beyond
capital. With a keen focus on long term returns, PureTech is also
able to take advantage of market movements. For example, when
partners and investors are highly enthusiastic about certain
healthcare sectors, PureTech can attract relatively inexpensive
capital to businesses exploring those areas.
In particular, as its growth stage businesses continue to
advance, cash inflows could come from a number of sources,
including launch of products, licensing revenue, royalties, as well
as sale of a business.
PureTech has the ability to influence the strategic direction of
each of its businesses, with the PureTech Board of Directors and
senior leadership sitting on the underlying business boards as part
of their roles in PureTech. This allows PureTech to take a holistic
view of capital allocation across its businesses, with the goal of
maximising value for its shareholders.
Finally, an important advantage of PureTech's business model is
its diversification of technical risk. PureTech's businesses have
relatively independent risk profiles, which means that as some
businesses reach de-risking milestones, including potentially
negative results, PureTech can choose to divert its capital to back
the potential winners. As a result, PureTech is protected from
funding high-risk, low-return assets, and can direct its funds
towards its businesses that have demonstrated technical success or
have a higher potential for meaningful returns.
External validation
Validating PureTech's technologies through partnerships and
external financings is a significant strategic goal for PureTech.
During 2015, businesses in PureTech's pipeline formed four
partnerships, including those with Janssen, a subsidiary of Johnson
& Johnson, and with Autism Speaks, and closed five funding
rounds with external partners. PureTech's businesses also continued
to successfully progress collaborations with Pfizer and Verily,
Google's life sciences division. Data supporting PureTech's
businesses have been published in top-tier scientific journals such
as Science and Nature.
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In January 2015, Vedanta Biosciences entered into a partnership
with Janssen, a subsidiary of Johnson & Johnson, out-licensing
one product candidate, VE202 for up to $339 million in a
non-refundable upfront and milestones payments, plus royalties on
commercial sales from the high single digits to the low teens. This
partnership allowed Vedanta Biosciences to further develop its
platform with non-dilutive funding, preserving PureTech's equity
stake and allowing PureTech to maintain a controlling interest. In
addition to the funding the partnership provides, it also allows
Vedanta Biosciences to leverage the resources of a larger partner
to drive forward the development of VE202. Vedanta Biosciences has
a platform with multiple additional product candidates.
Akili entered into a partnership with Autism Speaks, a leading
autism science and advocacy organisation. This partnership allowed
Akili to receive non-dilutive funding to support a controlled
clinical study to determine the efficacy of Akili's cognitive
gaming intervention platform in children with co-occurring
high-functioning autism and ADHD. Having relationships with patient
advocacy groups like Autism Speaks will be beneficial in building
market awareness for Akili's product candidate. Along with Akili's
previously formed relationships with Pfizer and Shire, this
represents strong validation of our technology.
During 2015, Gelesis (twice), Tal Medical, Follica, and Karuna
all closed financing rounds with external partners, with Akili
closing a round post-period end. External financing rounds provide
further validation for the technology plus, in the case of equity
financings, validation of the business values, as was the case for
Gelesis, Akili, and Tal Medical. In July 2015, Karuna received the
Wellcome Trust's Translation Fund Award, comprising a low-interest,
unsecured convertible note of up to $3.8 million to fund Karuna's
combination proof-of-concept study, to demonstrate the potential of
Karuna's lead therapy, KarXT.
Advanced pipeline
PureTech has a robust pipeline of programmes, which has
significantly progressed over the course of 2015, with several of
PureTech's businesses approaching commercialisation stage.
PureTech's most advanced businesses are considered growth stage,
and are formally valued at the conclusion of every year. PureTech's
earlier stage businesses are considered project phase and concept
phase, and are not included in the ownership adjusted value of our
growth stage businesses.
Growth stage businesses
Given the progress of PureTech's growth stage businesses,
PureTech's ownership adjusted value of these businesses has
increased by $69.3 million or 31.2 percent, from $222.4 million to
$291.7 million, including the first tranche of the Akili financing
which closed in January 2016. The increase in PureTech's ownership
adjusted value, net of new investments by PureTech, was
approximately $46.3 million, or approximately 20.8 percent.
Late-stage pipeline
Both Akili and Gelesis are funded through the read-out of their
pivotal studies in the first half of 2017, with sufficient funding
to also begin commercialisation activities as they prepare for
product launches within the next two years. Gelesis may potentially
have a 3-month proof-of-concept study read-out in the second half
of 2016 for Gelesis200, and also has two ongoing mechanistic
studies for Gelesis100. Beyond its pivotal study in ADHD, Akili is
also exploring its product in nine separate clinical studies.
Follica is progressing towards its registration study, and is
expected to initiate its registration study in the second half of
2016.
Mid-stage pipeline (clinical)
Tal Medical has two ongoing randomised controlled studies with a
total planned enrolment of 210 patients expected to read-out in the
third and fourth quarters of 2016, respectively, that are the
equivalent of Phase 2b studies. If successful, these studies could
serve as the basis for initiating a pivotal study. Tal Medical also
has five ongoing research projects to better understand the
mechanism of action of low field magnetic stimulation and possible
applications in other indications. Karuna plans to have its
60-patient study read-out by the end of 2016.
Preclinical pipeline
Vedanta Biosciences and Entrega both also made significant
progress towards the clinic in 2015. VE202, licensed to Janssen, is
expected to enter the clinic in the first half of 2017. VE303 has
demonstrated efficacy in animal models of C. difficile infections,
and may also enter the clinic within the next year, and there are
multiple other candidates in other indications including
autoimmune, allergy and oncology. Entrega has further refined its
drug delivery platform technology through large animal studies, and
expects to have a dataset available to announce in the second half
of 2016.
Project phase and concept phase
Unlike its growth stage businesses, PureTech's project phase
businesses and concept phase initiatives are not assigned values by
PureTech, but form the basis of PureTech's next growth stage
businesses. PureTech's pipeline is also primarily focused on three
therapeutic areas of accelerating biological insight and
substantial unmet medical need - the central nervous system, the
immune system, and the gastrointestinal tract and associated
metabolic system - and, despite not being formally valued, the most
advanced of these are now clinical stage and already have strong
teams in place.
Valuation of PureTech's growth stage businesses
All of PureTech's growth stage businesses are currently majority
owned, except for Gelesis in which PureTech holds approximately
22.5 percent on a diluted basis and is also a co-inventor with
rights to royalties upon launch. All growth stage businesses 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 growth stage businesses. As a means of promoting
transparency, the Directors also present, as supplementary
information, ownership adjusted valuations of the growth stage
businesses in aggregate. This valuation disclosure has been
prepared on the basis of the AICPA Guidelines. The AICPA Guidelines
do not represent, but are consistent with, valuation principles
adopted under IFRS. The growth stage business valuations are not
presented as alternative measures to, and should be read in
conjunction with, PureTech's consolidated financial information
prepared in accordance with IFRS and as set out in the Annual
Report.
Value of PureTech's
holdings ($ millions)
in growth stage
businesses as
at:
Growth Stage Business 31 December 31 December Dollar Percent
2015(6) 2014(5) change change
year-over-year year-over-year
Vedanta Biosciences $83.0 $67.0 $16.0 23.9%
Akili $45.9 $26.7 $19.2 71.9%
Gelesis $56.8 $44.9 $11.9 26.5%
Tal $30.6 $27.3 $3.3 12.1%
Karuna $36.4 $24.9 $11.5 46.2%
Follica $23.3 $18.2 $5.1 28.0%
Entrega $15.7 $13.4 $2.3 17.2%
Aggregate Holdings $291.7 $222.4 $69.3 31.2%
Notes:
(1) The Aggregate Holdings as at 31 December 2015 excludes cash,
cash equivalents and short term investments held at the PureTech
level. As at 31 December 2015, PureTech held such amounts totalling
$255.5 million (this amount includes the amount subsequently
invested by PureTech in the first tranche of the Akili financing
round in January 2016 of $11.5 million). The Aggregate Holdings
includes ownership adjusted cash balances and short term
investments amounting to $30.4 million. Cash balances and short
term investments are as at 31 December 2015, with the exception of
Akili in which case the cash balance is as immediately following
the first tranche of the January 2016 financing round.
(2) The value of the PureTech's growth stage business holdings
represents the Company's interest in the equity value of each
growth stage business, calculated as follows: (Business Enterprise
Value - Debt + Cash) × PureTech's percentage ownership
plus the present value of PureTech's expected future royalty
stream associated with a particular business, plus the value of
debt provided by PureTech LLC to that operating company, when
applicable.
(3) The values attributed to royalty streams include royalties
in respect to Gelesis (2015: $14.6 million, 2014: $9.7 million),
Karuna (2015: $9.9 million, 2014: $7.5 million), and Follica (2015:
$8.7 million, 2014: $6.9 million). The values attributed to debt
held by PureTech include debt held by Karuna (2015: $2.9 million,
2014: $0.3 million), Entrega (2015: $2.1 million, 2014: $0.3
million), Follica (2015: $1.4 million, 2014: $0.1 million), and
Vedanta (2015: $0.5 million, 2014: $0.4 million).
(4) The relevant ownership interests were calculated on a
diluted basis, including issued and outstanding shares and
outstanding warrants, written commitments to issue options, and
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. Although not included in the Aggregate Holdings,
PureTech also holds majority stakes in its project phase
businesses, while concept phase initiatives are, in effect, wholly
owned.
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(5) The Aggregate Holdings as at 31 December 2014 has been
calculated on the basis of PureTech's percentage ownership interest
as at 31 December 2014 or in the case of Gelesis and Tal, as at the
date of the initial closing of the financings rounds that occurred
in the first quarter of 2015.
(6) The Aggregate Holdings as at 31 December 2015 has been
calculated on the basis of PureTech's percentage ownership interest
as at 31 December 2015 or in the case of Akili, as at the date of
the first tranche of the financing round that occurred in January
2016.
There can be no guarantee that the aforementioned valuation of
PureTech's growth stage businesses will be considered to be correct
in light of the future performance of our businesses, or that
PureTech would be able to realise proceeds in the amount of such
valuations, or at all, in the event of a sale or other monetisation
event by it of any of its growth stage businesses.
At the close of each annual financial period, the Directors
estimate and formally approve, the value of PureTech's growth stage
businesses which is used to derive the Aggregate Value of Growth
Stage Business Holdings ("Aggregate Holdings"). The Directors
engage an external valuation expert in assisting the Company in
estimating the Aggregate Holdings. The Aggregate Holdings was
$291.7 million as at 31 December 2015 or, in the case of Akili,
immediately after the closing of the first tranche of the financing
round in January 2016 in which PureTech contributed $11.5 million
of approximately $22.0 million committed by PureTech. The Aggregate
Holdings is comprised of PureTech's ownership- adjusted interests
in its seven growth stage businesses. The Aggregate Holdings does
not include PureTech's interests in its five project phase
businesses, in which PureTech holds, on average, approximately 90
percent on a diluted basis, or PureTech's interests in its 10
concept phase initiatives, which are wholly owned by PureTech.
Each growth stage business has an equity incentive plan in place
which has the potential to dilute PureTech's ownership. The equity
incentive plans are for the benefit of employees, directors and
other advisors and service providers of the relevant business.
The Company's Prospectus filed in conjunction with its initial
public offering disclosed the initial Aggregate Holdings valuation
of the growth stage businesses of $222.4 million as of 31 December
2014. This information was provided in the Prospectus to assist
potential shareholders and other key stakeholders in gaining a
baseline understanding of the Company's business model and
underlying portfolio of growth stage businesses. In future filings,
the Company expects to disclose the total Aggregate Holdings value,
but not the value of each growth stage business making up the total
amount, as we believe that such information could affect the
Company's ability to realise the highest possible value for these
businesses. The Company's business model relies on the ongoing
discussion with third-party investors and partners in its growth
stage businesses. Disclosing the individual valuation of the
Company's ownership stake in each growth stage business, as part of
communicating our Aggregate Holdings, provides potential
third-party partners and investors negotiating leverage due to the
Company's voluntary election to communicate a balanced view on the
Aggregate Holdings to PureTech's shareholders. The view presented
in the valuation of the Aggregate Holdings is usually not
reflective of the highest possible value and is not the most
favourable valuation that could ultimately be assigned by an
investor or partner. In the interests of promoting transparency,
PureTech provides the following notes on our approach to
valuation.
The Aggregate Holdings has increased by $69.3 million to $291.7
million or 31.2 percent. Excluding the impact of the amounts
invested by PureTech of $23.0 million (inclusive of the first
tranche of the Akili financing round in January 2016 of $11.5
million) subsequent to the 31 December 2014 valuation, the value of
the Aggregate Holding increased by approximately 20.8 percent.
Approximately 60 percent of the value of the Aggregate Holdings at
31 December 2015 is supported by third-party investments and
partnerships. This includes third-party financings in the case of
Gelesis, Tal and Akili as well as an executed partnership between
Vedanta Biosciences and Janssen.
Valuation methodology
Each growth stage business is evaluated by the Company when
requesting further investment from PureTech based on a range of
inputs, including, amongst others, business performance, market and
competitor analyses.
The Aggregate Holdings represents the sum of the parts of
valuations based on recent third party equity investments at the
business level for Gelesis and Akili (2014 - Gelesis and Tal) and
risk adjusted net present value from discounted cash flow
valuations for Vedanta Biosciences, Entrega, Karuna, Tal, and
Follica (2014 - Vedanta Biosciences, Entrega, Karuna, Follica and
Akili).
Further details of the methodology applied by the Directors in
determining the Value of Growth Stage Business Holdings is set out
in the accompanying audited financial statements.
PureTech's project phase businesses and concept phase
initiatives
The Directors believe that PureTech has adopted a conservative
approach in providing valuation disclosure in respect of our growth
stage businesses only. The Directors believe that the project phase
businesses and concept phase initiatives, established international
advisory network and theme driven business creation process provide
significant opportunities to create and realise significant further
value for PureTech's shareholders.
In addition to its seven growth stage businesses, PureTech has
five project phase businesses which are at an earlier stage in
PureTech's process and will form the basis of future growth stage
businesses.
PureTech's existing growth stage businesses have all emerged
from PureTech's established model. PureTech's platform,
infrastructure and international advisory network enables it to
explore new themes on an ongoing basis. PureTech currently has 10
concept phase initiatives with the potential to become the
foundation for our future businesses.
PureTech's employees have built up extensive knowledge in areas
that are critical to its business such as opportunity analysis,
design of key experiments, as well as filing and licensing
intellectual property. PureTech also relies on leading service
providers, consultants and vendors including leading law firms with
intellectual property expertise, regulatory consultants and
contract research organisations whose expertise the Company can
employ in a disciplined manner while conducting key validating
experiments. The Directors believe this combination of established
working relationships and broad expertise across the team enables
PureTech to manage its business with efficiency and reduced risk
and ultimately provides PureTech with a reproducible model to grow
our business and generate further value for its shareholders.
Portfolio review
Summary
Growth stage Overview
business
-------------------- ---------------------------------------------------------
Vedanta Biosciences A preclinical stage company developing a microbiome
immune system drug discovery platform and drug
candidates for the treatment of immune-mediated
diseases.
Gelesis A clinical stage company developing products
that seek to induce weight loss and improve
glycaemic control through an orally administered
capsule that expands in the GI tract as it
absorbs water.
Akili 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.
Tal A clinical stage medical device company developing
an innovative, noninvasive neurostimulation
treatment for psychiatric disorders including
depression and bipolar disorder.
Karuna A clinical stage company developing an innovative
combination therapy for the treatment of schizophrenia.
Entrega A preclinical stage company developing a drug
platform for the oral administration of proteins,
peptides and other difficult--to--deliver payloads,
including magnetic nanoparticles.
Follica A clinical stage company developing products
to generate new human hair follicles and hair.
Project phase Overview
business
-------------------- ----------------------------------------------------
The Sync Project 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 Developing voice-based tools for the passive
assessment and tracking of patient health.
Commense Developing commensal organism--based products
for the improvement of human health in, for
example, early childhood.
Alivio Therapeutics Alivio Therapeutics is centred around a proprietary
drug delivery platform for drugs that treat
inflammation and underlying disorders that
cause inflammation.
Vor BioPharma
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Vor BioPharma is a preclinical immuno-oncology
business that is developing novel targeted
therapies for cancer.
Growth Stage Businesses
Vedanta Biosciences is pioneering the development of a new class
of therapies that are designed to modulate pathways of interaction
between the human microbiome and the host immune system. Vedanta
Biosciences is a leader in the microbiome field focused on the
discovery, development, and manufacturing of drugs based on live
commensal microbes. Using its proprietary technology platform,
Vedanta Biosciences has isolated a vast collection of
human-associated bacterial strains and characterised how the immune
system recognises and responds to these microbes. Vedanta
Biosciences has out-licensed the rights to one of its product
candidates, VE202, to Janssen, a subsidiary of Johnson &
Johnson, for 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.
Using its proprietary microbiome technology platform, Vedanta
Biosciences has also generated a pipeline of additional drug
candidates which are being developed for infectious disease, immune
tolerance, inflammation, and immuno--oncology, including one
candidate at a similar stage of development as VE202. VE202 is
expected to enter clinical studies in the first half of 2017 in
IBD. VE303 is expected to enter clinical studies in the first half
of 2017 for an infectious disease indication.
Akili is a clinical stage business developing a new type of
medicine that addresses a new target for cognition. Akili's
technology, originally discovered at UCSF, is being delivered in a
consumer-grade action video game interface and applied to
diagnosing and treating cognitive disorders. Akili's lead product
is designed to monitor and improve the brain's executive function,
which is impacted in a number of disorders such as attention
deficit hyperactivity disorder (ADHD), autism, Alzheimer's disease
and traumatic brain injury. Akili completed a pilot clinical study
in paediatric ADHD in patients that showed statistically
significant improvements on multiple outcomes measuring attention,
impulsivity and working memory. To date, Akili has undertaken 10
clinical trials as well as a number of smaller scale feasibility
testing efforts. The Alzheimer's pilot biomarker study funded by
Pfizer could potentially read-out in the second quarter of 2016.
Akili expects its pivotal study in ADHD to read-out in the first
half of 2017, with a potential product launch in the second half of
2017.
Gelesis is a clinical stage business focused on the development
of novel therapies to induce weight loss and improve glycaemic
control in overweight and obese patients, including those with
prediabetes and diabetes. Gelesis100, one of the Gelesis' product
candidates and a first-in-class therapeutic, is currently being
evaluated in a six-month pivotal study. Gelesis is also advancing
Gelesis200, created from the same proprietary technology platform
as Gelesis100, as a product optimised to improve glycaemic control
in prediabetics and type 2 diabetics who may or may not require
weight loss. Gelesis raised $49.5 million in financing and
initiated a weight loss pivotal trial for Gelesis100 following a
non-significant risk designation from the U.S. Food and Drug
Administration (FDA), accelerating its clinical timeline for FDA
submission by approximately one year. Gelesis100's pivotal study
could potentially read-out in the first half of 2017, with a
potential product launch in 2018. Gelesis200's three-month efficacy
proof-of-concept study could potentially read-out by the end of
2016.
Tal Medical, a clinical stage neuroscience business developing a
non-invasive, rapid-acting neuro--modulation therapy for
depression, attracted $14.0 million in financing, enrolled the
first subjects in a dose optimisation study and received positive
confirmation from the FDA that the study qualifies as a
non-significant risk. Tal Medical's ongoing 90-patient
proof-of-concept study is funded by the NIMH's Rapidly Acting
Treatments for Treatment Resistant Depression programme, which is
designed to test promising rapid-acting interventions. Tal
Medical's Major Depressive Disorder (MDD) proof-of-concept study is
expected to read-out in the third quarter of 2016, with its dose
optimisation study reading out in the fourth quarter. The potential
launch of Tal Medical's product candidate for MDD is 2019. Tal
Medical is in the process of finalising the protocol for a pivotal
study in bipolar disorder; the study will potentially start in the
first half of 2017.
Karuna is pursuing innovative therapies for the treatment of
schizophrenia. Karuna's lead programme, KarXT, is a product
candidate consisting of xanomeline, a novel clinical-stage
muscarinic acetylcholine receptor agonist (activator) that has
demonstrated efficacy in reducing psychosis and improving cognition
in placebo-controlled human trials, and trospium chloride, an
FDA-approved and well-established muscarinic receptor antagonist
(blocker) that studies have shown does not enter the central
nervous system. If successful, KarXT could provide a new mechanism
for treating schizophrenia, a field in which few safe and effective
new mechanisms have emerged over the last half-century. Karuna has
received the Wellcome Trust's Translation Fund Award, consisting of
an unsecured convertible note of up to $3.8 million from the
Wellcome Trust for its planned combination proof of concept study.
Karuna's combination proof-of-concept study could potentially
read-out by the end of 2016, which, if successful, could be the
basis for initiating a Phase 2 study in 2017.
Follica is a clinical stage business utilising its regenerative
biology platform technology to develop a novel treatment for hair
loss. Follica's technology employs a technique designed to
stimulate the growth of new follicles and hair through disruption
of the skin, followed by treatment with drugs and chemicals to
enhance the effect on these new hair follicles and potentially
further develop new hair. Follica has completed three human
clinical studies of patients with androgenetic alopecia to
demonstrate hair growth and new hair follicle formation following
application of its technology. Follica has also performed and
funded preclinical work which, together with research from the
University of Pennsylvania, serve as the foundational observations
on which the technology is based. Follica plans to initiate a
registration study in the second half of 2016, with data read-out
in 2017. If the data are favourable, Follica would potentially plan
to seek FDA clearance in 2017, with commercial release to follow as
soon as 2018.
Entrega is developing a platform technology for the oral
delivery of biologics, vaccines and other forms of medication that
are otherwise not efficient in reaching the bloodstream when taken
orally. To underpin its technology, Entrega has generated proof of
concept data demonstrating that Entrega's system can deliver
therapeutic peptides, including insulin, into the bloodstream of
healthy rats. Entrega has initiated a series of large animal
experiments designed to refine and validate this initial model.
Entrega has a partnership with Verily, Google's life sciences
division, focused on developing nanoparticle formulations for oral
delivery with Entrega's technology. Entrega expects a read-out of
proof-of-concept delivery data in large animals in the second half
of 2016.
Project Phase Businesses
PureTech currently has five project phase businesses and 10
concept phase initiatives originating from its theme-driven
process. In 2015, Alivio Therapeutics and Vor BioPharma advanced to
the project phase. PeerIn and Knode have been deprioritised based
on their lack of strategic fit with PureTech's current focus
areas.
Alivio Therapeutics is centred around a proprietary drug
delivery platform for drugs that treat inflammation and underlying
disorders that cause inflammation. There are dozens of diseases
where inflammation is a central part of the underlying disease
pathology. Inflammatory diseases represent a multi-billion dollar
market despite the fact that current treatments may have limited
efficacy and side effects. The approach that Alivio is taking may
result in both improved safety and efficacy of currently used
agents. The platform may also enable the delivery of agents that
would otherwise not have clinical utility allowing for the
introduction of novel agents to treat inflammatory-related
conditions. Because of the platform nature of Alivio's technology,
it has the potential to be used with multiple agents.
Commense is developing novel microbiome derived therapeutics by
priming, seeding and maintaining beneficial microbes before birth,
at birth, and beyond. Decades of research support the view that
microbial exposures early in life play a major role in healthy
development and are believed to be very important for many
conditions including diabetes, asthma, rheumatoid arthritis and
Crohn's disease. Recent work has begun to reveal the sources of
these beneficial microbes, as well as strategies to optimise their
transfer, colonisation, and persistence in the host. Commense was
co-founded by a team of world-class microbiome researchers that
have helped to pioneer these discoveries in order to turn them into
products with breakthrough potential to improve health in children
worldwide.
Sonde Health
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Sonde Health is developing a proprietary voice-based technology
platform with the potential to transform the way we monitor and
diagnose mental and physical health. A key unmet need for medicine
is low- or no-burden monitoring technologies that can provide
clinically meaningful information about a range of health and
disease states on devices people already own and use every day.
Although not widely recognised outside of specialised research
communities, the human voice is a rich source of objective health
information that can be accessed through signal processing and
computational analysis to reveal health-related changes in the
function of the major systems involved in speech production. Saying
a single phrase requires complex coordination of multiple neural
circuits in the brain, precise control of the respiratory system,
and carefully timed and coordinated activation of the
musculoskeletal system elements that control articulation along the
entire vocal tract. Disease-specific disruptions in any one (or
more) of these systems produce subtle, but characteristic changes
in the non-linguistic features of the voice that are consistent
across individuals and can be analysed computationally.
The Sync Project
In the growing digital medicine industry, Sync is positioned to
become the first algorithmic music therapeutics company. Sync's
goal is to create music as personalised medicine through the
application of machine learning to a unique dataset combining music
characteristics and biometric data. Sync has built a novel
end-to-end version of the platform that will allow the company to
gather this dataset a) quicker than potential competitors and b)
through an innovative model combining both an open consumer
community (large population studies) and focused clinical studies.
Sync has identified initial conditions for human pilot studies
including sleep, pain and athletic performance and has begun
clinical studies in the latter. Sync is led by CEO Marko Ahtisaari,
former Chief of Design at Nokia.
Vor BioPharma
Vor BioPharma is a preclinical immuno-oncology business that is
developing novel targeted therapies for cancer. In recent years,
targeted immunotherapies have shown remarkable progress in the
clinic, yet their applicability beyond a small subset of cancers is
currently limited. Vor is collaborating with some of the world's
leading oncologists and immunologists to develop a breakthrough new
technology platform to address this major challenge. Importantly,
Vor's focus is to build an approach that has the potential to yield
a pipeline of new therapies for malignancies that cannot be
adequately addressed using existing approaches.
Concept Phase Initiatives
PureTech is also pursuing 10 different concept phase initiatives
in areas like infectious disease, oncology, immunology and
metabolism. Although these are earlier stage, these initiatives
form the basis for PureTech's future project phase businesses and
round out PureTech's early-stage pipeline.
Risk Management
The execution of the Group's strategy is subject to a number of
risks and uncertainties. As a developer of early stage technologies
attempting to address significant unmet medical needs, the Group
inherently operates in a high-risk environment. The overall aim of
the Group's risk management effort is to achieve an effective
balancing of risk and reward, although ultimately no strategy can
provide an absolute assurance against loss.
Risks are formally identified by the Board and appropriate
processes are put in place to monitor and mitigate them. If more
than one event occurs, it is possible that the overall effect of
such events would compound the possible effect on the Group. The
principal risks that the Board has identified as the key business
risks facing the Group are set out in the table below along with
the consequences and mitigation of each risk. Any number of these
could have a material adverse effect on the Group, its financial
condition, its development, results of operations, businesses
and/or future prospects.
1. The science and technology being developed or commercialised
by the Group's businesses may fail and/or the Group's businesses
may not be able to develop their intellectual property into
commercially-viable products or technologies. There is also a risk
that certain of the businesses may fail or not succeed as
anticipated, resulting in significant decline of the Group's
value.
Impact: The failure of any of the Group's businesses would
decrease the Group's value. A failure of one of the major
businesses could also impact on the perception of the Group as a
developer of high value technologies and possibly make additional
fund raising at the Group or business level more difficult.
Mitigation: Before making any decision to develop any
technology, extensive due diligence is carried out by the Group
which covers all the major business risks including technological
feasibility, market size, strategy, adoption and intellectual
property. A capital disciplined approach is pursued such that some
level of proof-of-concept has to be achieved before substantial
capital is committed and thereafter allocated. Capital is tranched
so as to fund programmes only to their next value milestone.
Members of the Group's Board serve on the board of directors of
each business so as to maintain control over each business'
strategy and to oversee proper execution thereof. The Group uses
its extensive network of advisers to ensure that each business has
appropriate domain expertise as it develops and executes on its
strategy.
2. Clinical trials and other tests to assess the commercial
viability of the product are typically expensive, complex and time
consuming, and have uncertain outcomes. Conditions in which
clinical trials are conducted differ, and results achieved in one
set of conditions could be different from the results achieved in
different conditions or with different subject populations. If the
Group's product candidates fail to achieve successful outcomes in
their respective clinical trials, the products will not receive
regulatory approval and in such event cannot be commercialised. In
addition, if the Group fails to complete or experiences delays in
completing clinical tests for any of its product candidates, it may
not be able to obtain regulatory approval or commercialise its
product candidates on a timely basis, or at all.
Impact: A critical failure of a clinical trial may result in
termination of the programme and a significant decrease in the
Group's value. Significant delays in a clinical trial to support
the appropriate regulatory approvals could significantly impact the
amount of capital required for the business to become fully
sustainable on a cash flow basis.
Mitigation: The Group has dedicated internal resources to
establish and monitor each of the clinical programmes in order to
try and maximise successful outcomes. Significant scientific due
diligence and preclinical experiments are done prior to a clinical
trial to attempt to assess the odds of the success of the trial. In
the event of the outsourcing of these trials, care and attention is
given to assure the quality of the vendors used to perform the
work.
3. The pharmaceutical industry is highly regulated. Regulatory
authorities across the world enforce a range of laws and
regulations which govern the testing, approval, manufacturing,
labelling and marketing of pharmaceutical products. Stringent
standards are imposed which relate to the quality, safety and
efficacy of these products. These requirements are a major
determinant of whether it is commercially feasible to develop a
drug substance or medical device given the time, expertise, and
expense which must be invested. Moreover, approval in one territory
offers no guarantee that regulatory approval will be obtained in
any other territory. The Group may not obtain regulatory approval
for its products. Even if products are approved, subsequent
regulatory difficulties may arise, or the conditions relating to
the approval may be more onerous or restrictive than the Group
expects.
Impact: The failure of one of the Group's products to obtain any
required regulatory approval may result in a significant decrease
in the Group's value.
Mitigation: The Group manages its regulatory risk by employing
highly-experienced clinical managers and regulatory affairs
professionals who, where appropriate, will commission advice from
external advisers and consult with the regulatory authorities on
the design of the Group's preclinical and clinical programmes.
These experts ensure that high quality protocols and other
documentation are submitted during the regulatory process, and that
well-reputed contract research organisations with global
capabilities are retained to manage the trials.
4. There is a risk of adverse reactions with all drugs and
medical devices. If any of the Group's products are found to cause
adverse reactions or unacceptable side effects, then product
development may be delayed, additional expenses may be incurred if
further studies are required, and, in extreme circumstances, it may
prove necessary to suspend or terminate development. This may occur
even after regulatory approval has been obtained, in which case
additional trials may be required or the approval may be suspended
or withdrawn or additional safety warnings may have to be included
on the label. Adverse events or unforeseen side effects may also
potentially lead to product liability claims being raised against
the Group as the developer of the products and sponsor of the
relevant clinical trials.
Impact: Unacceptable adverse reactions or side effects may
result in a smaller market for the Group's products, or even cause
the products to fail to meet regulatory requirements necessary for
sale of the product. This, as well as any claims for injury or harm
resulting from the Group's products, may result in a significant
decrease in the Group's value.
(MORE TO FOLLOW) Dow Jones Newswires
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Mitigation: The Group designs its products with safety as a top
priority and conducts extensive preclinical and clinical trials
which test for and identify any adverse side effects. Insurance is
in place to cover product liability claims which may arise during
the conduct of clinical trials.
5. The Group may not be able to sell its products profitably if
reimbursement from third-party payers such as private health
insurers and government health authorities is restricted or not
available because for example it proves difficult to build a strong
enough economic case based on the burden of illness and population
impact. Third-party payers are increasingly attempting to curtail
healthcare costs by challenging the prices that are charged for
pharmaceutical products and denying or limiting coverage and the
level of reimbursement. Moreover, even if the products can be sold
profitably, they may not be accepted by patients and the medical
community. Alternatively, the Group's competitors - many of whom
have considerably greater financial and human resources - may
develop safer or more effective products or be able to compete more
effectively in the markets targeted by the Company. New companies
may enter these markets and novel products and technologies may
become available which are more commercially successful than those
being developed by the Company.
Impact: The failure of the Group to obtain reimbursement from
third-party payers, as well as competition from other products, may
significantly decrease the amount of revenue the Group may receive
from product sales. This may result in a significant decrease in
the Group's value.
Mitigation: The Group engages reimbursement experts to conduct
pricing and reimbursement studies for its products to ensure that a
viable path to reimbursement, or direct user payment, is available.
The Group also closely monitors the competitive landscape for all
of its products and adapts its business plans accordingly.
6. The Group may not be able to obtain patent protection for its
products or maintain the secrecy of its trade secrets and know-how.
If the Group is unsuccessful in doing so, others may market the
products at significantly lower prices. Alternatively, the Group
may be sued for infringement of third-party patent rights. If these
actions are successful then the Group would have to pay substantial
damages and potentially remove its products from the market. The
Company licences certain intellectual property rights from third
parties. If the Company fails to comply with its obligations under
these agreements it may enable the other party to terminate the
agreement. This could impair the Company's freedom to operate and
potentially lead to third parties preventing it from selling
certain of its products.
Impact: The failure of the Group to obtain patent protection and
maintain the secrecy of key information may significantly decrease
the amount of revenue the Group may receive from product sales. Any
infringement litigation against the Group may result in the payment
of substantial damages by the Group and result in a significant
decrease in the Group's value.
Mitigation: The Group spends significant resources using top
tier advisers in the prosecution of its patent applications.
Third-party patent filings are monitored to ensure the Group
continues to have freedom to operate. Confidential information
(both of the Group and belonging to third parties) is protected
through use of confidential disclosure agreements with third
parties, and suitable provisions relating to confidentiality and
intellectual property exist in the Company's employment and
advisory contracts. Licences are monitored for compliance with
their terms.
7. The Group expects to continue to incur substantial
expenditure in further research and development activities of its
businesses. There is no guarantee that the Group will become
profitable and, even if it does so, it may be unable to sustain
profitability.
Impact: The strategic aim of the business is to generate profits
for its shareholders through the commercialisation of technologies
through product sales, strategic partnerships and sales of
businesses. The timing and size of these potential inflows is
uncertain and should revenues from our activities not be achieved,
or in the event that they are achieved but at values significantly
less than the amount of capital invested, then it would be
difficult to sustain the Group's business.
Mitigation: The Group retains significant cash in order to
support funding of its businesses. The Group has close
relationships with a wide group of investors and strategic partners
to ensure it can continue to access the capital markets and
additional funding for its businesses.
8. The Group operates in complex and specialised business
domains and requires highly qualified and experienced management to
implement its strategy successfully. The Group and many of its
businesses are located in the United States which is a highly
competitive employment market. Moreover, the rapid development
which is envisaged by the Group may place unsupportable demands on
the Group's current managers and employees, particularly if it
cannot attract sufficient new employees. There is also risk that
the Group may lose key personnel at the Group or its
businesses.
Impact: The failure to attract highly effective personnel or the
loss of key personnel would have an adverse impact on the ability
of the Group to continue to grow and may negatively affect the
Group's competitive advantage.
Mitigation: The Board annually seeks external expertise to
assess the competitiveness of the compensation packages of its
senior management. Senior management continually monitor and assess
compensation levels to ensure the Group remains competitive in the
employment market. The Group maintains an extensive recruiting
network through its Board members, advisers and scientific
community involvement. The Group also employs an executive as a
full-time in--house recruiter.
This Strategic Report was approved by the Board of
Directors.
By order of the Board
Stephen Muniz
Company Secretary
Responsibility statement of the Directors in respect of the
Annual Financial Report
The responsibility statement set out below has been reproduced
from the Annual Report and Accounts and relates to that document
and not this announcement.
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and loss of the
Company and the undertakings included in the consolidation taken as
a whole; and
-- the Strategy Report and Directors' Report includes a fair
review of the development and performance of the business and the
position of the issuer and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
We consider the Annual Report and accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
By order of the Board
Stephen Muniz
Company Secretary
Financial review
Cash Raised in 2015
2015
$ millions
Proceeds from Initial Public Offering $183.4
Proceeds from Private Equity Financings 52.2
--------
Total Cash Raised by PureTech in 2015 $ 235.6
Proceeds from Outside Investors from Financings of Growth
Stage Businesses $50.3
Proceeds from Receipt of Milestone Payments 10.0
--------
Total Cash Raised for Group in 2015 $295.9
The financial results for year reflect a transformational period
for the Group. During 2015, the Group significantly strengthened
its financial position, liquidity and ability to fund its pipeline
by raising more than $295 million, including proceeds of $196
million from the Company's listing on the London Stock Exchange
("Initial Public Offering" or "IPO") which contributed $183.4
million net of expenses.
The Group also completed a private equity financing in early
2015 resulting in net proceeds of $52.2 million, realised $50.3
million of proceeds from outside investors in subsidiary equity
financings and issuance of convertible notes, as well as $10.0
million in a non--refundable payment from Janssen, a subsidiary of
Johnson & Johnson. The cash reserves generated by these Company
fund raisings, proceeds from outside investors and receipt of the
milestone payment will be used to fund infrastructure costs,
pipeline development and progress the existing growth stage
businesses toward meaningful milestone events.
During 2015, PureTech has scaled up its functions and continued
to source new technologies and platforms. The growth stage
businesses have expanded their research and development activities
and focused on building out their teams. As of 31 December 2015,
the Group had $255.5 million of cash reserves at the PureTech level
to fund activities of the Group, including pipeline development and
participating in financings of the businesses.
In addition, the Group has successfully financed its growth
stage businesses by deploying some of its cash reserves, while
attracting meaningful outside investment. This has resulted in
increased funding at the growth stage businesses totalling, $69.8
million, with $19.5 million coming from the Group and $50.3 million
provided from outside interests.
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Results of Operations
2015 2014
$ millions $ millions
Revenue $11.8 $2.2
Operating Costs(4)(5) (43.6) (1) (16.6) (1)
Other Income 0.5 -
Net Finance Costs (2.1) (2) (2.4) (2)
-------- ---- ------------ ----
Adjusted Loss before
Income Taxes (33.4) (3) (16.8) (3)
Provision for Income
Taxes (1.9) 0.3
-------- ---- ------------ ----
Adjusted Loss $(35.3) (3) $(16.5) (3)
(1) Stated before the effect of share-based payment of $11.3
million (2014 - $2.8 million), depreciation of $0.4 million (2014 -
$0.2 million) and amortisation of $0.3 million (2014 - $0.2
million).
(2) Stated before the effect of the IAS 39 fair value accounting
charge of $7.5 million (2014 - $56.4 million) and finance cost -
subsidiary preferred shares of $3.5 million in 2015.
(3) Stated before the charges discussed in footnotes 1 and 2,
above.
(4) For 2015, operating costs for our reportable segments and
Parent Company and other stated prior to share-based compensation,
depreciation and amortisation were $27.9 million, $2.3 million and
$13.4 million for growth stage businesses, project phase businesses
and Parent Company and other, respectively.
(5) Parent Company and other operating costs before share-based
compensation, depreciation and amortisation and the cost of
professional services totalling $5.5 million associated with our
IPO, which is non--recurring in nature, was $7.9 million for
2015.
Revenue
The Group's operations do not yet generate continuing product
revenues. Some of the growth stage businesses currently generate
revenue from collaborations with third parties. Future revenue from
growth stage businesses are expected to be earned under licence and
collaboration agreements and may include non-refundable licence
fees. In addition, Gelesis has received government grants for
certain capital expenditures and expenses incurred for research and
development work performed under specified programmes in Italy and
the European Union.
Consolidated revenue increased by $9.6 million to $11.8 million
in 2015. This is primarily attributable to revenue at growth stage
businesses increasing almost entirely as a result of a $10.0
million non-refundable milestone payment Vedanta Biosciences
received as part of its collaboration with Janssen, to develop and
commercialise VE202, a microbiome product candidate with an initial
focus on inflammatory bowel disease.
Operating costs
Operating costs are comprised of personnel costs, consulting,
professional and legal fees and business development, as well as
research and development expenses mainly in the form of preclinical
activities, clinical studies, intellectual property registration,
licensing technologies and the cost of acquiring, developing and
manufacturing clinical study materials. Personnel and consultation
costs are primarily related to the remuneration of staff, directors
and advisers in the form of salaries, bonuses, taxes and adviser
fees.
Group operating costs before the impact of share-based payment
charges, depreciation and amortisation of intangibles increased by
$27.0 million. Included in operating costs in 2015 are $7.9 million
of professional services associated with the equity raise
transactions. This includes costs related to PureTech's IPO, which
were not otherwise offset against the net proceeds of the offering
and other related costs. Substantially all of these costs are not
expected to be recurring in nature.
The Group's operating costs also reflected increases due to
significantly higher external costs related to research and
development expenses at the growth stage business units, added
headcount and higher average compensation levels relative to 2014
and an expanding footprint requiring additional space and lease
costs and the higher cost profile associated with being a newly
public company. Parent Company operating costs before share--based
compensation, depreciation and amortisation and the cost of
professional services associated with the IPO was $7.9 million for
2015.
The Directors anticipate that operating costs will increase as
the Group continues to advance the pipeline, source new
technologies and progress the existing development programmes.
Net finance costs
Net finance costs, before consideration of the charge related to
finance costs - IAS 39 fair value accounting of $7.5 million ($56.4
million - 2014) and finance costs - subsidiary preferred shares of
$3.5 million in 2015, decreased by $0.3 million, primarily driven
by the conversion of notes payable into equity holdings for certain
growth stage businesses during 2015, as well as the favourable
effect of interest income was a greater offset in 2015 driven by
higher balances in short term investments and a more favourable
interest rate environment.
The Group's IAS 39 fair value accounting charge relates to
derivative liabilities associated with subsidiary preferred stock
conversion rights, convertible notes and warrants. This change is
driven by increases in the equity value of the underlying
businesses. When the Group realises an increase in the value of the
businesses that we consolidate, a charge will be recognised. The
charge related to IAS 39 fair value accounting decreased by $48.9
million to $7.5 million in 2015. The year-over-year decrease is
attributable to the automatic conversion options embedded in
Gelesis' preferred stock which accounted for $50.7 million of the
net finance cost in 2014. The significant increase related to
Gelesis' preferred stock in 2014 was attributable to the
significant increase in the equity value of Gelesis. The charge in
2015 of $7.5 million was driven by the increase in the value of
conversion rights embedded in the preferred stock of several growth
stage businesses.
Financial Position
2015 2014
$ millions $ millions
Assets
Total non-current
assets $8.6 $4.3
Total current assets(1)(2) 318.2 66.7
------- ------------
Total assets 326.8 71.0
Non-current liabilities 2.2 0.7
Total current liabilities 160.5 93.7
------- ------------
Total liabilities $162.7 $94.4
(1) Includes consolidated cash, cash equivalents and short term
investments totalling $313.7 million (2014 - $62.7 million).
(2) PureTech had cash, cash equivalents and short term
investments totalling $255.5 million at 31 December, 2015.
The financial position of Group was significantly strengthened
in 2015. Cash, cash equivalents and short term investments
increased by $251.0 million. The Group completed a private equity
financing in early 2015 resulting in net proceeds of $52.2 million,
its IPO in June 2015 resulted in $183.4 million in net proceeds,
$50.3 million of proceeds was realised from outside investors, and
$10.0 million in a non--refundable milestone payment was received
from the Janssen collaboration agreement. As a result, PureTech has
cash and cash equivalents of approximately $255.5 million as of 31
December 2015.
As noted above, the Group significantly increased spending on
its operations during 2015. In addition, the Directors anticipate
that the Company's pre-2015 funds and the proceeds of the
financings in 2015 will be used to continue to fund infrastructure
costs, pipeline development and progress the existing growth stage
business units toward meaningful milestone events.
Other significant items impacting the Group's financial position
include:
-- Property and equipment increased by $3.5 million due to
leasehold improvements related to the new main offices located in
Boston, Massachusetts, as well as acquisition of equipment by
certain growth stage businesses as they expand their research and
development activities.
-- Intangible assets increased $1.2 million primarily as a
result of the acquisition of intellectual property by Gelesis.
-- Current liabilities increased significantly in 2015 primarily
as a result of equity financings involving the issuance of
preferred shares by Tal Medical and Gelesis to outside investors
for $48.5 million in funding and the increase in derivative
liability associated with the new equity financings and previously
existing derivatives.
Cash Flows
2015 2014
$ millions $ millions
Net cash outflow from operating
activities $(28.6) $(10.5)
Net cash inflow/(outflow) from
investing activities $(184.2) $0.7
Net cash inflow from financing
activities(1) $285.9 $64.7
(1) Janssen Biotech non-refundable milestone payment included in
operating activities.
As noted above, the equity financings undertaken by the Group
and other activities during the year have resulted in significant
cash inflows. The Company's pre-2015 cash, together with the cash
raised during 2015, will be used to fund infrastructure costs,
pipeline development and progress the existing growth stage
business units toward meaningful milestone events. Cash that cannot
be immediately deployed in these efforts has been used to purchase
short term investments (e.g. U.S. Treasuries), as described below.
As of 31 December 2015, the Group has $255.5 million of cash
reserves at the PureTech level to fund activities of the Group,
including pipeline development and participating in financings of
the businesses.
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The Group's net operating cash outflow funded the payment of
operating expenses which are largely cash based. Cash inflows were
primarily driven by the receipt of a $10 million non-refundable
payment from Janssen.
The net cash inflow from financing activities during 2015 was
from a private equity financing in early 2015 resulting in net
proceeds of $52.2 million, its IPO in June 2015 resulting in $183.4
million in net proceeds, and approximately $50 million of proceeds
from outside investors in subsidiary financings. These funds were
used, in part, to fund $179.6 million of net purchases of short
term investments (e.g. U.S. Treasuries) and $4.7 million of
purchases of property and equipment and intangible assets.
The Group is focused on maintaining liquidity as well as capital
preservation of short term investment. As a result, surplus cash
reserves have been invested in highly-rated, short duration
investments, primarily U.S. Treasuries under one year. The Group
monitors market conditions to manage any risk to the short term
investment portfolio and investigates opportunities to increase the
yield on the amounts invested, while maintaining PureTech's
liquidity and capital preservation. At 31 December 2015, the Group
had $0.4 million of cash reserves held in Euros at a foreign bank.
These cash reserves are used to fund the operation of Gelesis'
Italian manufacturing and R&D subsidiary. The Directors believe
it is prudent to have these cash reserves denominated in Euro to
fund operations and maintain some diversification of currency
exchange risk.
Financial Statements
Consolidated Statements of Comprehensive Loss
For the years ended December 31: Note 2015 2014
----- --------- ---------
$'000 $'000
Revenue 3 11,828 2,222
Operating expenses:
General and administrative expenses 5 (36,471) (14,397)
Research and development expenses 5 (18,999) (5,270)
--------- ---------
Operating loss (43,642) (17,445)
Other income 448 -
Finance costs:
Finance income 7 262 189
Finance costs - subsidiary preferred shares 7 (3,515) -
Finance costs - contractual 7 (2,364) (2,594)
Finance costs - IAS 39 fair value accounting 7 (7,509) (56,371)
--------- ---------
Net finance costs (13,126) (58,776)
Loss before taxes (56,320) (76,221)
----------------------------------------------------- ----- --------- ---------
Loss before taxes pre IAS 39 fair value accounting,
finance cost -
subsidiary preferred shares, Share based payment
expense,
depreciation of tangible assets and amortisation
of intangible assets (33,461) (16,647)
Finance costs - IAS 39 fair value accounting 7 (7,509) (56,371)
Finance costs - subsidiary preferred shares 7 (3,515) -
Share-based payment expense 6 (11,095) (2,811)
Depreciation of tangible assets 9 (452) (176)
Amortisation of intangible assets 10 (288) (216)
Loss before taxes (56,320) (76,221)
----------------------------------------------------- ----- --------- ---------
Taxation 24 (1,924) 278
--------- ---------
Loss for the year (58,244) (75,943)
Other comprehensive (loss)/income:
Items that are or may be reclassified as profit
or loss
Foreign currency translation differences (262) 58
Unrealised gain/(loss) on available for sale
investments 24 -
--------- ---------
Total other comprehensive (loss)/income (238) 58
Total comprehensive loss for the year (58,482) (75,885)
Loss attributable to:
Owners of the Company (39,393) (41,643)
Non--controlling interests 15 (18,851) (34,300)
--------- ---------
(58,244) (75,943)
Comprehensive loss attributable to:
Owners of the Company (39,631) (41,585)
Non--controlling interests 15 (18,851) (34,300)
--------- ---------
(58,482) (75,885)
Loss per share
Basic (loss) per share 8 $(0.21) $(0.51)
Diluted (loss) per share 8 $(0.21) $(0.51)
Consolidated Statements of Financial Position
For the years ended 31 December: Note 2015 2014
------ ---------- ---------
$'000 $'000
Assets
Non-current assets
Property and equipment, net 9 4,519 1,227
Available for sale investments 106 78
Intangible assets, net 10 3,871 2,999
Other non--current assets 57 5
---------- ---------
Total non--current assets 8,553 4,309
---------- ---------
Current assets
Trade and other receivables 12 706 1,750
Prepaid expenses and other current assets 2,964 1,836
Other financial assets 11 826 472
Short term investments 20 178,955 701
Cash and cash equivalents 11 134,751 61,960
---------- ---------
Total current assets 318,202 66,719
---------- ---------
Total assets 326,755 71,028
---------- ---------
Equity and liabilities
Equity
Share capital 4,523 2,362
Merger reserve 138,506 86,755
Share premium 181,744 -
Translation reserve (93) 169
Other reserve 12,863 3,139
Accumulated deficit (111,420) (70,421)
---------- ---------
Parent equity 13 226,123 22,004
Non--controlling interests 15 (62,070) (45,317)
---------- ---------
Total equity 164,053 (23,313)
---------- ---------
Non--current liabilities
Deferred revenue 3 291 561
Other long term liabilities 1,887 107
---------- ---------
Total non--current liabilities 2,178 668
---------- ---------
Current liabilities
Deferred revenue 3 2,458 3,293
Trade and other payables 18 7,223 4,731
Subsidiary:
Notes payable 16 4,955 6,948
Derivative liability 20 65,501 52,794
Warrant liability 17,20 14,263 14,125
Preferred shares 14 65,502 11,494
Other current liabilities 622 288
---------- ---------
Total current liabilities 160,524 93,673
---------- ---------
Total liabilities 162,702 94,341
---------- ---------
Total equity and liabilities 326,755 71,028
---------- ---------
Consolidated Statement of Changes in Equity
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For the years ended 31 December:
Share Capital
Non--
controlling
interests
Total (see
Share Merger Translation Other Accumulated Parent Note Total
Note Shares Amount premium reserve reserve reserve deficit equity 15) equity
------ ------------ ------- ---------- -------- ------------ -------- ------------ --------- ------------ ---------
$'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 - - - - - - (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) 13 37,402,400 748 - 55,093 - - - 55,841 - 55,841
Conversion
of convertible
notes 13,14 331,560 7 - 493 - - 390 890 - 890
Issuance of
shares for
services 13 175,730 4 - 261 - - - 265 - 265
Conversion
of partnership
and profits
interests 13,14 16,065,690 321 - (321) - - - - - -
Issuance of
shares as
equity
incentives 13 464,657 9 - (9) - - - - - -
New funds
into
non--controlling
interests 15 - - - - - - - - 1,031 1,031
Gain arising
from change
in NCI 15 - - - - - - 5,992 5,992 (5,992) -
Amount
re--classified
to realised
gain included
in earnings 13 - - - - - (143) - (143) - (143)
Dividends 13 - - - - - - (96) (96) - (96)
Equity--settled
share--based
payments 6 - - - - - 1,724 - 1,724 1,087 2,811
------------ ------- ---------- -------- ------------ -------- ------------ --------- ------------ ---------
Balance 31
December 2014 118,098,967 2,362 - 86,755 169 3,139 (70,421) 22,004 (45,317) (23,313)
Net loss - - - - - - (39,393) (39,393) (18,851) (58,244)
Foreign currency
exchange - - - - (262) - - (262) - (262)
Unrealised
gain - - - - - 24 - 24 - 24
------------ ------- ---------- -------- ------------ -------- ------------ --------- ------------ ---------
Total
comprehensive
loss for the
period - - - - (262) 24 (39,393) (39,631) (18,851) (58,482)
Issuance of
shares 13 24,006,500 480 - 51,751 - - - 52,231 - 52,231
Issuance of
IPO shares
(net of issuance
costs of $11.8m) 13 67,599,621 1,352 157,923 - - - - 159,275 - 159,275
Issuance of
Overallotment
shares (net
of issuance
costs of
$772,000) 13 10,139,943 202 23,948 - - - - 24,150 - 24,150
New funds
into
non--controlling
interests 15 - - - - - - - - - -
Gain/(loss)
arising from
change in
NCI 15 - - - - - - (1,727) (1,727) 694 (1,033)
Issuance of
shares as
equity
incentives 6,328,720 127 (127) - - - - - - -
Conversion
of convertible
notes - - - - - 88 88 - 88
Subsidiary
distribution
to members - - - - - 9 33 42 - 42
Equity--settled
share--based
payments 6 - - - - - 9,691 - 9,691 1,404 11,095
------------ ------- ---------- -------- ------------ -------- ------------ --------- ------------ ---------
Balance 31
December 2015 226,173,751 4,523 181,744 138,506 (93) 12,863 (111,420) 226,123 (62,070) 164,053
------------ ------- ---------- -------- ------------ -------- ------------ --------- ------------ ---------
Consolidated Statements of Cash Flows
For the year ended 31 December: Note 2015 2014
----- ---------- ---------
$'000 $'000
Cash flows from operating activities:
Loss for the year (58,244) (75,943)
Adjustments to reconcile net operating loss to net cash used in operating
activities:
Non--cash items:
Depreciation and amortisation 9,10 740 455
Equity--settled share--based payment expense 6 11,095 2,811
Subsidiary research and development tax credit (395) -
Non-cash rent expense 248 -
Unrealised (loss)/gain on foreign currency transactions 12 233
Issuance of shares for services - 265
Finance costs 7 13,126 58,776
Other adjustments - (10)
Changes in operating assets and liabilities:
Accounts receivable, net 12 1,112 794
Other financial assets (354) (349)
Prepaid expenses and other current assets (780) (636)
Deferred revenues 3 (1,104) 1,083
Other long term liabilities 1,164 (393)
Accounts payable and accrued expenses 18 4,319 2,371
---------- ---------
Net cash used in operating activities (28,611) (10,543)
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment 9 (3,455) (367)
Purchases of intangible assets 10 (1,155) (53)
Proceeds from sale of available for sale investments - 186
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Purchases of short term investments (385,383) (2,219)
Proceeds from maturity of short term investments 205,752 3,200
---------- ---------
Net cash provided (used in)/by investing activities (184,241) 747
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of convertible notes 16 1,845 7,615
Proceeds from subsidiary notes payable 16 - 1,461
Repayments of long term debt 16 (366) (20)
Proceeds from the issuance of shares, net of issuance costs 13 52,231 55,841
Proceeds from initial public offering, net of issuance costs 159,275 -
Proceeds for overallotment shares 24,150 -
Proceeds from issuance of share capital and warrants in subsidiaries 48,760 -
Other financing activities 42 (174)
---------- ---------
Net cash provided by financing activities 285,937 64,723
---------- ---------
Effect of exchange rates on cash and cash equivalents (294) (138)
Net increase in cash and cash equivalents 72,791 54,789
Cash and cash equivalents at beginning of year 61,960 7,171
---------- ---------
Cash and cash equivalents at end of year 134,751 61,960
---------- ---------
Supplemental disclosure of non--cash investment and financing activities:
Conversion of subsidiary notes payable and accrued interest into preferred stock 5,936 5,523
Gain/(Loss) on NCI (2,098) 3,808
1. Accounting policies
Basis of preparation
The financial information set within this document does not
constitute the company's statutory accounts for the years ended 31
December 2015 or 2014 but is derived from those accounts. Statutory
accounts for 2015 will be delivered to the registrar of companies
in due course. The auditor has reported on those accounts; their
report were (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
PureTech is comprised of PureTech Health plc (the "Parent" or
the "Company") and its subsidiaries (together, the "Group"). The
Company's ordinary shares are admitted to the premium listing
segment of the Official List of the U.K. Listing Authority and are
trading on the Main Market of the London Stock Exchange. PureTech
is a cross-disciplinary healthcare company developing innovative
products that could improve the lives of patients. PureTech is
focused on areas of growing scientific and technical insights that
it believes are at an important inflection point, including the
central nervous, gastro-intestinal and immune systems, and the
interactions and signalling between them. PureTech has a pipeline
of more than 30 programmes and 20 clinical studies targeting
multi-billion dollar market opportunities. PureTech's advanced
programmes include five with human proof of concept and multiple
with pivotal or registration study read-outs in the next two years.
PureTech's leading team and Board, along with an advisory network
of more than 60 expert founder-scientists and advisers across
multiple disciplines, gives PureTech access to potentially
ground--breaking science and technological innovation. With
healthcare undergoing major transformation, PureTech is well
positioned to develop and launch medicines for the 21st century.
The Group provides a combination of experienced management and
administrative support to its businesses 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 Annual Report and Accounts of PureTech and its subsidiaries
are presented for the year ended 31 December 2015. The Group
financial statements consolidate those of the Company and its
subsidiaries. The Group financial statements have been prepared and
approved by the Directors in accordance with the International
Financial Reporting Standards, International Accounting Standards,
and Interpretations (collectively "IFRS") issued by the
International Accounting Standards Board ("IASB") as adopted by the
European Union ("adopted IFRSs"). The accounting policies set out
below have, unless otherwise stated, been applied consistently to
all periods presented in these consolidated financial
statements.
Basis of measurement
The consolidated financial statements have been prepared on the
historical cost basis.
Use of judgements and estimates
In preparing these consolidated financial statements, management
has made judgements, 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 these estimates. Estimates and underlying
assumptions are reviewed on an ongoing 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 judgement is applied in determining:
-- valuation of aggregate holdings of growth stage businesses;
-- valuation of warrants, convertible notes and derivatives;
-- financial instrument classification (debt vs. equity);
-- revenue recognition.
Information about these critical judgements and estimates is
included in the following notes.
Going concern
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 through the period ended December 2018.
Following the equity offering which occurred in June 2015, the
Group has sufficient cash reserves to continue to provide capital
to its existing portfolio businesses and to create and fund project
phase and growth stage businesses at a similar rate to previous
years through 2018, assuming broadly our expected level of required
investments in businesses and other operating expenditures.
Basis of consolidation
The Company was formed on 8 May 2015. On 18 June 2015, a
reorganisation of PureTech's corporate structure was completed
through which the Company became the sole owner of PureTech Health,
LLC ("PureTech LLC"). 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 joinder
signature pages, the issued and outstanding PureTech LLC Common
Shares were exchanged as follows: (i) each Series 1 Common Share
was exchanged for 10 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 10 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 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. This has been accounted for as a common control transaction
under IFRS 3.B1 (see note 13), therefore the consolidated financial
information for each of the years ended 31 December 2015 and 2014
comprises an aggregation of financial information of the Company
and the consolidated financial information of PureTech LLC.
Subsidiaries
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Subsidiaries are entities that are controlled by the Group. The
Group controls an entity when it is exposed to, or has the rights
to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the
entity. For entities for which the Group's ownership percentage is
less than 50 percent, which are Gelesis and its subsidiaries, it
was determined that the Group has control of these entities as the
Group controls the majority of the board of directors, holds the
largest equity shareholding of Gelesis and has employees as members
of Gelesis' management.
Subsidiaries are fully consolidated from the date on which the
Group obtains control and continue to be consolidated until the
date when control ceases. A list of all subsidiaries and the
Group's ownership, based on outstanding voting common and preferred
shares, is outlined below. As discussed in note 14, certain of the
Group's subsidiaries' outstanding preferred shares have been
classified as a liability.
Subsidiary(4) Ownership percentage of voting
stock
as at 31 December(3)
---------------------------------
Significant subsidiaries 2015 2014
----------------------------------------- ----------------- ---------------
Akili Interactive Lab, Inc. 64.40% 64.40%
Alivio Therapeutics, Inc. 100.00% n/a
Commense Inc. 100.00% 100.00%
Enlight Biosciences, LLC 86.00% 86.00%
Endra, Inc. (indirectly held through
Enlight) 12.90% 12.90%
Entrega Inc. (indirectly held through
Enlight) 85.90% 85.90%
Follica Incorporated 72.10% 72.10%
Gelesis, Inc. 22.10% 34.40%
Gelesis, S.r.l. (indirectly held
through Gelesis) 22.10% 34.40%
Gelesis, LLC (indirectly held through
Gelesis) 22.10% 34.40%
Karuna Pharmaceuticals, Inc. 90.70% 90.70%
Knode Inc. (indirectly held through
Enlight) 86.00% 86.00%
Mandara Sciences, LLC 98.30% 98.30%
The Sync Project Inc. 100.00% 100.00%
Appeering, Inc. 100.00% 100.00%
PureTech Management, Inc. 100.00% 100.00%
PureTech Health, LLC(1) 100.00% n/a
Sonde Health, Inc. 100.00% n/a
T1D Innovations LLC(2) n/a 98.80%
Tal Medical, Inc. 64.50% 79.80%
Vedanta Biosciences, Inc. 100.00% 100.00%
Vor Biopharma Inc. 100.00% n/a
Nontrading holding companies
Endra Holdings, LLC (held indirectly
through Enlight) 86.00% 86.00%
Ensof Holdings, LLC (held indirectly
through Enlight) 86.00% 86.00%
Gelesis 2012, Inc. (held indirectly
through Gelesis) 22.10% 34.40%
PureTech Securities Corp. 100.00% n/a
Inactive subsidiaries
Ensof Biosystems, Inc. (held indirectly
through Enlight) 86.00% 86.00%
Libra Biosciences, Inc. 100.00% 100.00%
------------------------------------------ ---------------- ---------------
Notes:
(1) 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 pursuant to
which PureTech Health plc became the holding company of the
Group.
(2) On 12 March 2015 the T1D Innovations LLC entity was
dissolved.
(3) Represents ownership percentage used in allocations to
non-controlling interests except for Akili, Entrega, Mandara,
Karuna, Follica, Tal and Gelesis in which cases the percentage
allocated to non-controlling interests was 100%, 0%, 2%, 0%, 81%,
0% and 50%, respectively, where in these cases there are liability
classified preferred shares in issue.
(4) All subsidiaries are registered in the U.S. except for
Gelesis, S.r.l. which is registered in Italy.
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. Losses attributed to non
controlling interests are allocated to the non controlling
interests even if doing so causes the non controlling interests to
have a deficit balance.
Functional and presentation currency
These consolidated financial statements are presented in U.S.
dollars. The functional currency of all members of the Group is the
U.S. Dollar, except for an Italian subsidiary whose functional
currency is the Euro. The assets and liabilities of this subsidiary
are translated to U.S. Dollars at the exchange rate prevailing on
the balance sheet date and revenues and expenses are translated at
the average exchange rate for the period. Foreign exchange
differences resulting from the translation of this subsidiary are
reported in other comprehensive income/(loss).
Foreign currency
Transactions in foreign currencies are translated into the
functional currencies of the Group using the exchange rates
prevailing on the date of the transactions. Monetary assets and
liabilities denominated in foreign currencies are translated to the
functional currency on the balance sheet date. Exchange differences
are recognised in profit or loss. Non monetary balances that are
not re-measured at fair value are translated to the functional
currency at the exchange rate prevailing on the transaction
date.
Cash and cash equivalents
Cash and cash equivalents include all highly liquid instruments
with original maturities of three months or less.
Financial instruments
Financial assets
The Group's financial assets consist of cash and cash
equivalents, trade and other receivables, debt and equity
securities and security and other deposits. The Group's financial
assets are classified into the following categories: available for
sale and trade and other receivables. The Group determines the
classification of financial assets at initial recognition depending
on the purpose for which the financial assets were acquired.
Available for sale financial assets are non derivative
instruments that are designated in this category or not classified
in any other category. These financial assets are initially
measured at fair value and subsequently re-measured at fair value
at each reporting date. Unrealised gains and losses are recognised
in other comprehensive income/(loss). Available for sale financial
assets are presented in the consolidated balance sheets as non
current assets, unless the Group intends to dispose of them within
12 months of the end of the reporting period.
Trade and other receivables are non derivative financial assets
with fixed and determinable payments that are not quoted on active
markets. These financial assets are carried at the amounts expected
to be received less any allowance for doubtful debts. Provisions
are made where there is evidence of a risk of non payment, taking
into account ageing, previous experience and economic conditions.
When a trade receivable is determined to be uncollectible, it is
written off against the available provision and then to the
consolidated statements of comprehensive loss. Trade and other
receivables are included in current assets, unless maturities are
greater than 12 months after the end of the reporting period.
Financial liabilities
The Group's financial liabilities consist of subsidiary notes
payable, subsidiary preferred shares, trade and other payables,
subsidiary derivative liability and subsidiary warrant liability.
Subsidiary notes payable and trade and other payables are initially
recognised at fair value less the value attributed to any
separately accounted for embedded derivatives. Subsequent to
initial recognition these financial liabilities are measured at
amortised cost using the effective interest method. The
amortisation is included in financial costs contractual in the
consolidated statements of comprehensive loss.
Derivative liabilities include features within the subsidiary
notes payable and subsidiary preferred shares that require
bifurcation from the notes under IAS 39; Financial Instruments:
Recognition and Measurement and liability classified warrants.
Derivative liabilities are carried at fair value with changes
recognised in finance costs in the consolidated statements of
comprehensive loss (see note 20). In the case of subsidiary
preferred shares classified as a current liability, the expected
amount at conversion or settlement and the associated timing of any
conversion is assessed at each reporting period. To the extent
necessary, any expected additional liability is accreted to the
balance of the liability over the anticipated period under the
effective interest rate method.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
Financial instruments issued by the Group
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Following the adoption of IAS 32, financial instruments issued
by the Group are treated as equity only to the extent that they
meet the following two conditions:
1. They include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
2. Where the instrument will or may be settled in the Group's
own equity instruments, it is either a non derivative that includes
no obligation to deliver a variable number of the Group's own
equity instruments or is a derivative that will be settled by the
Group exchanging a fixed amount of cash or other financial assets
for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial
instrument is classified as a financial liability. Where the
instrument so classified takes the legal form of the Group's own
shares, the amounts presented in the financial information for
share capital and merger reserve account exclude amounts in
relation to those shares.
Derivative and warrant policy
Equity conversion features and put options within host
instruments that meet the definition of a derivative and have
economic and risk characteristics that are not closely related to
the host are considered embedded derivatives and are bifurcated
from the host and accounted for separately. The Group has
recognised embedded derivative liabilities related to features
within convertible notes and conversion features with subsidiary
preferred shares. Derivative financial liabilities are initially
recorded at fair value and are re-measured to fair value at each
period end while such instruments are outstanding, with gains and
losses arising from changes in fair value recognised in finance
costs in the consolidated statements of comprehensive loss. The
embedded derivative liabilities are being valued using a
probability weighted expected return model or an option pricing
allocation model.
The Group derecognises the embedded derivative liability when
the host instrument is extinguished or converted or when the
feature no longer meets the definition of a derivative.
The Group has recognised common stock and preferred stock
warrants on subsidiary shares issued to investors and note holders.
Warrants are recognised as derivative financial liabilities if the
underlying shares are liability classified or the terms of the
warrants are not fixed due to potential adjustments in the exercise
price and/or the number of shares issuable under the warrants.
Warrant liabilities are recorded at fair value, with gains and
losses arising from changes in fair value recognised in finance
costs in the consolidated statements of comprehensive loss at each
period end while such instruments are outstanding. The warrant
liabilities were valued using a Black Scholes option pricing
model.
The Group has also recognised common stock warrants issued to
investors which are classified in equity and initially measured at
fair value using a Black Scholes option pricing model.
Share capital
Ordinary shares are classified as equity. The Group considers
its capital to comprise share capital, share premium, merger
reserve, other reserve, translation reserve, and accumulated
deficit.
Property and equipment
Property and equipment is stated at cost less accumulated
depreciation and any accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the
asset. Assets under construction represent leasehold improvements
and machinery and equipment to be used in operations or R&D
activities. When parts of an item of property and equipment have
different useful lives, they are accounted for as separate items
(major components) of property and equipment. Depreciation is
calculated using the straight-line method over the estimated useful
lives of the related assets:
Laboratory and manufacturing equipment 2-8 years
Furniture and fixtures 7 years
Computer equipment and software 1-5 years
Leasehold improvements 5-10 years, or the remaining term
of the lease, if shorter
--------------------------------------- ----------------------------------
Depreciation methods, useful lives and residual values are
reviewed at least annually and adjusted if appropriate.
Intangible assets
Intangible assets, which include purchased patents and licences
with finite useful lives, are carried at historical cost less
accumulated amortisation and impairment losses. Amortisation is
calculated using the straight line method to allocate the costs of
patents and licences over their estimated useful lives, which is
typically the remaining life of the underlying patents.
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity,
in which case it is recognised in equity.
The Group elected not to file a consolidated Federal tax return
for the years ended 31 December 2015 and 2014. The Group has
elected to file individual returns at the subsidiary level.
Current Income Tax
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantially enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred Income Tax
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax assets are recognised for unused tax losses,
unused tax credits and deductible temporary differences to the
extent that it is probable that future taxable profits will be
available against which they can be used. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that
it is no longer probable that the related tax benefit will be
realised.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and
assets, and they relate to taxes levied by the same tax authority
on the same taxable entity, or on different tax entities where the
Group intends to settle current tax liabilities and assets on a net
basis or their tax assets and liabilities will be realised
simultaneously.
Deferred taxes are recognised in profit or loss except to the
extent that it relates to items recognised directly in equity or in
other comprehensive income.
Impairment
Impairment of Non-Financial Assets
The Group reviews the carrying amounts of its property and
equipment and intangible assets at each reporting date to determine
whether there is any indication of impairment. If any such
indication exists, then an asset's recoverable amount is estimated.
The recoverable amount is the higher of an asset's fair value less
cost of disposal and value in use. An impairment loss is recognised
when an asset's carrying amount exceeds its recoverable amount. For
the purposes of impairment testing, assets are grouped at the
lowest levels for which there are largely independent cash flows.
If a non financial asset instrument is impaired, an impairment loss
is recognised in profit and loss.
Impairment of Financial Assets Carried at Fair Value
The Group's available for sale financial assets are carried at
fair value through other comprehensive income/(loss) and are
reviewed at each reporting period to assess whether there is
objective evidence that the assets should be impaired. An
impairment loss is recognised when there is a significant or
prolonged decline in fair value below the instrument's cost. If an
instrument is impaired, the impairment loss is calculated and
recognised in profit and loss. The only amounts reclassified from
other comprehensive income/(loss) into operating loss were realised
gains related to the sale of an investment.
Impairment of Financial Assets Measured at Amortised Cost
The Group assesses financial assets measured at amortised cost
for impairment at each reporting period. These financial assets are
impaired if one or more loss events occurs after initial
recognition that impact the estimated future cash flows of the
asset. An impairment loss is calculated as the difference between
its carrying amount and the present value of the estimated future
cash flows discounted at the asset's original effective interest
rate and is recognised in profit or loss.
Share-based Payments
The Group issues shares to employees and non employees as
equity-based compensation.
The grant date fair value of share-based payment awards granted
to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The
options granted to employees are measured at fair value, using the
terms and conditions upon which the options were granted. The total
amount to be expensed is determined by reference to the fair value
of the options granted, adjusted for the impact of any market
performance, service conditions and other non market performance
vesting conditions. For share-based payment awards with non vesting
conditions, the grant date fair value of the share-based payment is
measured to reflect such conditions and there is no true up for
differences between expected and actual outcomes.
The fair value of the share-based compensation to non employees
is re-measured at fair value as the award vests. The fair value of
services received in exchange for shares is determined using the
fair value of the share that was issued, which is typically the
issue price of the share.
Employee benefits
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Short term employee benefits
Short term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. A liability is recognised for the amount expected to be
paid if the Group has a present legal or constructive obligation to
pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably.
Defined contribution plans
A defined contribution plan is a post-employment benefit plan
under which an entity pays fixed contributions into a separate
entity and has no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution
plans are recognised as an employee benefit expense in the periods
during which related services are rendered by employees. Prepaid
contributions are recognised as an asset to the extent that a cash
refund or a reduction in future payments is available.
Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, that can be reliably measured and it is probable that
an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects risks specific to
the liability.
Revenue recognition
Revenue is derived primarily from fees related to subscription
agreements, collaboration agreements and government grants entered
into by the Group's subsidiaries. Revenue is measured at the fair
value of consideration received or receivable and is recognised in
accordance with IAS 18 Revenue when each of the following criteria
for revenue recognition have been met:
-- the amount of revenue and costs incurred or to be incurred in
respect of the transaction can be measured reliably;
-- the entity has transferred to the buyer the significant risks
and rewards of ownership of the goods, and it is probable that the
economic benefits associated with the transaction will flow to the
Group; and,
-- when the outcome can be estimated reliably, revenue
associated with the transaction is recognised by reference to the
stage of completion of the transaction at the end of the reporting
period.
The Group recognises revenue from services under subscription
and collaboration agreements in the period in which the services
are rendered, on a straight line basis or assessed by the
percentage of completion method over the period to which services
relate. Revenue from government grants is recognised when there is
reasonable assurance that the entity will comply with the
conditions attaching to it, and that the grant will be received.
The Group submits qualifying expenses and capital purchases for
reimbursement only after qualifying for the grant programmes, which
occur after capital purchases and/or research and development costs
have been incurred.
Deferred revenue and deferred costs
Deferred revenue includes amounts that have been billed per the
contractual terms but have not been recognised as revenue. Deferred
costs represent direct costs related to deferred revenues and
include capitalised labour and research and development
expenditures. The Company classifies as non-current the portion of
deferred revenue and deferred costs that are expected to be
recognised beyond one year, or one operating cycle.
Finance income and finance costs
Finance income mainly comprises interest income on funds
invested. Interest income is recognised as it accrues in profit or
loss, using the effective interest method. Finance costs comprise
loan interest expense and the changes in the fair value of warrant
and derivative liabilities associated with financing
transactions.
Other income
Other income includes a research and development tax credit
related to a subsidiary. Other income is recognised based on the
contractual terms of the agreement.
Fair value measurements
A number of the Group's accounting policies and disclosures
require the measurement of fair values, for both financial and
non-financial assets and liabilities.
When measuring the fair value of an asset or a liability, the
Group uses market observable data to the extent possible. Fair
values are categorised into different levels in a fair value
hierarchy based on the inputs used in the valuation techniques as
follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a
liability might be categorised in different levels of the fair
value hierarchy, then the fair value measurement is categorised in
its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
The carrying amount of cash and cash equivalents, accounts
receivable, short term investments, restricted cash, deposits,
accounts payable, accrued expenses and other current liabilities in
the Group's consolidated statements of financial position
approximates their fair value because of the short maturities of
these instruments.
Operating leases
The Group classifies leases as either finance or operating
leases at inception, depending on whether substantially all the
risks and rewards of ownership transfer to the Group. Leases where
the lessee has substantially all of the risks and rewards of
ownership are classified as finance leases. All other leases are
classified as operating leases. The Group had only operating leases
during the reporting periods. Payments made under operating leases
are recognised in profit or loss on a straight line basis over the
term of the lease. Lease incentives received are recognised as an
integral part of the total lease expense, over the term of the
lease.
Operating segments
Operating segments are reported in a manner that is consistent
with the internal reporting provided to the chief operating
decision maker ("CODM"). The CODM reviews discrete financial
information for the operating segments in order to assess their
performance and is responsible for making decisions about resources
allocated to the segments. The CODM has been identified as the
Directors.
2. New standards and interpretations not yet adopted
A number of new standards, interpretations, and amendments to
existing standards are effective for annual periods beginning after
1 January 2016, and have not been applied in preparing the
consolidated financial information. Management has yet to complete
an analysis of these new standards, interpretations and amendments
to existing standards on the results of its operations, financial
position, and disclosures. The Group intends to adopt these
standards on their respective effective dates.
The following three are amended or new standards and
interpretations that may impact the Group:
IFRS 9, Financial instruments
The standard addresses the classification, measurement and
recognition of financial assets and liabilities. The complete
version of IFRS 9 was issued in July 2014. It replaces the guidance
in IAS 39 that relates to the classification and measurement of
financial instruments. IFRS 9 retains but simplifies the mixed
measurement model and establishes three primary measurement
categories for financial assets: amortised cost, fair value through
OCI and fair value through profit and loss. The basis of
classification depends on the entity's business model and the
contractual cash flow characteristics of the entity's business
model and the contractual cash flow characteristics of the
financial asset. Investments in equity instruments are required to
be measured at fair value through profit or loss with the
irrevocable option at inception to present changes in fair value in
OCI not recycling. There is now a new expected credit losses model
that replaces the incurred loss impairment model used in IAS 39.
For financial liabilities there were no changes to classification
and measurement except for the recognition of changes in own credit
risk in Other comprehensive income/(loss), for liabilities
designated at fair value through profit or loss. IFRS 9 relaxes the
requirements for hedge effectiveness by replacing the bright line
hedge effectiveness tests. It requires an economic relationship
between the hedged item and hedging instrument and for the 'hedged
ratio' to be the same as the one management actually use for risk
management purposes. Contemporaneous documentation is still
required but is different to that currently prepared under IAS 39.
The standard is effective for accounting periods beginning on or
after 1 January 2018 and early adoption is permitted. The Group is
in the process of assessing the impact of IFRS 9.
IFRS 15, Revenue from contracts with customers
The standard deals with revenue recognition and establishes
principles for reporting useful information to users of financial
information about the nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity's contracts with
customers. Revenue is recognised when a customer obtains control of
a good or service and thus has the ability to direct the use and
obtain the benefits from the good or service. The standard replaces
IAS 18 'Revenue' and IAS 11 'Construction contracts' and related
interpretations. The standard is amended to be effective for annual
periods beginning on or after 1 January 2018 and earlier
application is permitted. Management has yet to complete an
analysis of this new standard and its impact.
IFRS 16, Leases
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The standard changes fundamentally the accounting for leases by
lessees. It eliminates the current IAS 17 dual accounting model,
which distinguishes between on-balance sheet finance leases and
off-balance sheet operating leases and, instead, introduces a
single, on-balance sheet accounting model that is similar to
current finance lease accounting. The standard is effective for
annual periods beginning on or after 1 January 2019 and earlier
application is permitted. Management has yet to complete an
analysis of this new standard and its impact.
There are no other IFRS or IFRIC interpretations that are not
yet effective that would be expected to have a material impact on
the Group.
3. Revenue
Revenue recorded in the statement of comprehensive loss consists
of the following:
2015 2014
For the years ended $000s $000s
31 December:
----------------------- ------- -------
Subscription fees 1,175 1,750
Collaboration revenue 10,565 262
Grant revenue 88 210
----------------------- ------- -------
Total revenue 11,828 2,222
Deferred revenue recorded in the consolidated statements of
financial position consists of the following:
2015 2014
As at 31 December: $000s $000s
------------------------------- ------- -------
Subscription fees 333 816
Collaboration revenue 2,040 2,380
Grant revenue 85 97
------------------------------- ------- -------
Deferred revenue, current 2,458 3,293
------------------------------- ------- -------
Subscription fees - 142
Grant revenue 291 419
------------------------------- ------- -------
Deferred revenue, non-current 291 561
------------------------------- ------- -------
Total deferred revenue 2,749 3,854
------------------------------- ------- -------
4. Operating segments
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.
Growth stage businesses
Businesses in this segment are those whose activities focus on
actively developing products to solve major healthcare problems in
varied markets. All businesses shown below are included in one
operating segment which is also a reportable segment:
Subsidiary Principal Activities & Target Market
-------------------- ---------------------------------------------------------
Vedanta Biosciences A preclinical stage company developing a microbiome
immune system drug-discovery platform and drug
candidates for the treatment of immune-mediated
diseases.
Gelesis A clinical stage company developing products that
seek to induce weight loss and potentially improve
glycaemic control through an orally administered
capsule that expands in the GI tract as it absorbs
water.
Akili 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.
Tal A clinical stage medical device company developing
an innovative, noninvasive neurostimulation treatment
for psychiatric disorders including depression
and bipolar disorder.
Karuna A clinical stage company developing an innovative
combination therapy for the treatment of schizophrenia.
Entrega A preclinical stage company developing a drug
platform for the oral administration of proteins,
peptides and other difficult-to-deliver payloads,
including magnetic nanoparticles.
Follica A clinical stage company developing products to
generate new human hair follicles and hair.
-------------------- ---------------------------------------------------------
Project phase businesses
Businesses in this segment are those whose activities are
focused on financing, sourcing and creating new product candidates
and newly created businesses whose technologies are in the process
of validation. This segment includes the following businesses:
Subsidiary Principal Activities & Target Market
--------------------- --------------------------------------------------------
Project phase businesses
The Sync Project 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 Developing voice-based tools for the passive
assessment and tracking of patient health.
Commense Developing commensal organism-based products
for the improvement of human health in, for example,
early childhood.
Alivio Developing a proprietary drug delivery platform
for drugs that treat inflammation and associated
disorders.
Vor Developing novel targeted immunotherapies for
cancer.
Other businesses
Enlight Biosciences, Development of digital health technologies.
LLC
Mandara Sciences, Improvement of health through food through the
LLC creation of innovative nutrition technology companies.
Knode A technology platform being developed to identify
experts in healthcare and other research-based
disciplines based on the content they have produced.
Appeering Identifying healthcare expert networks and reviewing
their conversations and content on social media.
--------------------- --------------------------------------------------------
The Group expects subsidiaries within the project phase will
become growth stage businesses. Upon the transition of a project
phase business to the growth stage, the Group plans to
retrospectively restate operating segments as if the subsidiary had
been a growth stage business for all periods presented.
Information about reportable segments
The following provides detailed information of the Group's two
reportable segments and Parent activity as of and for the years
ended 31 December 2015 and 2014, respectively:
2015
----------------------------------------------------
Growth Project Parent Consolidated
stage phase company & $000s
businesses businesses other
$000s $000s $000s
--------------------------------------- ------------ ------------ -------------
Consolidated Statements of Comprehensive Loss
Revenue 10,189 1,639 - 11,828
General and administrative
expenses (14,672) (1,377) (20,422) (36,471)
Research and development
expenses (17,736) (981) (282) (18,999)
---------------------------- --------- ------------ ------------ -------------
Total operating
expenses (32,408) (2,358) (20,704)(2) (55,470)(1)
---------------------------- --------- ------------ ------------ ---------------
Other income 448 - - 448
Net finance costs (13,725) (4) 603 (13,126)
---------------------------- --------- ------------ ------------ -------------
Loss from continuing
operations (35,496) (723) (20,101) (56,320)
Provision for income
taxes (2,158) (85) 319 (1,924)
---------------------------- --------- ------------ ------------ -------------
Loss for the year (37,654) (808) (19,782) (58,244)
Other comprehensive
income/(loss) (262) - 24 (238)
---------------------------- --------- ------------ ------------ -------------
Total Comprehensive
Loss for the Year (37,916) (808) (19,758) (58,482)
---------------------------- --------- ------------ ------------ -------------
Total comprehensive loss attributable to:
Owners of the Company (19,032) (523) (20,076) (39,631)
Non-controlling
interests (18,651) (200) - (18,851)
Consolidated Statements of Financial Position
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Total assets 68,350 1,509 256,896 326,755
Total liabilities 168,224 2,969 (8,491) 162,702
---------------------------- --------- ------------ ------------ -------------
Net (liabilities)/assets (99,874) (1,460) 265,387 164,053
---------------------------- --------- ------------ ------------ -------------
(1) For 2015, operating expenses for our reportable segments,
Parent company and other and in total, stated prior to share-based
compensation, depreciation and amortisation were $27.9 million,
$2.3 million, $13.4 million and $43.6 million for growth stage
businesses, project phase businesses, Parent company and other and
in total, respectively.
(2) Parent company and other operating expenses further adjusted
for the cost of professional services totalling $5.5 million
associated with our IPO, which is non--recurring in nature, was
$7.9 million for 2015.
2014
---------------------------------------------------
Growth Project Parent Consolidated
stage phase company & $000s
businesses businesses other
$000s $000s $000s
--------------------------------------- ------------ ----------- -------------
Consolidated Statements of Comprehensive Loss
Revenue 219 2,003 - 2,222
General and administrative
expenses (8,288) (2,278) (3,831) (14,397)
Research and development
expenses (4,905) (279) (86) (5,270)
---------------------------- --------- ------------ ----------- -------------
Total operating expenses (13,193) (2,557) (3,917) (19,667)
---------------------------- --------- ------------ ----------- -------------
Net finance costs (59,043) (4) 271 (58,776)
---------------------------- --------- ------------ ----------- -------------
Loss from continuing
operations (72,017) (558) (3,646) (76,221)
Provision for income
taxes 278 - - 278
---------------------------- --------- ------------ ----------- -------------
Loss for the year (71,739) (558) (3,646) (75,943)
Other comprehensive
income/(loss) - - 58 58
---------------------------- --------- ------------ ----------- -------------
Total Comprehensive
Loss for the Year (71,739) (558) (3,588) (75,885)
---------------------------- --------- ------------ ----------- -------------
Total comprehensive loss attributable to:
Owners of the Company (37,439) (558) (3,588) (41,585)
Non-controlling interests (34,300) - - (34,300)
Consolidated Statements 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)
---------------------------- --------- ------------ ----------- -------------
The Parent commences initiatives in themes, raises capital for
investment in new companies and existing subsidiaries, provides
other corporate shared services and support for all subsidiaries
and manages the new company creation process.
The activity between the Parent and the reporting segments has
been eliminated in consolidation. These elimination amounts are
included in the Parent Company and other amounts shown above.
The proportion of net assets shown above that is attributable to
non controlling interest is disclosed in note 15.
The Group's externally generated revenue outside of the United
States was $89,000 and $210,000 for the years ended 31 December
2015 and 2014, respectively.
The Group's non current assets consist of investments, property
and equipment, intangible assets and other assets, of which $1.2
million and $1.1 million were located in Italy as of 31 December
2015 and 2014, respectively.
Growth stage business valuation
At the close of each annual financial period, the Directors
estimate, and formally approve, the value of all growth stage
businesses in the Group, which is used to derive the Aggregate
Value of Growth Stage Business Holdings ("Aggregate Holdings"). The
Aggregate Holdings was $291.7 million and $222.4 million as at 31
December 2015 and 2014, respectively.
Ownership adjusted value of
growth
stage business holdings
------------------------------- --------------------------------
2015 2014
Growth stage businesses $ million $ million
------------------------------- ------------- -------------
Vedanta Biosciences 83.0 67.0
Gelesis 56.8 44.9
Akili 45.9 26.7
Tal 30.6 27.3
Karuna 36.4 24.9
Entrega 15.7 13.4
Follica 23.3 18.2
------------------------------- ------------- -----------------
Total Growth Stage Businesses 291.7 222.4
------------------------------- ------------- -----------------
The methodology for the Group's growth stage business
valuations, extracts of which are set out below, is based on the
American Institute of Certified Public Accountants' Valuation of
Privately Held Company Equity Securities Issued as Compensation
("AICPA Guidelines"). The AICPA Guidelines do not represent, but
are consistent with, valuation principles adopted under IFRS.
The Aggregate Holdings excludes cash, cash equivalents and short
term investments balances of $255.5 million and $53.2 million held
at the PureTech level as at 31 December 2015 and 2014. In 2015 the
Aggregate Holdings includes the $11.5 million invested by PureTech
in the first tranche of the Akili financing round in January 2016.
In 2014 Aggregate Holdings includes, in the case of Gelesis and
Tal, cash balances (inclusive of amounts invested by PureTech) as
at immediately following their March 2015 financing rounds and in
the case of Vedanta Biosciences the cash balance includes the
non-refundable payment from Janssen, received in January 2015
which, in conjunction with development and commercialisation
milestone payments plus tiered royalties, gives Janssen access to
certain intellectual property.
The Aggregate Holdings has been calculated on the basis of
PureTech's percentage ownership as at 31 December 2015 and 2014.
Where growth stage businesses have raised financing from external
parties subsequent to 31 December 2015, the ownership adjusted
value reflects the percentage ownership immediately following the
financing and the valuation implied by that external investment on
a post new money basis. In the case of Akili in 2015, the value is
immediately after the closing of the first tranche of the financing
round in January 2016 and in the cases of Tal and Gelesis in 2014
as at the date of initial closing of financing rounds that occurred
in the first quarter of 2015.
PureTech's percentage ownership has been calculated on a diluted
basis, including issued and outstanding shares and outstanding
warrants and 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.
Valuation methodology
The Aggregate Holdings represents the sum of the parts ("SOTP")
of, principally, risk adjusted net present value ("rNPV") from
discounted cash flow ("DCF") valuations (for Entrega, Karuna, Tal,
Vedanta Biosciences and Follica), and valuations based on recent
investments at the business level (Gelesis and Akili). In the
absence of recent arm's length, third-party investments at the
business level which could otherwise have formed the basis for the
valuations, DCF valuations are used for the valuation of PureTech's
businesses and any anticipated royalty streams paid directly to
PureTech stemming from licence agreements with some of the growth
stage businesses. DCF valuations are highly sensitive to key input
assumptions, including estimates associated with discount rates and
projected financial performance. Due to the stage of development of
the Business Holdings, projections are particularly sensitive to
certain key assumptions namely:
-- Discount rate and in particular the varying components of the Equity Risk Premium;
-- The ability to predict the investment and timing of achieving
technical and commercial viability;
-- Projected revenue and operating costs in the post product
development phase of each Business; and
-- The size and share of addressable market for intellectual
property, products and services developed.
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Notwithstanding the fact that the valuation methodologies
applied are based on the AICPA Guidelines and while the Directors
consider 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
business valuations are not presented as alternative measures to,
and should be read in conjunction with, the Group's consolidated
financial information.
5. Operating expenses
The average number of persons employed by the Group during the
year, analysed by category, was as follows:
For the years ending 2015 2014
31 December:
---------------------------- ----- -----
General and administrative 28 32
Research and development 36 11
---------------------------- ----- -----
Total 64 43
---------------------------- ----- -----
The aggregate payroll costs of these persons were as
follows:
2015 2014
For the years ending $000s $000s
31 December:
---------------------------- ------- -------
General and administrative 18,093 7,230
Research and development 5,591 2,434
---------------------------- ------- -------
Total 23,684 9,664
---------------------------- ------- -------
Total operating expenses were as follows:
2015 2014
For the years ending $000s $000s
31 December:
-------------------------- ------- -------
Salaries and wages 10,912 6,341
Payroll taxes 914 165
Healthcare benefits 896 305
Share-based payments 11,095 2,811
Other payroll cost (133) 42
-------------------------- ------- -------
Total 23,684 9,664
-------------------------- ------- -------
Other SG&A expenses 18,378 7,167
Other R&D expenses 13,408 2,836
-------------------------- ------- -------
Total operating expenses 55,470 19,667
-------------------------- ------- -------
2015 2014
Auditor's remuneration $000s $000s
---------------------------------- ------- -------
Audit of these financial 690 -
statements
Audit of the financial statements - -
of subsidiaries
Audit-related assurance services 30 -
IPO-related assurance services 2,212 -
Taxation - -
---------------------------------- ------- -------
2,932 -
------------------------------------------- -------
The Group has incurred $2.2 million of assurance service costs
related to the initial public offering on 24 June 2015. In the
prior year, there was no requirement for the Group to carry out an
audit.
See note 6 for further disclosures related to share-based
payments and note 23 for management's remuneration disclosures.
6. Share-based payments
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 businesses up to a maximum authorised amount of
22,724,800 ordinary shares. The shares have various vesting terms
over a period of service between two and four years, provided the
recipient remains continuously engaged as a service provider. As of
the year ended 31 December 2015, the Company issued 608,524 options
to purchase shares under this plan.
As of 31 December 2015, 34,273 options were exercisable. The
intrinsic value of the vested portion of such options is
$56,000.
PureTech incurred stock based compensation expense of $83,000
for the year ended 31 December 2015.
Fair value measurements
The fair value of the shares awarded by the PureTech Directors
during 2015 was estimated at the grant date using the Black Scholes
option valuation model that uses the following weighted average
assumptions:
2015
------------------------------------------
Expected award life (in years) 5.9
Expected award price volatility 30.62%
Risk--free interest rate 1.78%
Expected dividend yield -
Grant date fair value $0.75
Share price at grant date $2.28
--------------------------------- -------
Expected volatility has been based on an evaluation of the
historical volatility of the share price of publicly traded
companies comparable to PureTech, particularly over the historical
period commensurate with the expected term. As there is not
sufficient historical share exercise data to calculate the expected
term of the options, PureTech 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.
Puretech LLC incentive stock issuance
In 2014, PureTech LLC's Directors approved the issuance of
shares to management, the Directors and advisers. The shares have
various vesting terms over a period of service between zero and
three years, provided the recipient remains continuously engaged as
a service provider. The estimated fair value of shares, including
the effect of estimated forfeitures, is recognised over the shares'
vesting period.
Shares granted and outstanding at 31 December 2015 as incentive
equity by PureTech LLC as converted to plc shares were 17,993,972.
6,791,825 shares were exercisable at year end. The intrinsic value
of the vested portion of such shares is $1.9 million.
PureTech LLC incurred stock-based compensation expense of $7.1
million and $637,000 for the years ended 31 December 2015 and 2014,
respectively.
Fair value measurements
The fair value of the shares awarded by the PureTech LLC
Directors during 2014 and 2015 was estimated at the grant date
using the Black Scholes option valuation model that uses the
following weighted average assumptions:
2015 2014
---------------------------------- -------
Expected award life
(in years) 3.1 3.5
Expected award price
volatility 25.22% 25.70%
Risk--free interest
rate 0.98% 0.97%
Expected dividend yield - -
Grant date fair value $9.97 $0.12
Share price at grant
date $19.45 $0.48
------------------------- ------- -------
Expected volatility has been based on an evaluation of the
historical volatility of the share price of publicly traded
companies comparable to PureTech, particularly over the historical
period commensurate with the expected term. As there is not
sufficient historical share exercise data to calculate the expected
term of the options, PureTech LLC 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.
Subsidiary plans
Certain subsidiaries of the Group have adopted stock option
plans. A summary of stock option activity by number of shares in
these subsidiaries is presented in the following table:
Gelesis Akili Karuna Tal Vedanta Knode Entrega Follica The Commense Total
Biosciences Sync
Project
------------- ---------- -------- -------- ---------- ------------ --------- ---------- -------- -------- --------- ----------
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) - (39,583) (25,000) - - - (328,180)
------------- ---------- -------- -------- ---------- ------------ --------- ---------- -------- -------- --------- ----------
Outstanding
as of
31 December
2014 1,603,180 638,000 541,927 1,229,800 550,000 154,480 662,500 - - - 5,379,887
Granted
during
the year 122,685 263,746 27,500 396,136 177,500 - 422,500 396,655 850,000 212,500 2,869,222
Exercised
during
the year (15,500) - - - - (1,875) - - - - (17,375)
Forfeited
during
the year - - - - - (3,125) - - - - (3,125)
------------- ---------- -------- -------- ---------- ------------ --------- ---------- -------- -------- --------- ----------
Outstanding
as of
31 December
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2015 1,710,365 901,746 569,427 1,625,936 727,500 149,480 1,085,000 396,655 850,000 212,500 8,228,609
------------- ---------- -------- -------- ---------- ------------ --------- ---------- -------- -------- --------- ----------
The exercise prices for the options granted in 2014 were $0.85,
$0.02 and $0.05 per share for Tal, Vedanta Biosciences and Knode,
respectively. The exercise prices for the options granted in 2015
were $2.38, $2.69, $2.35, $10.74, $2.28, $0.75, $0 and $0 for
Akili, Karuna, Tal, Vedanta Biosciences, Entrega, Follica, The Sync
Project and Commense, respectively.
Significant subsidiary plan
Gelesis 2006 Stock Option Plan
In May 2006, the Directors of Gelesis, approved the 2006 Stock
Incentive Plan (the "Gelesis Plan") which provides for the grant of
incentive stock options, nonqualified stock options, and restricted
stock to employees, directors, and nonemployees of Gelesis. At 31
December 2015, the number of shares that remain available for
issuance under the Gelesis Plan was 267,580.
The options granted under the Gelesis Plan are equity settled
and expire 10 years from the grant date. In general, awards
typically vest in three years but vesting conditions can vary based
on the discretion of Gelesis' Directors.
Options granted under the Gelesis Plan are exercisable at a
price per share not less than the fair market value of the
underlying ordinary shares on the date of grant. The estimated fair
value of options, including the effect of estimated forfeitures, is
recognised over the options' vesting period.
Gelesis incurred stock-based compensation expense of $2.2
million and $2.0 million for the years ended 31 December 2015 and
2014.
Gelesis fair value measurements
The fair value of the stock options awarded under 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:
Assumption/Input 2015 2014
------------------------- ------- -------
Expected award life
(in years) 7.8 5.6
Expected award price
volatility 72.84% 71.70%
Risk--free interest
rate 2.05% 1.80%
Expected dividend yield - -
Grant date fair value $7.34 $6.92
Share price at grant
date $9.13 $10.05
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.
Other plans
The stock compensation expense under plans at other subsidiaries
of the Group not including Gelesis was $1.7 million and $157,000
for the years ended 31 December 2015 and 2014, respectively.
Share-based payment expense
The following table provides the classification of the Group's
consolidated share-based payment expense as reflected in the
consolidated statements of comprehensive loss:
2015 2014
For the years ended 31 $000s $000s
December:
---------------------------- ------- -------
General and administrative 9,318 1,440
Research and development 1,777 1,371
---------------------------- ------- -------
Total 11,095 2,811
---------------------------- ------- -------
There was no income tax benefit recognised for share-based
payment arrangements during the periods presented.
7. Finance cost, net
The following table shows the breakdown of finance income and
costs:
For the years ended 31 December: 2015 2014
$000s $000s
---------------------------------------------- --------- ---------
Finance income
Realised gain on available for sale
investments - 143
Interest from financial assets not at
fair value through profit or loss 262 46
---------------------------------------------- --------- ---------
Total finance income 262 189
---------------------------------------------- --------- ---------
Finance costs
Contractual interest expense on convertible
notes (598) (41)
Interest expense on other borrowings (200) (438)
Non-cash interest expense on convertible
notes (37) (2,115)
Loss on extinguishment of subsidiary (1,856) -
notes payable
Gain on foreign currency exchange 327 -
---------------------------------------------- --------- ---------
Total finance costs - contractual (2,364) (2,594)
---------------------------------------------- --------- ---------
Loss from change in fair value of warrant
liability (138) (11,432)
Loss on fair value measurement of derivative
liability (7,371) (44,939)
---------------------------------------------- --------- ---------
Total finance costs - IAS 39 fair value
accounting (7,509) (56,371)
Total finance costs - subsidiary preferred (3,515) -
shares
---------------------------------------------- --------- ---------
Total finance costs (11,024) (56,371)
---------------------------------------------- --------- ---------
Finance costs, net (13,126) (58,776)
---------------------------------------------- --------- ---------
See note 20 for further disclosure related to loss on fair value
measurement of derivative liability.
8. 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 $39.4 million (2014: $41.6 million), by
the weighted average number of ordinary shares outstanding of
185,281,244 (2014: 82,453,369) during the year ended 31 December
2015:
Loss attributable to ordinary shareholders:
2015 2014
-------------------- --------------------
Basic Diluted Basic Diluted
$000s $000s $000s $000s
-------------------------------------------- --------- --------- ---------
Loss for the year, attributable
to the owners of the Company (39,393) (39,393) (41,643) (41,643)
--------------------------------- --------- --------- --------- ---------
Loss attributable to ordinary
shareholders (39,393) (39,393) (41,643) (41,643)
Weighted-average number of ordinary shares
2015 2014
-------------------------- ------------------------
Basic Diluted Basic Diluted
------------------------------------------- ------------ ----------- -----------
Issued ordinary shares at 1
January 118,100,407 118,100,407 63,658,930 63,658,930
Effect of shares issued 67,180,837 67,180,837 18,794,439 18,794,439
----------------------------- ------------ ------------ ----------- -----------
Weighted average number of
ordinary shares 185,281,244 185,281,244 82,453,369 82,453,369
Loss per share
2015 2014
----------------------------- -----------------
Basic Diluted Basic Diluted
---------------------------- ------------------ ------ ---------
Loss per share $ (0.21) $ (0.21) $ (0.51) $ (0.51)
----------------- --------- -------------------------- ---------
The potentially dilutive securities excluded from the
computation of diluted weighted average shares outstanding as they
would be anti-dilutive was 9,441,126 and 4,416,643 as at 31
December 2015 and 2014, respectively.
9. Property and equipment
Property and equipment, net, consists of the following at:
Laboratory Computer
and Furniture Equipment Construction
Manufacturing and and Leasehold in
Cost Equipment Fixtures Software Improvements process Total
$000s $000s $000s $000s $000s $000s
----------------------- --------------- ---------- ----------- -------------- ------------- --------
Balance as of
1 January 2014 808 95 163 172 432 1,670
Additions, net
of transfers 300 3 27 37 - 367
Exchange differences (109) - - (21) (31) (161)
----------------------- --------------- ---------- ----------- -------------- ------------- --------
Balance as of
31 December
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2014 999 98 190 188 401 1,876
----------------------- --------------- ---------- ----------- -------------- ------------- --------
Additions, net
of transfers 1,723 70 362 1,302 400 3,857
Exchange differences (107) - - (21) (31) (159)
----------------------- --------------- ---------- ----------- -------------- ------------- --------
Balance as of
31 December
2015 2,615 168 552 1,469 770 5,574
----------------------- --------------- ---------- ----------- -------------- ------------- --------
Computer
Accumulated Laboratory and Furniture Equipment Construction
Depreciation Manufacturing and and Leasehold in
and Impairment Equipment Fixtures Software Improvements process Total
Loss $000s $000s $000s $000s $000s $000s
---------------------- ---------------- ---------- ----------- -------------- ------------- --------
Balance as of
1 January 2014 (241) (59) (127) (30) - (457)
Depreciation (110) (8) (26) (32) - (176)
Exchange differences (16) - - - - (16)
----------------------- --------------- ---------- ----------- -------------- ------------- --------
Balance as of
31 December
2014 (367) (67) (153) (62) - (649)
Depreciation (246) (22) (62) (122) - (452)
Exchange differences 36 - - 10 - 46
----------------------- --------------- ---------- ----------- -------------- ------------- --------
Balance as of
31 December
2015 (577) (89) (215) (174) - (1,055)
----------------------- --------------- ---------- ----------- -------------- ------------- --------
Computer
Laboratory and Furniture Equipment Construction
Property & Manufacturing and and Leasehold in
Equipment, Equipment Fixtures Software Improvements process Total
net $000s $000s $000s $000s $000s $000s
--------------- ---------------- ---------- ----------- -------------- ------------- -------
Balance as of
31 December
2014 632 31 37 126 401 1,227
Balance as of
31 December
2015 2,038 79 337 1,295 770 4,519
---------------- --------------- ---------- ----------- -------------- ------------- -------
Depreciation of property and equipment is included in general
and administrative expenses and research and development expenses
in the consolidated statement of comprehensive loss.
10. Intangible assets
Intangible assets consist of licences of intellectual property
acquired by the Group through various agreements with third
parties. Licences and intellectual property acquired are recorded
at the value of cash and non cash consideration transferred.
Information regarding the cost and accumulated amortisation of
intangible assets is as follows:
Licences
Cost $000s
----------------------------- ---------
Balance at 1 January 2014 3,725
Additions 53
----------------------------- ---------
Balance at 31 December 2014 3,778
Additions 1,160
----------------------------- ---------
Balance at 31 December 2015 4,938
----------------------------- ---------
Licences
Accumulated amortisation $000s
----------------------------- ---------
Balance at 1 January 2014 (563)
Amortisation (216)
----------------------------- ---------
Balance at 31 December 2014 (779)
Amortisation (288)
----------------------------- ---------
Balance at 31 December 2015 (1,067)
----------------------------- ---------
Licences
Intangible assets, net $000s
----------------------------- ---------
Balance at 31 December 2014 2,999
Balance at 31 December 2015 3,871
----------------------------- ---------
Amortisation expense is included in research and development
expenses in the consolidated statements of comprehensive loss.
Amortisation expense, recorded using the straight-line method, was
approximately $288,000 and $216,000 for the years ended 31 December
2015 and 2014, respectively.
11. Cash and cash equivalents
As of 31 December: 2015 2014
$000s $000s
--------------------- -------- -------
Bank balances 135,577 62,432
Restricted cash (826) (472)
--------------------- -------- -------
Total cash and cash
equivalents 134,751 61,960
--------------------- -------- -------
Restricted cash represents cash reserved as collateral against
letters of credit with a bank issued for the benefit of a landlord
in lieu of a security deposit for office space leased by the Parent
and its subsidiaries. The restricted cash is held in certificate of
deposits and is classified as current assets within other financial
assets in the consolidated balance sheet.
12. Trade and other receivables
As of 31 December: 2015 2014
$000s $000s
----------------------- ------- -------
Trade Receivables 636 1,748
Other Receivables 70 2
Total trade and other
receivables 706 1,750
13. Equity
On 9 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 18 June 2015, the Company acquired the entire issued share
capital of PureTech LLC in return for 159,648,387 Ordinary Shares.
This has been accounted for as a common control transaction and has
been given effect retrospectively for all periods presented herein.
It has therefore been deemed that the share capital was issued in
line with movements in share capital as shown prior to the
transaction taking place. In addition the merger reserve records
amounts previously recorded as share premium.
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
U.K. Listing Authority and to trading on the Main Market of the
London Stock Exchange for listed securities. The Initial Public
Offering ("IPO") was for 67,599,621 new ordinary shares issued by
the Company at 160 pence per ordinary share. This resulted in
$159.3 million of net proceeds from the IPO (net of issue cost of
$11.8 million) reflected in the share premium balance as of 31
December 2015. Included in operating expenses in 2015 is $5.5
million of professional services associated with the IPO which were
not otherwise offset against the net proceeds of the offering.
The Company had the option, at its absolute discretion, to pay
an incentive fee to the IPO underwriter. PureTech paid $1.2
million, which was expensed upon payment.
The IPO also included an over-allotment option equivalent to 15
percent 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 on 2 July 2015. As a result, the Company
issued 10,139,943 ordinary shares at the offer price of 160 pence
per share achieving further net proceeds for the Company of GBP15.7
million, or approximately $24.2 million (net of issue cost of
approximately $772,000). The total number of issued ordinary
shares, including unvested equity incentive awards, and voting
rights in the Company after issuing the over-allotment shares is
237,387,951.
31 December 31 December
2015 2014
Equity Note $000s $000s
---------------------------------------------- ------- ----------------------------- ------------
Share capital, GBP0.01 par value, issued and
fully paid 226,173,751 and 118,098,967 as of
31 December 2015 and 31 December 2014 respectively 4,523 2,362
Share premium 181,744 -
Merger reserve 138,506 86,755
Translation reserve (93) 169
Other reserves 12,863 3,139
Accumulated deficit (111,420) (70,421)
------------------------------------------------------- ----------------------------- ------------
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Equity attributable to owners of the Group 226,123 22,004
Non--controlling
interests 15 (62,070) (45,317)
---------------------------------------------- ------- ----------------------------- ------------
Total equity 164,053 (23,313)
Shareholders are entitled to vote on all matters submitted to
shareholders for a vote. Each ordinary share is entitled to one
vote. Each ordinary share is entitled to receive dividends when and
if declared by the Company's Directors. The Company has not
declared any dividends in the past.
In 2014, the Group issued 37,402,400 shares, resulting in net
proceeds of $55.8 million, net of issuance costs of $414,000. In
conjunction with this financing, PureTech LLC converted 16,065,690
fully vested Profits Interests and Partnership Shares into common
shares and the Directors authorised 13,258,902 common shares as
equity incentives for management, Directors and advisers. Also in
2014, PureTech LLC issued 175,730 shares for consulting services.
Upon the conversion of convertible promissory notes, PureTech LLC
issued 331,560 shares.
Other reserves comprise the cumulative credit to share-based
payment reserves corresponding to share-based payment expenses
recognised through profit or loss.
14. Subsidiary preferred shares
Certain of the Group's subsidiaries have outstanding preferred
shares which have been classified as a liability in accordance with
IAS 39 as the subsidiaries have a contractual obligation to
deliver: 1.) cash or other assets to the holders under certain
future events; and/or 2.) a requirement to deliver an uncertain
number of common shares upon conversion. The preferred shares do
not contain mandatory dividend rights. 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 listing on a public market at a price
above those specified in the agreements 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
sale of the respective subsidiary.
The Group recognises the preferred share balance upon the
receipt of cash financing or upon the conversion of notes into
preferred shares at the amount received, or carrying balance of any
notes and derivatives converted into preferred shares. Preferred
shares are not allocated shares of the subsidiary losses.
The following summarises the subsidiary preferred share
balance:
2015 2014
As of 31 December: $000s $000s
----------------------------- ------- -------
Akili 2,625 1,763
Follica 94 -
Gelesis 52,640 9,731
Tal 10,143 -
----------------------------- ------- -------
Subsidiary preferred shares 65,502 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 shareholders and before any payment shall be made
to holders of common shares. 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:
2015 2014
As of 31 December: $000s $000s
--------------------- ------- -------
Akili 4,613 4,613
Follica 2,020 2,020
Gelesis 60,490 14,451
Karuna 413 -
Tal 11,430 -
--------------------- ------- -------
Total 78,966 21,084
--------------------- ------- -------
As of 31 December 2014, the Group determined that the balance of
the subsidiary preferred shares classified as a current liability
was appropriately stated at the issuance amounts, given the high
degree of uncertainty associated with the ultimate conversion of
the shares to common stock. However, during 2015 the Group
determined that the uncertainty related to conversion to common
stock had been reduced as funding was obtained from the IPO and
other sources and the businesses had progressed toward significant
milestone events. As such, the Group has begun to accrete the
subsidiary preferred shares liability up to the minimum liquidation
preference amount based on the estimated date of conversion to
common stock.
For the two-year period ending 31 December 2015, the Group
recognised the following changes in subsidiary preferred
shares:
2014
Akili, a growth stage business, closed on an additional $8.1
million equity investment, of which $3 million was provided by
PureTech. Of the $8.1 million equity investment, $5.1 million was
due to the conversion of convertible notes, including $1 million of
convertible notes held by PureTech.
2015
In March 2015, Gelesis closed an $18.0 million private equity
financing of which 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.
In March 2015, Tal closed a $14.5 million private equity
financing of which PureTech invested $5.0 million in the financing.
Also, in conjunction with this transaction, preferred shares were
issued upon conversion of outstanding convertible notes.
In December 2015, Gelesis closed a $31.5 million private equity
financing of which PureTech invested approximately $7 million.
In 2015, the Company reclassified certain Tal and Karuna
balances that were previously classified as equity.
15. Non-controlling interest
The following summarises the changes in the equity classified
non-controlling ownership interest in subsidiaries by reportable
segment:
Growth Project
stage phase
businesses businesses Total
$000s $000s $000s
-------------------------------------------- ------------ ---------
Non--controlling interest
as of 1 January 2014 (7,148) 5 (7,143)
New funds into non--controlling
interest 1,031 - 1,031
Share of comprehensive loss (34,300) - (34,300)
Effect of change in Group's
ownership interest (4,905) - (4,905)
--------------------------------- --------- ------------ ---------
Non--controlling interest
as of 31 December 2014 (45,322) 5 (45,317)
New funds into non--controlling - - -
interest
Share of comprehensive loss (18,854) 3 (18,851)
Effect of change in Group's
ownership interest 2,098 - 2,098
--------------------------------- --------- ------------ ---------
Non--controlling interest
as of 31 December 2015 (62,078) 8 (62,070)
--------------------------------- --------- ------------ ---------
The following table summarises the financial information related
to the Group's subsidiaries with material non controlling
interests, aggregated for interests in similar entities, and before
intra group eliminations.
2015 2014
-------------------------------- ---------------------------- ----------------------------
Growth Project Growth Project
Stage Phase Stage Phase
For the year ended 31 Businesses Businesses Businesses Businesses
December: $000s $000s $000s $000s
-------------------------------- ------------ ------------ -------------- ------------
Statement of Comprehensive Loss
Revenue 189 1,175 209 1,750
Loss for the year (32,695) 986 (68,198) 201
Other comprehensive - - - -
loss
Total comprehensive
loss (32,695) 986 (68,198) 201
Comprehensive loss attributable
to NCI (18,854) 3 (34,300) -
Statement of Financial Position
Non--current assets 4,976 1,518 4,110 4
Current assets 44,594 4,201 6,628 1,339
-------------------------------- ------------ ------------ -------------- --------------
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Total Assets 49,570 5,719 10,738 1,343
Non--current liabilities (12,439) - (526) (142)
Current liabilities (130,712) (1,140) (92,716) (1,400)
Total Liabilities (143,151) (1,140) (93,242) (1,542)
-------------------------------- ------------ ------------ -------------- --------------
Net Liabilities (93,581) 4,579 (82,504) (199)
-------------------------------- ------------ ------------ -------------- --------------
Carrying amount of NCI (61,600) (470) (40,778) 5
Statement of Cash Flows
Cash flows from operating
activities (20,084) 986 (9,227) 201
Cash flows from investing
activities (2,463) - (373) -
Cash flows from financing
activities 40,041 - 8,348 -
-------------------------------- ------------ ------------ -------------- --------------
17,494 986 (1,252) 201
---------------------------------------------- ------------ -------------- --------------
16. Subsidiary notes payable
The notes payable balance consists of the following:
2015 2014
As of 31 December: $000s $000s
------------------------ ------- -------
Loans 2,281 2,459
Convertible notes 2,674 4,489
------------------------ ------- -------
Total subsidiary notes
payable 4,955 6,948
------------------------ ------- -------
Loans
In October 2010, Follica entered into a loan and security
agreement with Lighthouse Capital Partners VI, L.P. ("Lighthouse
Capital"). The loans are secured by all of Follica's assets,
including Follica's intellectual property. The loans totalled
approximately $1.2 million at 31 December 2015 and 2014.
In May 2014, Gelesis entered into a grant and loan agreement
with an Italian economic development agency. Borrowings under the
loan totalled EUR980,000 (approximately $1.1 million and $1.2
million at 31 December 2015 and 2014, respectively), and the loan
bears interest at 0.33 percent per year. Gelesis is required to
make interest payments only in 2014 and 2015, with principal and
interest payments from January 2016 through January 2024.
Funds awarded under the grant may be revoked if irregularities
are identified during inspection of costs by the Italian economic
development agency or for failure to implement or comply with the
project plan or to achieve the objectives of the project plan for
reasons within Gelesis' control. In the event of a revocation of
the grant, Gelesis would be required to repay the loan immediately,
including accrued interest.
Convertible Notes
Certain of the Group's subsidiaries have issued convertible
promissory notes ("Notes") to fund their operations, with an
expectation of an eventual share-based settlement of the Notes.
Substantially all Notes become due and payable on or after
either 31 December of the year of issuance on the thirtieth (30th)
day following a demand by the majority of Note holders, as defined.
Substantially all of the Notes bear interest at a rate of 8 percent
(or 12 percent upon an event of Default, as defined) or 10 percent
(or 15 percent upon an event of Default, as defined). Interest is
calculated based on actual days elapsed for a 360-day calendar
year. Generally, the Notes cannot be prepaid without approval from
a majority of the holders of a subsidiary's Notes.
The Notes constitute complex hybrid instruments, which contain
equity conversion features where holders may convert, generally at
a discount, the outstanding principal and accrued interest into
shares of the Borrower before maturity and redemption options upon
a change of control of the respective subsidiary. The three key
features are described below:
-- Automatic conversion feature-upon a Qualified Financing, as
defined, the unpaid principal and interest amounts are
automatically converted into shares of the subsidiary at the
conversion price equal to the price shares are sold at upon a
Qualified Financing, less a discount. The discounts range from 5
percent to 25 percent.
-- Optional conversion feature-upon a Non Qualified Financing,
as defined, holders may convert the outstanding principal balance
and unpaid interest to shares at the conversion price equal to the
price shares are sold at upon a Non Qualified Financing, less a
discount. The discounts range from 5 percent to 25 percent.
-- Change-of-control features-The Notes also generally contain a
put option such that, in the event of a Change of Control
transaction of the respective subsidiary, as defined, prior to
conversion or repayment of the Notes, the holders will be paid an
amount equal to two or three times the outstanding principal
balance plus any accrued and unpaid interest, in cash, on the date
of the Change-of-Control.
The conversion features and put option represent embedded
derivative instruments requiring bifurcation from the debt
instruments under IAS 39, Financial Instruments: Recognition and
Measurement. The embedded derivatives are accounted for as
liability components, separate from the host debt.
Convertible Notes outstanding were as follows:
Vedanta Gelesis Tal Karuna Follica Entrega Knode Endra, Akili PureTech Total
Biosciences Inc LLC
------------------------ ------------ ---------- ---------- --------- -------- ------- ------- ------------ ---------- ------------
1 January
2014 299,000 - 900,000 505,000 - 125,000 50,000 75,000 1,148,000 - 3,102,000
Gross
Principle 50,000 3,940,000 500,000 - - - - - 2,625,000 500,000 7,615,000
Discount - (1,576,000) (86,482) - - - - - (991,080) - (2,653,562)
Accretion 18,032 568,000 21,620 - - - - - 1,027,930 - 1,635,582
Conversion - - (900,000) - - - - - (3,809,850) (500,000) (5,209,850)
Repayment - - - - - - - - - - -
------------ ---------- ------------ ---------- ---------- --------- -------- ------- ------- ------------ ---------- ------------
31 December
2014 367,032 2,932,000 435,138 505,000 - 125,000 50,000 75,000 - - 4,489,170
Gross
Principle - - - 1,644,582 200,000 - - - - - 1,844,582
Discount - - - (166,306) (40,000) - - - - - (206,306)
Accretion 7,513 227,834 64,862 166,306 40,000 - - - - - 506,515
Conversion - (3,159,834) (500,000) - - - - - - - (3,659,834)
Repayment (300,000) - - - - - - - - - (300,000)
------------ ---------- ------------ ---------- ---------- --------- -------- ------- ------- ------------ ---------- ------------
31 December
2015 74,545 - - 2,149,582 200,000 125,000 50,000 75,000 - - 2,674,127
------------ ---------- ------------ ---------- ---------- --------- -------- ------- ------- ------------ ---------- ------------
In August 2015, Karuna, entered into an agreement to issue up to
$3.8 million of convertible notes to the Wellcome Trust subject to
meeting certain development milestones. At 31 December 2015, the
Company has drawn down $1.6 million of the note.
In May 2015, Vedanta Biosciences repaid convertible notes and
related accrued interest of $366,000.
In conjunction with its March 2015 private financing, Gelesis
converted convertible notes and related accrued interest of $3.5
million into preferred shares. The conversion also includes
$759,000 of related convertible note derivatives.
In March 2015, Tal, also in conjunction with its private
financing, converted convertible notes and related accrued interest
of $517,000 interest into preferred shares. The conversion also
includes $200,000 of related convertible note derivatives.
During 2014, all outstanding Convertible Notes and related
accrued interest of Akili, totalling $4.1 million, were converted
into 2,312,603 shares of Akili preferred stock. In conjunction with
this conversion, the outstanding derivative related to the
converted notes was converted into subsidiary preferred shares in
the amount of $1.3 million.
In February 2014, all outstanding convertible notes and accrued
interest of Tal, totalling $1.1 million, were converted into
820,932 shares of Tal preferred stock. In conjunction with this
transaction, the outstanding derivative related to the converted
notes was converted into accumulated deficit in the amount of
$321,000.
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During 2014, outstanding convertible notes and related accrued
interest of PureTech, totalling $507,000, were converted into
331,560 shares. In conjunction with this transaction, the
outstanding derivative related to the converted notes was converted
into accumulated deficit in the amount of $70,000.
17. Subsidiary warrants
The following is a summary of the warrants on subsidiary shares
outstanding related to various borrowings, stock issuances and
business transactions:
Recorded value as
at 31 December:
-------- ---------------- ---------------------- ---------- --------------------
2015 2014
Number of $000s $000s
Issued Classification Exercisable for Shares
-------- ---------------- ---------------------- ---------- --------- -----------
Gelesis and Gelesis LLC
Aug-08 Equity Common stock 1,314 6 6
May-09 Equity Common stock 1,314 6 6
May-09 Equity Common stock 1,501 1 1
Nov-09 Equity Common stock 28,361 18 18
Series A--1 preferred
Apr-11 Liability stock - 664 801
Series A--3 preferred
Jun-12 Liability stock 238,190 2,830 2,447
Series A--4 preferred
Aug-13 Liability stock 719,677 7,561 8,134
Aug-13 Equity Common stock 719,677 52 52
Follica
Jul-13 Liability Preferred stock 2,263,508 2,593 2,219
Aug-13 Liability Preferred stock 193,023 222 189
Jan-14 Liability Preferred stock 193,023 223 190
Oct-14 Liability Preferred stock 146,697 170 145
Dec-15 Equity Common stock 19,688 20 -
Total Liabilities 14,263 14,125
-------------------------- --------------------------------------------- ---------
Total Equity 103 83
-------------------------- --------------------------------------------- ---------
In connection with obtaining various amendments to its 2008
Loan, Gelesis issued the following warrants:
-- In 2008 and 2009, Gelesis issued warrants to purchase 1,314
and 1,314 shares of its common stock, respectively, at an exercise
price of $59.94 per share. The warrants expire upon the earlier of
(i) 10 years from the issuance date (ii) five years after the
effective date of an initial public offering of Gelesis, or (iii) a
sale of Gelesis.
-- A warrant was issued in 2009, amended in 2009 and in 2011,
ultimately for 1,501 shares of common stock at an exercise price of
$0.56 per. The warrants terminate upon the earlier of (i) 7 May
2019, (ii) five years after the effective date of an initial public
offering of Gelesis, or (iii) the sale of Gelesis.
-- In 2009, Gelesis issued a warrant to purchase, 28,361 shares
of Gelesis' common stock and in 2011 the warrant exercise price was
amended to $0.56 per share. The warrant terminates upon the earlier
of (i) 30 November 2019 (ii) three years after the effective date
of an initial public offering or (iii) a sale of Gelesis.
-- In 2011, Gelesis issued a warrant to purchase shares of
Series A-1 at an exercise price equal to the lower of $4.44 per
share or the price per share received in the first sale of shares
of Gelesis' stock resulting in at least $5 million gross proceeds
to Gelesis. The warrant is exercisable for the number of shares of
Series A-1 equal to the quotient of $332,000 divided by the
exercise price of the warrant. The warrant terminates upon the
earlier of (i) 27 April 2021 (ii) three years after the effective
date of an initial public offering or (iii) a sale of Gelesis. The
fair value of the warrants was $664,000 and $801,000 at 31 December
2015 and 2014, respectively.
In June 2012, in connection with an amendment to a master
purchase and licensing agreement with one of its customers, in
exchange for the right to expand the field use of the intellectual
property purchased, Gelesis issued fully vested warrants to
purchase 238,190 shares of Series A 3 at an exercise price of $0.04
per share. The warrant is subject to automatic exercise upon a
deemed liquidation event. The warrants expire in June 2022. The
warrants were amended in December 2014, and became exercisable upon
completion of Gelesis' acquisition of a particular company in
February 2015.
The fair value of the warrants was $708,000 at the date of
issuance and was recorded as an intangible licence asset, and a
corresponding warrant liability. The fair value of the warrants was
$2.8 million and $2.5 million at 31 December 2015 and 2014,
respectively.
In August 2013, in connection with the issuance of Series A 4
convertible preferred stock, or Series A 4, Gelesis issued
contingent warrants to purchase 719,677 shares of Series A 4 at an
exercise price of $0.04 per share. The warrants were required to be
issued if Gelesis did not complete an IPO, or was liquidated,
dissolved, wound up or sold prior to February 2015. Such an IPO or
other event did not occur prior to February 2015 and the warrants
were issued at that time. The warrants will expire 10 years from
the date of issuance.
The warrants were classified as a liability and recorded at fair
value, which was estimated at $1.5 million at the date of issuance.
The fair value of the warrants was $7.5 million and $8.1 million at
31 December 2015 and 2014, respectively.
The following weighted average assumptions were used to
determine the fair value of the warrants at 31 December 2015:
Series A-1 Series A-3 Series A-4
Warrants Warrants Warrants
--------------------------------------- ----------- -----------
Expected term 5.3 years 6.5 years 7.6 years
Expected volatility 59.00% 68.00% 72.00%
Expected dividend - - -
yield
Risk--free interest
rate 1.76% 2.01% 2.09%
Estimated fair
value of the convertible
preferred stock $4.44 $3.00 $3.77
Exercise price
of warrants $4.44 $0.04 $0.04
--------------------------- ---------- ----------- -----------
The following weighted average assumptions were used to
determine the fair value of the warrants at 31 December 2014:
Series A-1 Series A-3 Series A-4
Warrants Warrants Warrants
--------------------------------------- ----------- -----------
Expected term 6.3 years 7.5 years 8.6 years
Expected volatility 74.00% 59.00% 57.00%
Expected dividend - - -
yield
Risk--free interest
rate 1.76% 1.97% 2.07%
Estimated fair
value of the convertible
preferred stock $3.68 $3.65 $3.63
Exercise price
of warrants $4.44 $0.04 $0.04
--------------------------- ---------- ----------- -----------
In connection with various amendments to its 2010 Loan and
Security Agreement, Follica issued preferred stock warrants at
various dates in 2013 and 2014. Each of the warrants has an
exercise price of $0.1425 and a contractual term of ten years from
the date of issuance. The warrants issued in 2013 and January 2014
were deemed to have no value at the time of their issuance. The
warrant liability has been marked to market at each subsequent
reporting date and at 31 December 2015 and 2014 the warrants were
deemed to have a value of $3.2 million and $2.7 million,
respectively.
A warrant was issued in 2015 for 19,688 shares of common stock
at an exercise price of $0.75 per. The warrant is classified within
equity and expires on 14 December 2020.
The following weighted average assumptions were used to
determine the fair value of the warrants at 31 December:
2015 2014
------------------------------------------------ ----------------
Expected term 7.56-8.80 years 8.56-9.80 years
Expected volatility 59.93%-63.96% 59.34%-60.43%
Expected dividend yield - -
Risk--free interest rate 2.02%-2.15% 2.02%-2.15%
Estimated fair value of the
convertible preferred stock $1.25 $1.08
Exercise price of warrants $0.14 $0.14
------------------------------ ---------------- ----------------
18. Trade and other payables
2015 2014
As of 31 December: $000s $000s
----------------------- ------- -------
Trade payables 2,393 1,614
Accrued expenses 4,830 3,117
----------------------- ------- -------
Total trade and other
payables 7,223 4,731
----------------------- ------- -------
19. Leases
Office and laboratory space is rented under non cancellable
operating leases. These lease agreements contain various clauses
for renewal at the Group's option and, in certain cases, escalation
clauses typically linked to rates of inflation.
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In December 2014, the Company entered into a 10-year lease for
9,446 square feet of office space beginning in April 2015 and
ending on 31 August 2025. The lease requires a letter of credit of
$350,000, which is held in a certificate of deposit, as further
discussed in note 11. The lease has a base rent of approximately
$444,000, which increases by approximately two percent per year
over the lease term.
In August 2015, Vedanta entered into a lease for 9,027 square
feet of office space beginning February 2016 and ending December
2022. The lease requires a letter of credit of $350,000, which is
held in a certificate of deposit, as further discussed in note 11.
The lease has an initial base rent of approximately $330,000, which
increases to approximately $576,000 over the lease term.
In November 2015, Akili entered into a lease for 3,603 square
feet of office space beginning December 2015 and ending January
2019. The lease requires a security deposit of approximately
$21,000 recorded as other non-current assets. The lease has a base
rent of approximately $128,000, which increase approximately 3
percent per year over the lease term.
Minimum rental commitments under non cancellable leases were
payable as follows:
2015 2014
As of 31 December: $000s $000s
---------------------- ------- -------
Within one year 867 331
Between one and five
years 4,255 2,330
More than five years 3,570 2,387
---------------------- ------- -------
Total minimum lease
payments 8,692 5,048
---------------------- ------- -------
Total rent expense under these leases was approximately $432,000
and $296,000 during the years ended 31 December 2015 and 2014,
respectively. Rent expense is included in general and
administrative expenses in the consolidated statements of
comprehensive loss.
20. Financial instrument and related disclosures
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 statements of comprehensive loss.
Assumptions of the Group in the estimation of fair value of the
derivative liability are below and refer to note 17 for assumptions
used in the estimation of the warrant fair value.
Financial instruments by category at 31 December:
2015
--------------------------------------------------------------------------------
Carrying amount Fair Value
---------------- ------------------------------------
Financial Financial Level Level Level Total
1 2 3
assets liabilities $000s $000s $000s $000s
$000s $000s
----------------------------------------------- ------------------------ -------- ------- ------- --------
Financial assets
Cash and cash equivalents 134,751 - 134,751 - - 134,751
U.S. Treasuries 178,955 - 178,955 - - 178,955
Certificates of deposit 826 - - 826 - 826
Other deposits 57 - - 57 - 57
Loans and receivables:
Trade and other receivables 706 - - 706 - 706
----------------------------- ---------------- ------------------------ -------- ------- ------- --------
Total financial assets 315,295 - 313,706 1,589 - 315,295
----------------------------- ---------------- ------------------------ -------- ------- ------- --------
Financial liabilities
Trade and other payables - 7,223 - 7,223 - 7,223
Subsidiary warrant
liability - 14,263 - - 14,263 14,263
Subsidiary derivative
liability - 65,501 - - 65,501 65,501
Subsidiary preferred
shares - 65,502 - 65,502 - 65,502
Financial liabilities measured at amortised cost:
Subsidiary notes
payable - 4,955 - 4,955 - 4,955
----------------------------- ---------------- ------------------------ -------- ------- ------- --------
Total financial liabilities - 157,444 - 72,725 79,764 157,444
----------------------------- ---------------- ------------------------ -------- ------- ------- --------
2014
--------------------------------------------------------------------
Carrying amount Fair Value
---------------- -----------------------------------
Financial Financial Level Level Level Total
1 2 3
assets liabilities $000s $000s $000s $000s
$000s $000s
----------------------------------------------- ------------- ------- ------- ------- --------
Financial assets
Cash and cash equivalents 61,960 - 61,960 - - 61,960
U.S. Treasuries 701 - 701 - - 701
Certificates of deposit 472 - - 472 - 472
Other deposits 5 - - 5 - 5
Loans and receivables:
Trade and other receivables 1,750 - - 1,750 - 1,750
----------------------------- ---------------- ------------- ------- ------- ------- --------
Total financial assets 64,888 - 62,661 2,227 - 64,888
----------------------------- ---------------- ------------- ------- ------- ------- --------
Financial liabilities
Trade and other payables - 4,731 - 4,731 - 4,731
Subsidiary warrant
liability - 14,125 - - 14,125 14,125
Subsidiary derivative
liability - 52,794 - - 52,794 52,794
Subsidiary preferred
shares - 11,494 - 11,494 - 11,494
Financial liabilities measured at amortised cost:
Subsidiary notes
payable - 6,948 - 6,948 - 6,948
----------------------------- ---------------- ------------- ------- ------- ------- --------
Total financial liabilities - 90,092 - 16,225 66,919 90,0952
----------------------------- ---------------- ------------- ------- ------- ------- --------
The embedded derivatives associated with the subsidiary
convertible promissory notes and the conversion option within the
subsidiary preferred shares are accounted for as liabilities and
are marked to fair value at each reporting period. The fair value
of the embedded derivative liability at inception, 31 December 2015
and 2014 was determined using a probability weighted present value
technique, which includes unobservable (Level 3) inputs supported
by little or no market activity, such as time to next qualified
equity financing, implied discount rate, and probability of a
qualified financing or an option pricing allocation method. Based
on existing business plans, the Group also contemplated future
equity raises and the impact on the valuation of the embedded
derivative liability if the stock value is below the exercise price
at the estimated date of the projected future capital raise.
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 years
ended 31 December 2015 and 2014 is as follows:
Derivative
Liability-
Derivative Liability- Convertible Warrant
Preferred Stock Conversion Notes Liability
$000s $000s $000s
------------------------------------ ------------- -----------
Balance as of 1 January
2014 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 derivatives - (1,692) -
--------------------------- ------- ------------- -----------
Balance as of 31 December
2014 51,721 1,073 14,125
Value of derivatives
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at issuance 6,041 206 -
Change in fair value 7,402 26 138
Settlement of derivatives - (968) -
--------------------------- ------- ------------- -----------
Balance as of 31 December
2015 65,164 337 14,263
--------------------------- ------- ------------- -----------
The change in the fair value of derivatives and warrants is
recorded in Finance costs, net in the consolidated statements of
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 business 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 Volatility Risk--Free Rate
Measurement Date Date
------------------ ----------------- -------------- ----------------
28/2/2014 3.5 years 60.00% 0.94%
31/3/2014 5 years 75.00% 1.73%
31/12/2014 2.0--5.0 years 60.00% 0.67%--1.65%
30/6/2015 1.5--4.5 years 35.0%--65.0% 0.48%--1.53%
31/12/2015 1.5--4.0 years 35.0%--60.0% 0.86%--1.54%
------------------ ------------------ ------------- ------------------
Probability Weighted Expected Return Method Inputs
Range of Values
----------------- -----------------------------------------------------------
Time to Anticipated Probability of IPO/M&A/Dissolution
Measurement Date Exit Event Sale
----------------- ---------------------- -------------------------------------
31/3/2014 1.0 year 40.0%/45.0%/15.0%
31/12/2014 0.33 years 70.0%/25.0%/5.0%
30/6/2015 0.38--0.50 years 70.0%/30.0%/0.0%
31/12/2015 1.33 years 70.0%/30.0%/0.0%
----------------- -------------------- -------------------------------------
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:
As at 31 December:
------------------------------ --------------------------------------------------
Significant Unobservable At Issuance 2015 2014
Inputs
------------------------------ ---------------- ------------- -------------------
Time to next qualified 1--2.03 years 0.5--1 years 0.16--0.25 years
equity financing
Implied discount rate 11.3%--2,459.0% 11.0%--31.7% 18.3%--34.8%
Probabilities of a qualified
financing 0%--100% 45.0%--75.0% 10%--90%
------------------------------ ---------------- ------------- -----------------
Valuation policies and procedures are regularly monitored by the
Company's finance group. Fair value measurements, including those
categorised within Level 3, are prepared and reviewed on their
issuance date and then on an annual basis and any third-party
valuations are reviewed for reasonableness and compliance with the
fair value measurements guidance under IFRS.
The fair value of these embedded derivative liabilities may
differ significantly in the future from the carrying value as of 31
December 2015, and, accordingly, adjustments may be recorded in the
consolidated statements of comprehensive loss at that time.
21. Capital and financial risk management
The Company's financial strategy policy is to support its
strategic priorities, maintain investor and creditor confidence,
and to sustain future development of the business through an
appropriate mix of debt and equity. Management monitors the level
of capital deployed and available for deployment in subsidiary
projects. The Directors seek to maintain a balance between the
higher returns that might be possible with higher levels of
deployed capital and the advantages and security afforded by a
sound capital position.
The Group's Directors have overall responsibility for
establishment and oversight of the Group's risk management
framework. The Group is exposed to certain risks through its normal
course of operations. The Group's main objective in using financial
instruments is to promote the commercialisation of intellectual
property through the raising and investing of funds for this
purpose. The Group's policies in calculating the nature, amount and
timing of investments are determined by planned future investment
activity. Due to the nature of activities and with the aim to
maintain the investors' funds secure and protected, Group's policy
is to hold any excess funds in highly liquid and readily available
financial instruments and maintain exposure to other financial
risks to insignificant.
The Group has exposure to the following risks arising from
financial instruments:
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. Financial instruments that potentially
subject the Group to concentrations of credit risk consist
principally of cash and cash equivalents and trade and other
receivables. The Group held following balances:
2015 2014
$000s $000s
--------------------------------------- -------
Cash and cash equivalents 134,751 61,960
Short term investments 178,955 701
Trade and other receivables 706 1,750
----------------------------- -------- -------
Total 314,412 64,411
----------------------------- -------- -------
The Group invests excess cash in U.S. Treasury Bills, U.S. debt
obligations and money market accounts, which the Group believes are
of high credit quality.
The Group assesses the credit quality of customer, taking into
account its financial position, past experience and other factors.
The credit quality of financial assets that are neither past due
nor impaired can be assessed by reference to credit ratings (if
available) or to historical information about counterparty default
rates.
The ageing of trade and other receivables that were not impaired
at 31 December:
2015 2014
$000s $000s
----------------------------- -------
Neither past due nor
impaired 496 1,250
Past due 30--90 days - -
Past due 90--365 days 210 500
----------------------- ---- -------
Total 706 1,750
----------------------- ---- -------
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group actively manages its risk of a shortage
of funds by closely monitoring the maturity of its financial assets
and liabilities and projected cash flows from operations, under
both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group's reputation. The table below
summarises the maturity profile of the Group's financial
liabilities as at 31 December 2015 based on contractual
undiscounted payments:
2015
----------------------------------- --------------------------------------
Carrying Within 3 to 12 1 to 5
amount 3 months months years Total
$000s $000s $000s $000s $000s
------------------------------------ ---------- -------- ------- -------
Subsidiary notes payable 4,955 4,310 - 1,072 5,382
Trade and other payables 7,223 5,341 1,882 - 7,223
Subsidiary preferred
shares 65,502 65,502 - - 65,502
Other liabilities 622 554 68 - 622
--------------------------- ------- ---------- -------- ------- -------
Total 78,302 75,707 1,950 1,072 78,729
--------------------------- ------- ---------- -------- ------- -------
2014
----------------------------------- --------------------------------------
Carrying Within 3 to 12 1 to 5
amount 3 months months years Total
$000s $000s $000s $000s $000s
------------------------------------ ---------- -------- ------- -------
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Subsidiary notes payable 6,948 785 3,570 2,954 7,309
Trade and other payables 4,731 4,731 - - 4,731
Subsidiary preferred
shares 11,494 11,494 - - 11,494
Other liabilities 288 211 60 17 288
--------------------------- ------- ---------- -------- ------- -------
Total 23,461 17,221 3,630 2,971 23,822
--------------------------- ------- ---------- -------- ------- -------
In addition to the above financial liabilities, the Group is
required to spend the following minimum amounts under intellectual
property licence agreements:
2016 2017 2018 2019 2020
$000s $000s $000s $000s $000s
------------------- ------- ------- ------- -------
Licence fees 30 40 50 75 100
-------------- --- ------- ------- ------- -------
Total 30 40 50 75 100
-------------- --- ------- ------- ------- -------
Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices, will
affect the Group's income or the value of its holdings of financial
instruments. The objective of the Group's market risk management is
to manage and control market risk exposures within acceptable
parameters, while optimising the return. The Group maintains the
exposure to market risk from such financial instruments to
insignificant levels. The Group's exposure to changes in interest
rates is determined to be insignificant.
Foreign exchange risk
The Group's grant revenues and the research and development
costs associated with those grants are generated and incurred in
Euros. The Group's results of operations and cash flows will be
subject to fluctuations due to change in foreign currency exchange
rates. Foreign currency transaction exposure arising from external
trade flows is generally not hedged.
Capital risk management
The Group is funded by equity and debt financing. Total capital
is calculated as 'total equity' as shown in the consolidated
statements of financial position.
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital. In order to maintain or adjust the capital
structure, the Group may issue new shares or borrow new debt. The
Group has some external debt and no material externally imposed
capital requirements. The Group's share capital is clearly set out
in note 13.
As discussed in note 14, certain of the Group's subsidiaries
have issued preferred shares that include the right to receive a
payment in the event of any voluntary or involuntary liquidation,
dissolution or winding up of a subsidiary, which shall 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.
22. Commitments and contingencies
Gelesis has entered into a patent licence and assignment
agreement whereby it will be required to pay approximately $8
million upon the achievement of certain milestones, pay royalties
on future sales and/or a percentage of sublicense income. None of
the milestones have been met.
Gelesis has also been awarded grants from two government
agencies, which are recognised as revenue as the qualifying
expenses are incurred. The grant agreement contains certain
provisions, including, inter alia, maintaining a physical presence
in the region for defined periods. Failure to comply with these
covenants would require either a full or partial refund of the
grant to the granting authority.
On 12 January, 2015, Vedanta entered into an agreement which
grants Janssen Biotech, Inc. ("JBI"), a subsidiary of Johnson &
Johnson, the exclusive right and licence to make, use, sell, import
and otherwise develop or commercialise any licensed product during
the term of the agreement. Vedanta has entered into a licence
agreement whereby it agreed to pay 10 percent of the licence fee
income generated by the JBI Agreement to the University of Tokyo.
As of 31 December 2015, the Company received an upfront payment of
$10 million from JBI, resulting in $1 million in payments to
University of Tokyo.
Other members of the Group are also parties to certain licensing
agreements that require milestone payments and/ or royalties on
future sales. None of the milestones have been met and the amounts
of any potential future milestone or royalty payments cannot be
reliably measured as of the date of the financial information.
23. Related parties
Transactions with key management personnel compensation.
Key management personnel compensation
Key management includes executive 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 years
ended 31 December:
2015 2014
$000s $000s
------------------------------- -------
Short--term employee
benefits 2,150 1,612
Share--based payments 2,235 282
----------------------- ------ -------
Total 4,385 1,894
----------------------- ------ -------
Wages and employee benefits include salaries, health care and
other non cash benefits. Share-based payments are generally subject
to vesting terms over future periods.
Convertible debt issued to directors, key management personnel
and key personnel of the businesses
Certain members of the Group have invested in convertible notes
issued by the Group's subsidiaries. Activity of related parties by
subsidiary are presented below.
Vedanta Akili Tal Karuna PeerIn Total
Biosciences
-------------------------------- ------ ------ ------- ------- ------
Balance as of 1 January
2014 - 51 317 39 54 461
Loans advanced 50 50 - - - 100
Loan repayments made - - - - - -
Interest charged 3 8 4 4 5 24
Interest paid - - - - - -
Conversions - (109) (321) - - (430)
--------------------------- --- ------ ------ ------- ------- ------
Balance as of 31 December
2014 53 - - 43 59 155
Loans advanced - - - - - -
Loan repayments made - - - - - -
Interest charged 5 - - 3 5 13
Interest paid - - - - - -
Conversions - - - - - -
--------------------------- --- ------ ------ ------- ------- ------
Balance as of 31 December
2015 58 - - 46 64 168
--------------------------- --- ------ ------ ------- ------- ------
The notes issued by Vedanta Biosciences, have no stated maturity
date but are payable upon demand of a majority of noteholders. The
notes issued by Akili are also payable upon demand of a majority of
shareholders no earlier than 31 December 2015. The notes issued to
related parties bear interest rates, maturity dates, discounts and
other contractual terms that are the same as those issued to
outside investors during the same issuances, as described in note
16.
All of the outstanding principal and interest on the notes
issued by Akili to related parties during 2013 and 2014 totalling
$109,000 was converted to 70,460 Series A 2 preferred shares in
December 2014.
All of the outstanding principal and interest on the notes
issued by Tal to related parties during 2011 totalling $321,000 was
converted to 247,747 Series A 2 preferred shares in February
2014.
Directors' and senior managers' shareholdings and share
incentive awards
The Directors and senior managers hold beneficial interests in
shares in the following businesses and sourcing companies as at 31
December 2015:
Number
of shares Number of
held as options
at held as at
Business name 31 December 31 December Ownership
Directors (share class) 2015 2015 interest(1)
---------------------------- --------------------- ------------- ------------- -------------
Akili (Series
Mr. Joichi Ito A--2 preferred) 26,627 - 0.30%
Ms. Daphne Zohar(2) Gelesis (common) 34,444 618,734 5.20%
Dame Marjorie Scardino - - - -
Akili (Series
Dr. Bennett Shapiro(4) A--2 preferred)(3) 33,088 - 0.30%
Gelesis (common) 24,010 10,841 0.50%
Gelesis (Series
A--1 preferred) 23,419 - 0.50%
Tal (Series
A--2 preferred)(3) 14,451 - 0.10%
Vedanta Biosciences
(common) - 25,000 0.50%
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Dr. Robert Langer Entrega (common) - 250,000 5.00%
Enlight (Class
Dr. Raju Kucherlapati B common) 30,000 - 3.00%
Akili (Series
Dr. John LaMattina(4) A--2 preferred) 37,372 - 0.40%
Gelesis (common)(4) 54,120 63,050 1.30%
Gelesis (Series
A--1 preferred)(4) 49,524 - 1.30%
Tal (Series A--2
preferred) 114,411 - 1.20%
Vedanta Biosciences
(common) - 25,000 0.50%
Mr. Christopher Viehbacher - - - -
Mr. Stephen Muniz - - - -
Senior Managers
Dr. Eric Elenko - - - -
Mr. David Steinberg - - - -
---------------------------- --------------------- ------------- ------------- -------------
Notes:
(1) Ownership interests are as at 31 December 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.
(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 through Dr. Bennett M. Shapiro and Ms.
Fredericka F. Shapiro, JTWROS. 49,523 shares of common stock and
49,523 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 businesses: (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 PeerIn in the aggregate principal amount of
$50,000.
Directors and senior managers hold 32,974,173 shares and 13.9%
voting rights of the Company as of 31 December 2015.
Transactions with other related parties
Management services and overhead agreement with a
stockholder
PureTech has entered into an agreement with AZTherapies, Inc. to
provide management services, including operating, legal and
administrative services, as well as office space and infrastructure
services. As compensation for these services, AZTherapies, Inc.
issued 50,000 and 150,000 shares of its common stock to PureTech
during each of the years ended 31 December 2015 and 2014. The value
of these shares was determined based on the fair value of the
services received. The scientific founder and chairman of
AZTherapies, Inc. is Dr. David Elmaleh, Ms. Zohar's father, and is
also a shareholder of PureTech.
24. Taxation
Amounts recognised in profit or loss:
2015 2014
$000s $000s
------------------------------------------- ---------
Net loss (58,244) (75,943)
Income taxes expense/(benefit) 1,924 (278)
-------------------------------- --------- ---------
Net loss before taxes (56,320) (76,221)
-------------------------------- --------- ---------
Recognised income tax expense/(benefit)
2015 2014
$000s $000s
--------------------------------------------- -------
Federal 1,895 36
Foreign 95 73
State (16) 10
------------------------------------- ------ -------
Total current income tax expense 1,974 119
------------------------------------- ------ -------
Federal - -
Foreign (50) (397)
State - -
------------------------------------- ------ -------
Total deferred income tax (benefit) (50) (397)
------------------------------------- ------ -------
Total income tax expense/(benefit),
recognised 1,924 (278)
------------------------------------- ------ -------
Reconciliation of effective tax rate
The Group is primarily subject to taxation in the U.S.,
therefore the reconciliation of the effective tax rate has been
prepared using the U.S. statutory tax rate. A reconciliation of the
U.S. statutory rate to the effective tax rate is as follows:
2015 2014
% %
--------------------------------------------- --------
Weighted average statutory rate 34.00% 34.00%
Effect of state tax rate in U.S. 3.24% 0.90%
Credits 0.27% 0.19%
Share--based payment measurement -0.54% 3.84%
Mark to market adjustments -4.53% -24.39%
Income of partnerships not subject
to tax -3.97% -1.45%
Accretion on preferred shares -2.12% 0.00%
Other -3.92% -1.95%
Current year losses for which no
deferred tax asset is recognised -25.85% -10.78%
----------------------------------- -------- --------
-3.42% 0.36%
--------------------------------------------- --------
The Group is subject to taxation in the U.S. and U.K.
Additionally, the Group is exposed to state taxation in certain
jurisdictions within the U.S. Changes in corporate tax rates can
change both the current tax expense (benefit) as well as the
deferred tax expense (benefit). The maximum corporate tax rate in
the U.S. for the corresponding periods is 35 percent. The Group is
generally subject to a 34 percent rate applicable to smaller
taxpayers.
U.S. corporations are routinely subject to audit by federal and
state tax authorities in the normal course of business. Gelesis is
currently under examination by the IRS for the financial year ended
31 December 2012. The Group does not expect an unfavourable outcome
from this tax audit which would adversely impact the Group's
financial condition, results of operations or cash flows.
Deferred tax assets
Deferred tax assets have not been recognised for the U.S.
amounts in respect of the following items, because it is not
probable that future taxable profit will be available against which
the Group can use the benefits therefrom. Deferred tax assets have
been recognised for the foreign amounts in respect of the following
items:
2015 2014
$000s $000s
---------------------------------------------- -------
Operating tax losses 22,057 11,239
Capital loss carryovers 758 758
Research credits 850 925
Investment in subsidiaries 1,061 791
Other 2,568 550
Share-based payments 7,256 4,253
------------------------------------ -------- -------
Deferred tax assets 34,550 18,516
Other (1,590) (171)
------------------------------------ -------- -------
Deferred tax liabilities 32,960 18,345
Deferred tax assets/(liabilities),
net, recognised - (55)
------------------------------------ -------- -------
Deferred tax assets/(liabilities),
net, not recognised 32,960 18,400
------------------------------------ -------- -------
Deferred tax is measured at the rates that are expected to apply
in the period when the temporary differences are expected to
reverse, based on tax rates and laws that have been enacted or
substantially enacted by the statement of financial position
date.
There were no movements in deferred tax recognised in income or
equity for the United States in 2015 or 2014 as the deferred tax
asset was not recognised in any of those years. There was movement
in deferred tax recognised in income or equity in 2015 and 2014 for
the foreign jurisdiction in the following amounts, respectively
($55,000) and ($412,000).
The Group considers earnings generated from its foreign
subsidiary in Italy to be permanently re-invested, therefore U.S.
taxes have not been provided on undistributed earnings.
Uncertain tax positions
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The changes to uncertain tax positions from 1 January 2014
through 31 December 2015, were as follows:
U.S. Foreign Total
$000s $000s $000s
------------------------------------------- -------- -------
Gross tax liabilities at 1 January
2014 - 53 53
Additions based on tax provisions
related to the current year - 3 3
Additions to tax positions of prior
years - 34 34
Reductions due to settlements with - - -
tax authorities
Reductions for positions of prior - - -
years
-------------------------------------- --- -------- -------
Gross tax liabilities at 31 December
2014 - 90 90
Additions based on tax provisions - - -
related to the current year
Additions to tax positions of prior
years 78 - 78
Reductions due to settlements with - - -
tax authorities
Reductions for positions of prior
years - (57) (57)
-------------------------------------- --- -------- -------
Gross tax liabilities at 31 December
2015 78 33 111
-------------------------------------- --- -------- -------
Included in the balance of uncertain tax positions at 31
December 2015 was approximately $33,000 of unrecognised tax
benefits that, if recognised, would affect the annual effective
income tax rate.
The liability for uncertain tax benefits as of 31 December 2015
and 2014 included accrued interest of $2,000 and $4,000,
respectively.
25. Subsequent events
In January 2016, Akili closed a $30.5 million private equity
financing of which $16 million was received in the initial closing
in January 2016 and $14.5 million is to be received upon the final
closing in September 2016. PureTech invested approximately $11.5
million of the initial closing. PureTech's ownership interest in
Akili remains substantially the same as it was prior to the
financing.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR AKADPNBKBPQK
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