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PureTech Health PLC
11 September 2018
11 September 2018
PureTech Health plc - Half-Year Report
Significant momentum across the Affiliates and Internal
divisions, including two FDA filings, a NASDAQ IPO, financings,
clinical readouts, and a multiyear collaboration with Roche
Solid financial position provides PureTech Health with a strong
platform for continued growth
PureTech Health plc (LSE: PRTC) ("PureTech Health," "PureTech,"
or "the Company"), an advanced biopharmaceutical company, today
announces its half-yearly results for the six months ended 30 June
2018.
PureTech Health, which is comprised of PureTech Health plc and
its subsidiaries (together, "the Consolidated Group"), and its
deconsolidated affiliates (together, "the Group"), is developing
novel medicines for dysfunctions of the Brain-Immune-Gut (BIG)
axis. The Company has developed deep insights into the connection
between the individual components of these systems and the
resulting role in many chronic diseases, which have proven
resistant to established therapeutic approaches. By harnessing this
emerging field of human biology, PureTech Health is developing new
categories of medicines with the potential to have great impact on
people with serious diseases.
PureTech Health is advancing a rich pipeline of innovative
therapies across two divisions: the Affiliates division (inclusive
of deconsolidated affiliates) and the Internal division. Its
Affiliates division includes two product candidates that have been
filed with the US Food and Drug Administration (FDA) for review and
several other novel clinical and pre-clinical programmes. These
affiliates are developing highly innovative platforms and
therapeutic candidates in collaboration with some of the world's
leading experts.
PureTech's Internal division (named Ariya) is advancing a
pipeline fuelled by recent discoveries in lymphatics and immune
cell trafficking to modulate disease in a tissue-specific manner.
These programmes leverage the transport and biodistribution of
various immune system components for the targeted treatment of
diseases with major unmet needs, including cancers, autoimmune and
neuroimmune disorders.
Operational Highlights
PureTech Health has made significant progress across its
Affiliates division.
-- Key clinical and regulatory developments included:
-- Akili and Gelesis filed applications with the US FDA for review of their lead product candidates in
paediatric attention deficit/hyperactivity disorder (ADHD) and weight loss, respectively.
-- In the July 2018 post-period, resTORbio announced positive topline results from a Phase 2b study of its
proprietary target of rapamycin complex 1 (TORC1) inhibitor, RTB101. resTORbio anticipates initiation of a
Phase 3 clinical study in 2019.
-- Karuna developed a single capsule co-formulation of its proprietary combination of trospium chloride and
xanomeline (KarXT), which it intends to use in a Phase 2 clinical trial in schizophrenia that is expected
to begin in the third quarter of 2018.
-- A number of affiliates have also continued to make excellent progress across their clinical pipelines:
-- Gelesis is conducting a Phase 2 study for a second product candidate, Gelesis200, in weight loss and
glycaemic control in people with prediabetes or type 2 diabetes.
-- Akili is advancing a broad pipeline of programmes to treat cognitive deficiency and improve symptoms
associated with medical conditions across neurology and psychiatry, including major depressive disorder
(MDD) and multiple sclerosis.
-- Vedanta Biosciences is completing a Phase 1a/1b clinical trial for VE303, its lead, orally-administered
candidate for the treatment of recurrent C. difficile infection.
-- Sonde has expanded development of its proprietary technology in neurodegenerative disease, respiratory and
cardiovascular disease, and other health and wellness conditions.
-- Follica has made significant progress towards the initiation of a pivotal study in androgenetic alopecia.
-- Affiliates continued to attract equity investments and non-dilutive funding:
-- resTORbio completed an initial public offering (IPO) on NASDAQ, raising gross proceeds of $97.8 million.
-- Akili completed a $55 million financing round to advance its pipeline of prescription digital treatment
candidates. In the August 2018 post-period, Akili announced a $13 million extension of the financing,
bringing the total round to $68 million.
-- Gelesis completed a $30 million financing round to support commercial-stage manufacturing, product launch
preparations, company operations and the clinical advancement of its pipeline of additional product
candidates for gastrointestinal disorders, including type 2 diabetes and non-alcoholic
steatohepatitis/non-alcoholic fatty liver disease (NASH/NAFLD).
-- In the August 2018 post-period, Karuna announced the completion of a $42 million Series A round, including
the issuance of $22 million in shares upon conversion of debt into equity. Proceeds from the financing
will be used to advance its lead product candidate, KarXT (Karuna-xanomeline-trospium chloride), including
the initiation of a Phase 2 trial in patients with schizophrenia in the third quarter of 2018 and the
expansion into other therapeutic areas, including a non-opiate pain indication.
-- As at 30 June 2018, two of these affiliates, Akili and resTORbio, have been deconsolidated from the Group's
financial statements and will now be referred to as deconsolidated affiliates. PureTech Health maintains an
equity stake and a presence on each company's Board of Directors, but it no longer holds a majority equity
position or majority board control in each of these companies.
PureTech Health is also advancing several programmes within its
Internal division. To date, four of these programmes have been
announced. Key developments are as follows:
-- In the July 2018 post-period, PureTech Health announced a collaboration with Roche to advance PureTech's
milk-derived exosome platform technology for the oral administration of Roche's Locked Nucleic Acid (LNA)
antisense oligonucleotide platform, designed to facilitate the oral administration of complex payloads. PureTech
Health will receive up to $36 million in upfront payments, research support, and early preclinical milestones and
is eligible to potentially receive over $1 billion in development milestones.
-- Also in the July 2018 post-period, PureTech's central nervous system (CNS) lymphatics technology was published as
the cover story in Nature. The publication revealed that modulation of lymphatic function in the brain may
prevent or delay diseases associated with aging, including Alzheimer's disease, Huntington's disease and
age-associated cognitive decline.
The Consolidated Group continued to build its leading IP
position, with more than 500 owned and licensed patents and patent
applications. Key newly issued IP includes two patents issued in
the US and Australia broadly covering methods of detecting physical
and psychological conditions through vocal biomarker technology
(Sonde), and two patents issued in the US broadly covering
compositions of matter and other aspects of inflammation-targeting
microfiber materials with embedded molecules of interest
(Alivio).
The Consolidated Group also further strengthened its leadership
with the additions of Joep Muijrers, PhD, as Chief Financial
Officer of PureTech Health; Steven Paul, MD, as Chief Executive
Officer and Chairman of the Board of Karuna (post-period); Harry
Leider, MD, MBA, as Chief Medical Officer of Gelesis; Edward J
"Tad" Stewart as President and Chief Executive Officer of Commense;
Paul Fonteyne, MBA, to the Gelesis Board of Directors; and Thai
Lee, MBA, to the Sonde Board of Directors .
Upcoming Milestones (next 12 months)
Over the next 12 months, the Group anticipates reaching several
key milestones:
-- Akili anticipates results from the AKL-T03 Phase 2 clinical study targeting cognitive dysfunction in depression
in the second half of 2018.
-- Akili anticipates results from the AKL-T03 proof-of-concept clinical study targeting cognitive dysfunction in
multiple sclerosis in the second half of 2018.
-- Follica expects to initiate the pivotal study in androgenetic alopecia following completion of an ongoing
optimisation study in the first half of 2019.
-- Gelesis anticipates results from the Gelesis200 Phase 2 study for weight loss and glycaemic control in people
with prediabetes or type 2 diabetes in 2019.
-- Gelesis expects to initiate proof-of-concept clinical studies in product candidates for NASH/NAFLD in late
2018/early 2019.
-- Karuna expects to initiate the KarXT Phase 2 clinical study in schizophrenia in the third quarter of 2018.
-- Karuna expects to initiate a proof-of-concept study with KarXT for an additional indication in 2019.
-- resTORbio expects to initiate a Phase 3 study of its proprietary TORC1 inhibitor, RTB101, in 2019.
-- resTORbio expects to initiate a proof-of-concept study in a second indication in late 2018/early 2019.
-- Vedanta Biosciences anticipates results from the VE303 (recurrent C. difficile infections programme) Phase 1a/1b
clinical study in healthy volunteers in the second half of 2018. A Phase 2 study of VE303 is expected to begin in
the second half of 2018.
-- Vedanta Biosciences expects the initiation of the VE202 (in collaboration with Janssen Biotech, Inc.) Phase 1
clinical trial in inflammatory bowel disease (IBD) in the second half of 2018.
-- Vedanta Biosciences expects to initiate the VE416 Phase 1b/2 clinical study in food allergy in the second half of
2018.
-- Vedanta Biosciences expects to file an investigational new drug (IND) application for cancer immunotherapy
candidate, VE800, in the first quarter of 2019.
-- The Group also anticipates further clinical progress and potential strategic transactions
Financial Highlights
-- Group cash reserves (APM)1,2 at 30 June 2018 were $416.9 million (31 December 2017: $242.1 million).
-- Consolidated cash reserves2 at 30 June 2018 were $229.2 million (31 December 2017: $188.7 million), of which
$196.7 million (31 December 2017: $126.7 million) was held on a PureTech Health parent company level.
-- In April 2018, PureTech Health successfully raised gross proceeds of approximately $100 million (GBP72 million)
through a placing3.
-- Adjusted loss for the period4 was $46.6 million (30 June 2017: $47.9 million).
1) Group Cash Reserves is an alternative performance measure
(APM) which includes cash reserves held at deconsolidated
affiliates of $187.7 million that are not included in the
consolidated statement of financial position. Group Cash is
therefore considered to be more representative of the Group's cash
available to advance product candidates within the full breadth of
its operations, as the cash held at deconsolidated affiliates not
included in Consolidated Cash Reserves will be invested in
activities that could ultimately result in value accretion for the
Group.
2) Cash reserves includes cash balances, short-term investments,
and long-term investments, but does not include future committed
tranches of previously closed financings which will be received in
future periods.
3) Based on GBP:USD rates at the time of the announcement of the offering of 1.3885
4) Stated before the effect of non-cash charges, including
share-based payments of $3.8 million (30 June 2017: $7.1 million),
depreciation of $0.9 million (30 June 2017: $0.8 million),
amortisation of $0.1 million (30 June 2017: $0.2 million),
impairment of tangible assets of nil (30 June 2017: $0.5 million),
Finance income/(cost) - fair value accounting income of $11.1
million (30 June 2017 - cost of $4.7 million), Finance costs -
subsidiary preferred shares of $0.1 million (30 June 2017 - $6.1
million), non-cash Gain on deconsolidation of subsidiary of $41.7
million (2017 - nil), non-cash Gain on the Disposal of Assets of
$4.0 million (2017 - nil), Loss on investments held at fair value
of $14.3m (2017 - nil), and Share of net loss of associates
accounted for using the equity method of $7.0 million (2017 -
nil).
Commenting on PureTech's half-yearly results, Daphne Zohar,
Co-Founder and Chief Executive Officer of PureTech Health,
said:
"This has been an exciting and fast-paced first half for
PureTech Health, with several material advances and milestones
reached in our Affiliates division, including two FDA filings, a
NASDAQ IPO, significant pipeline progress, and multiple financings.
We also unveiled our Internal division with a focus on lymphatics
and immune cell trafficking and announced a multiyear collaboration
with Roche in the post-period for a therapeutic application of one
of those internal programmes.
"With an additional $100 million in funds raised and the
significant progress made across both divisions, we are well-placed
to execute on our mission to make a difference in human health and
generate value for our shareholders."
Also commenting on PureTech's half-yearly results, Joep
Muijrers, PhD, Chief Financial Officer of PureTech Health,
said:
"With $416.9 million in group cash reserves at the period end,
of which $196.7 million is held at the PureTech Health parent
level, PureTech Health is in a strong position to execute on its
business strategy and generate significant value across its
Affiliates and Internal divisions."
For more information, please contact:
PureTech Health +1 617 456 0032
Daphne Zohar, Chief Executive
Officer
Allison Mead Talbot, Vice President,
Communications and Investor Relations
FTI Consulting (Communications
adviser to PureTech Health) +44 (0) 20 3727 1000
Ben Atwell
Rob Winder
For more information, visit www.puretechhealth.com or connect
with PureTech Health on Twitter and LinkedIn.
This half-yearly results release may contain forward-looking
statements. These statements reflect the Board's current view, are
subject to a number of material risks and uncertainties and could
change in the future. Factors that could cause or contribute to
such changes include, but are not limited to, the general economic
climate and market conditions, as well as specific factors relating
to the financial or commercial prospects or performance of
PureTech's business units. Throughout this half-yearly results
release, PureTech's ownership interests in operating companies are
calculated on a diluted basis, including issued and outstanding
shares, options and warrants, written commitments to issue options
to purchase shares and shares to be issued upon closing of tranched
financings, but excluding unallocated shares authorised to be
issued pursuant to equity incentive plans and any shares issuable
upon conversion of outstanding convertible promissory notes.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) 596/2014.
Interim Management Report
Introduction
PureTech Health was founded with a vision to advance
breakthrough science into promising new medicines for patients.
Each programme was housed in an independent corporate entity, and
cash was raised as needed from internal resources and validating
third-party investors. Over the years, the Group has successfully
executed against this vision by progressing new categories of
medicine for dysfunctions of the BIG Axis through human
proof-of-concept to regulatory review for approval. At the same
time, the Group has also forged strategic relationships with major
pharmaceutical companies and leading academic scientists and
institutions. All of this has been achieved in a capital-efficient
manner while maintaining significant ownership in each entity.
PureTech's proven track record has resulted in deep intellectual
insights and financial resources that now support two paths for the
advancement of new medicines. The first path is through the
Affiliates division, which includes two product candidates that
have been filed with the US FDA for review, as well as multiple
other product candidates that have demonstrated clinical
proof-of-concept. The Affiliates division has access to various
avenues of funding to fuel the affiliates' continued growth,
including potential private rounds of equity financing, IPOs,
strategic transactions and industry partnerships at the global or
regional levels. PureTech's advantageous position of having
significant ownership in the Affiliates division creates near- to
mid-term value as well as a source of non-dilutive funding at the
parent company level.
The second path is through PureTech's newly formed Internal
division, which is advancing internal research and development
projects around lymphatics and immune cell trafficking. Derived
from PureTech's deep understanding of the BIG Axis, these
programmes are focused on novel therapeutic approaches for diseases
with major needs, including cancers, autoimmune diseases and
neuroimmune disorders. To date, PureTech Health has announced four
of the programmes that have been consolidated into this Internal
division, including two programmes that allow the administration of
therapeutics directly into the lymphatic system and a programme
enabling the modulation of lymphocyte trafficking and function
(formerly known as Glyph, Calix, and Nybo), as well as the recently
announced CNS lymphatics technology, which equity investors can
access through shareholding on a PureTech Health parent company
level.
PureTech's two divisions are connected through a shared focus on
the BIG Axis and a mission to address some of the greatest medical
needs. Together with a seasoned management team, an outstanding
Board and leading scientific advisors, the Company has made
excellent progress in 2018 towards executing on this vision.
A selection of notable developments across a few of the
Company's Affiliates and Internal programmes follows below.
Notable Developments
Affiliates division
PureTech's Affiliates division continues to reach key
development milestones, with many additional catalysts anticipated.
Notably, deconsolidated affiliate Akili filed its lead product
candidate, AKL-T01, with the US FDA for review. AKL-T01 is designed
to be prescribed by physicians as a stand-alone treatment for
children and adolescents with ADHD. If approved, AKL-T01 would be
the first prescription digital treatment for paediatric ADHD.
AKL-T01 is just one of several product candidates across Akili's
pipeline that employs its patented technology platform. A number of
other digital treatments are in development across neurology and
psychiatry, including in major depressive disorder (MDD), multiple
sclerosis (MS), autism spectrum disorders and various other
conditions. By the end of 2018, Akili expects results from both a
Phase 2 study in MDD and a pilot study in MS.
To support this robust pipeline of prescription digital
treatment candidates, Akili announced a $55 million financing round
in May, and in the August 2018 post-period, Akili announced a $13
million extension of the financing, bringing the total round to $68
million.
Gelesis has also filed its lead product candidate, Gelesis100,
with the US FDA for review. Gelesis100 is a new approach to weight
loss that is designed to employ multiple mechanisms of action along
the gastrointestinal (GI) tract to promote satiety, induce weight
loss and promote GI health. In September 2017, Gelesis reported
positive topline results from a pivotal trial of Gelesis100.
Additional data from this study will be presented in November 2018
at ObesityWeek, the joint annual meetings of the American Society
for Metabolic & Bariatric Surgery (ASMBS) and The Obesity
Society (TOS).
The Gelesis mechanobiology platform also supports additional
product candidates, including Gelesis200, which is currently being
evaluated in a proof-of-concept study for weight loss and glycaemic
control in patients with type 2 diabetes (T2DM) and prediabetes.
Results from this study are expected in 2019. Additional hydrogel
compositions based on the platform are being explored in other
GI-related conditions such as NAFLD, NASH and intestinal mucositis.
A proof-of-concept study in NASH/NAFLD is anticipated to begin in
late 2018 or early 2019.
In March 2018, Gelesis announced that it had closed a $30
million financing round to support commercial-stage manufacturing,
product launch preparations, company operations and clinical
advancement of this broad pipeline. The funds from this financing
will be drawn down by Gelesis at its discretion.
Deconsolidated affiliate resTORbio announced the pricing of its
IPO on NASDAQ in January 2018, raising gross proceeds of $97.8
million. In the July 2018 post-period, resTORbio announced positive
topline results from its dose-ranging Phase 2b clinical trial in
elderly patients at increased risk of morbidity and mortality
associated with respiratory tract infections (RTIs). In this trial,
RTB101, an oral, selective, and potent inhibitor of TORC1,
demonstrated a statistically significant and clinically meaningful
reduction in the percentage of patients with one or more
laboratory-confirmed RTIs during the 16-week treatment period
compared to placebo, the primary endpoint of the study, with the 10
mg once daily dose. Greater TORC1 inhibition with RTB101 10 mg in
combination with everolimus 0.1 mg did not meet the primary
endpoint, suggesting that less TORC1 inhibition with RTB101 10 mg
once daily may have greater benefit in high-risk elderly patients.
A pre-specified analysis of patient subgroups resulted in the
following decreases in the percentage of patients with
laboratory-confirmed RTIs in the RTB101 10 mg once daily cohort as
compared to the placebo cohort: 68.4 percent decrease in all asthma
patients (p=0.0002); 66.7 percent decrease in all patients 85 years
of age and older (p=0.007); and 26.9 percent decrease in all T2DM
patients (p=0.020). Additionally, a 42.0 percent decrease in all
patients was observed when excluding patients with chronic
obstructive pulmonary disease (COPD) (p=0.002) and a 43.9 percent
decrease in all patients was observed when excluding current
smokers (p=0.001). No decrease was observed in either COPD patients
or current smokers. All doses were observed to be
well-tolerated.
Based on these results, resTORbio plans to initiate a Phase 3
study in 2019, and additional 24-week data from the Phase 2b study
will be released in the second half of 2018. The company also plans
to initiate a proof-of-concept study in a second indication in late
2018 or early 2019.
Karuna has made significant progress towards the initiation of a
Phase 2 study in schizophrenia with its proprietary product
candidate, KarXT. The company successfully completed development of
a co-formulation of xanomeline and trospium chloride and
anticipates initiation of the Phase 2 study in the third quarter of
2018. To support these efforts, Karuna announced the completion of
a $42 million Series A financing round, including the issuance of
$22 million in shares upon conversion of debt into equity, in the
August 2018 post-period. The proceeds will also be used to expand
Karuna's platform into other therapeutic areas, including
non-opiate-based pain management. Karuna also expects to initiate a
proof-of-concept clinical study for an additional indication in
2019.
Vedanta Biosciences has rapidly advanced its pipeline of
rationally-defined bacterial consortia-based product candidates and
expects to report results in the second half of 2018 from a Phase
1a/1b clinical trial for VE303, its lead, orally-administered
candidate for the treatment of recurrent C. difficile infection
(rCDI). A Phase 2 study is planned for the second half of 2018.
Also, in the second half of the year, Vedanta Biosciences expects
the initiation of two additional clinical studies: a Phase 1a/b in
inflammatory bowel disease (VE202, in collaboration with Janssen
Biotech, Inc.) and a Phase 1b/2 in food allergy (VE416). Vedanta
Biosciences also plans to submit an investigational new drug (IND)
application for its lead immunotherapy candidate, VE800, in the
first quarter of 2019.
In the July 2018 post-period, Vedanta Biosciences announced a
financial award from the Crohn's & Colitis Foundation, a
non-profit organisation dedicated to finding the cures for Crohn's
disease and ulcerative colitis, to advance a new microbiome-derived
therapeutic programme for the treatment and potential interception
of IBD. This new IBD programme, which is outside of the scope of
the partnership with Janssen, aims to target pathogenic bacterial
strains that are particularly abundant in Crohn's disease and may
lead to the onset of IBD. The programme is being advanced in
collaboration with Dr Kenya Honda, MD, PhD, Professor, Keio
University School of Medicine and a scientific co-founder of
Vedanta Biosciences.
In April 2018, a preclinical study of Alivio's
inflammation-responsive technology was published in Nature
Communications. The study showed that an immunomodulatory drug,
administered locally using the Alivio inflammation-responsive
technology, substantially reduced measures of arthritis disease
activity. By the last day of the study (day 14), the Alivio
technology had reduced nearly all of the inflammation in the
affected tissue, with a 5.7-fold improvement in the clinical score
vs control, as compared to only 1.4-fold for the free drug. These
findings further support Alivio's proprietary therapeutics platform
and provide proof-of-concept for the potential application of the
technology in inflammatory arthritis.
Additionally, the United States Patent and Trademark Office
granted two key patents broadly covering the Alivio platform. The
patents broadly cover compositions of matter and other aspects of
the inflammation-targeting microfiber materials with embedded
molecules of interest and lay a strong foundation to expand the
intellectual property portfolio for this technology platform.
Sonde has advanced its vocal biomarker technology, which has
demonstrated the potential to effectively screen and monitor for
disease using information obtained from an individual's voice on
commonly-owned devices. Sonde's made its scaleable cross-platform
mobile research app and administrator interface available to
academic collaborators and study participants. Sonde generated and
analysed voice data from over 3,000 subjects for the detection of
depression, suicidality and Parkinson's disease. Sonde has also
initiated research and development to expand its proprietary
technology in Alzheimer's disease, respiratory and cardiovascular
disease and other health and wellness conditions.
Follica has made good progress towards the initiation of a
pivotal study in androgenetic alopecia. The completion of an
optimisation study is anticipated in the first quarter of 2019 and
a pivotal study is expected to begin shortly thereafter in the
first half of 2019.
Internal division
PureTech Health has also been advancing internal research and
development projects around lymphatics and immune cell trafficking
for the past two years. These programmes leverage the transport and
biodistribution of various immune system components for the
targeted treatment of diseases with major unmet needs, including
cancers, autoimmune diseases and neuroimmune disorders. This work
has reached an inflection point, generating compelling preclinical
data and key intellectual property, so it has been consolidated
into a separate Internal division. To date, four of the programmes
within this Internal division have been announced, including two
programmes that allow the administration of therapeutics directly
into the lymphatic system and a programme enabling the modulation
of lymphocyte trafficking and function (formerly known as Glyph,
Calix, and Nybo)
In the July 2018 post-period, PureTech Health announced a
multiyear collaboration with Roche to advance one of these
programmes - a milk exosome-based technology designed to facilitate
the oral administration of complex payloads such as nucleic acids,
peptides and small molecules into the lymphatic system. Under the
terms of the agreement, PureTech Health will receive up to $36
million, including upfront payments, research support and early
preclinical milestones, to advance this technology for the oral
administration of Roche's LNA antisense oligonucleotide platform.
PureTech Health is also eligible to receive development milestone
payments of over $1 billion, in addition to sales milestones and
royalties.
Also in the July 2018 post-period, the foundational science that
underlies the Company's internal CNS lymphatics technology was
published as the cover story in the prestigious scientific journal
Nature. The publication revealed that modulation of lymphatic
function in the brain may prevent or delay diseases associated with
aging, including Alzheimer's disease, Huntington's disease and
age-associated cognitive decline. The approach is based on the work
of PureTech Health collaborator Jonathan Kipnis, PhD, Harrison
Distinguished Teaching Professor and Chair, Department of
Neuroscience, and Director, Center for Brain Immunology and Glia,
at the University of Virginia (UVA) School of Medicine. Exclusively
licensed from the UVA Licensing & Ventures Group, the
technology will be developed by PureTech Health in collaboration
with Dr Kipnis to potentially address debilitating and devastating
CNS disorders.
People
PureTech Health and its affiliates continue to attract top
talent at all levels across the organisation and has added more
than 35 full-time team members in the first half of 2018 (excludes
new hires at deconsolidated affiliates, Akili and resTORbio) to
support the ongoing clinical and preclinical development within the
Affiliates and Internal divisions.
The Company has also grown its leadership team with the
appointment of Joep Muijrers, PhD, as Chief Financial Officer. Dr
Muijrers joined PureTech Health after 11 successful years as a
Partner and Portfolio Manager at LSP (Life Sciences Partners), a
leading trans-Atlantic investor group with exclusive focus on life
sciences. Dr Muijrers brings two decades of experience in corporate
and capital finance, specifically focused on public market
investment, M&A, portfolio management, strategic asset
allocation, financial and regulatory reporting and fundraising. In
his previous role at LSP, Dr Muijrers was responsible for investing
in publicly-traded life sciences companies, a strategy that
generated a total return in excess of 900 percent during the past
decade, more than twice the return of the Nasdaq Biotechnology
Index during the same period. Prior to joining LSP, Dr Muijrers
served as Director Corporate Finance and Capital Markets at Fortis
Bank, currently part of ABN AMRO.
At the end of August 2018, the team bid farewell to Chief
Innovation Officer, David Steinberg, who has been with PureTech
Health since founding and has made important contributions to the
Group. PureTech Health will not be seeking a replacement and Mr
Steinberg's responsibilities across the two divisions will be
covered by PureTech's Chief Scientific Officer, Joe Bolen, PhD, and
PureTech's Chief of Research and Strategy, Eric Elenko, PhD.
Steinberg will remain an esteemed member of the Company's
collaborator network and the Company thanks him for all of his
contributions.
PureTech Health affiliates have also welcomed distinguished
leaders to their teams and boards, including:
-- Steven Paul, MD, Karuna Chief Executive Officer and Chairman of the Board (post-period): Dr Paul spent 17 years
at Eli Lilly and Company (NYSE: LLY), during which time he held several key leadership roles, including Executive
Vice President for Science and Technology and President of the Lilly Research Laboratories, where he was
responsible for the company's overall research and development efforts for CNS drugs such as Zyprexa(R) and
Cymbalta(R). At Lilly, Dr Paul also helped oversee the development of xanomeline where its antipsychotic and
procognitive properties were initially demonstrated. Prior to Lilly, Dr Paul spent 18 years at the National
Institute of Health (NIH) and served as the Scientific Director of the National Institute of Mental Health
(NIMH). Dr Paul is a Co-founder and Board Member of Sage Therapeutics (NASDAQ: SAGE), a Co-founder of Voyager
Therapeutics (NASDAQ: VYGR) where he served as President, Chief Executive Officer, and member of the Board of
Directors and a member of the Board of Directors at Alnylam Pharmaceuticals (NASDAQ: ALNY). Dr Paul is the former
Director of the Appel Alzheimer Disease Research Institute at Weill Cornell Medical College and is currently an
Adjunct Professor of Psychiatry at Washington University of St Louis School of Medicine.
-- Harry Leider, MD, MBA, Gelesis Chief Medical Officer: Dr Leider served as Chief Medical Officer and Group Vice
President at Walgreens (the second-largest pharmacy store chain in the US) since 2013, where he provided
executive leadership for all clinical programme development, quality assessment, health outcomes research, health
analytics and clinical reporting activities across the enterprise. He also led a team that evaluated new
healthcare technologies and services. His previous leadership positions include serving as Chief Medical Officer
of Ameritox, XLHealth, and HealthNet, in addition to serving as a physician executive at Harvard Pilgrim Health
Plan for six years. Dr Leider is on the editorial boards of Physician Executive and the Journal of Population
Health Management. He is also a founding board member of the Disease Management Association of America (DMAA) and
served on the board of the Institute of Aging at the University of Pennsylvania. Dr Leider also served for six
years as an attending physician at Brigham and Women's Hospital and faculty member at Harvard Medical School.
More recently, Dr Leider was a faculty member at the Johns Hopkins Carey School of Business and has been a senior
advisor to PureTech Health since 2015.
-- Edward J "Tad" Stewart, MBA, Commense President and Chief Executive Officer: Mr Stewart joined Commense with more
than 20 years of experience in the biotechnology industry, combining a unique blend of partnership, licensing,
and business development expertise. Mr Stewart previously served as Senior Vice President of Business Development
and Head of Commercial Business at Merrimack Pharmaceuticals, a biopharmaceutical company based in Cambridge,
Massachusetts, where he oversaw and managed commercial business development efforts. Under Mr Stewart's
leadership, the company executed multiple partnership and licensing deals with a total value in excess of $1.5
billion and successfully launched ONIVYDE(R), which was sold to Ipsen in a 2017 transaction valued at $1.025
billion.
-- Paul Fonteyne, MBA, Gelesis Board of Directors: Mr Fonteyne brings a wealth of experience in commercial,
marketing and general management functions to the Gelesis Board of Directors. Mr Fonteyne is Chairman of
Boehringer Ingelheim USA. He also most recently served as President and CEO of Boehringer Ingelheim USA and as a
board member of the Pharmaceutical Research and Manufacturers of America (PhRMA) Industry Association until March
2018. From 2009 to 2011, Mr Fonteyne served as Senior Corporate Vice President, Prescription Medicines Marketing
at Boehringer Ingelheim GmbH. From 2003 to 2008 he served as Executive Vice President, Head of Marketing and
Sales, Prescription Medicines at Boehringer Ingelheim Pharmaceuticals Inc. Prior to his work at Boehringer
Ingelheim, Mr Fonteyne served as Regional Vice President, Sales and as Vice President, Marketing at Merck & Co.,
Inc. and held various leadership roles with Abbott Laboratories, Inc.
-- Thai Lee, MBA, Sonde Board of Directors: Ms Lee is recognised as a prominent business leader in the information
technology industry and brings more than two decades of experience to Sonde's Board of Directors. Ms Lee
currently serves as President and Chief Executive Officer of SHI International Corporation. Under Ms Lee's
management, SHI has transformed from a $1 million software reseller to a $10 billion in annual sales global
provider of information technology products and solutions with 35 offices around the world. Ms Lee serves on the
Board of Dean's Advisors at Harvard Business School and is a Life Trustee at Amherst College.
Financial review
In the first half of 2018, PureTech Health continued to
prudently deploy its cash reserves to advance both its affiliate
and internal pipeline. The Company has progressed research and
clinical activities across the pipeline in line with its forecasted
expectations and continues to invest in infrastructure to support
the potential launches (pending regulatory approval) of both
Gelesis100 for the treatment of obesity and AKL-T01 for the
treatment of paediatric ADHD.
Additionally, the Company continued to attract capital both at
PureTech Health and the Affiliates division. $97.5 million (net)
proceeds were raised at the PureTech Health level as part of the
April Offering which will be used to advance both the Affiliates
and Internal divisions. In addition to the PureTech raise, $187.0
million was attracted from third party, validating financial and
strategic investors across the Group in the first half of 2018,
resulting in total attracted capital for the Group of $284.5
million. This included resTORbio's Initial Public Offering (IPO),
which generated $97.8 million of proceeds (including PureTech's
$3.5 million investment).
2018 2017
(30 June) (31 December)
$ millions $ millions
---------------------------------------- ----------- ---------------
Cash Reserves
Group Cash Reserves (APM)(1) 416.9 242.1
Consolidated Group Cash Reserves(2) 229.2 188.7
PureTech Health Level Cash Reserves(2) 196.7 126.7
H1 2018 H1 2017
$ millions $ millions
---------------------------------------- ----------- ---------------
Results of Operations
Revenue 5.0 0.7
Operating Loss (52.3) (57.0)
Adjusted Operating Expenses (APM)(3) (52.5) (49.1)
Adjusted Operating Loss (APM)(3) (47.5) (48.4)
Loss for the Period (16.0) (67.3)
Adjusted Net Finance Income (4) 1.3 0.5
Adjusted Loss for the Period (APM)(5) (46.6) (47.9)
---------------------------------------- ----------- ---------------
1) Group Cash Reserves is an alternative performance measure
(APM) which includes cash reserves held at deconsolidated
affiliates of $187.7 million that are not included in the
consolidated statement of financial position. Group Cash is
therefore considered to be more representative of the Group's cash
available to advance product candidates within the full breadth of
its operations, as the cash held at deconsolidated affiliates not
included in Consolidated Cash Reserves will be invested in
activities that could ultimately result in value accretion for the
Group.
2) Cash reserves includes cash balances, short-term investments
and long-term investments, but does not include future committed
tranches of previously closed financings which will be received in
future periods.
3) Adjusted Operating Expenses and Operating Loss are
alternative performance measures (APM) which represents the
Operating loss stated before the effect of non-cash items,
including a share-based payment of $3.8 million (30 June 2017: $7.1
million), depreciation of $0.9 million (30 June 2017: $0.8
million), amortisation of $0.1 million (30 June 2017: $0.2 million)
and impairment of tangible assets of nil (30 June 2017: $0.5
million). Non-cash items are excluded due to the fact that the
Group's businesses require the cash investment in order to operate
and continue with their R&D activities. Adjusted Operating Loss
is therefore considered to be an appropriate alternative
performance measure, as it is more representative of the operating
performance of the Group.
4) Adjusted Net Finance Income/(Cost) is an alternative
performance measure (APM) which represents the Net finance
income/(cost) stated before the effect of non-cash mark-to-market
accounting including the Finance income/(cost) - fair value
accounting income of $11.1 million (30 June 2017 - cost of $4.7
million), and Finance costs - subsidiary preferred shares of $0.1
million (30 June 2017 - $6.1 million).
5) Stated before the non-cash charges discussed in footnote 3
and 4 above, Adjusted Loss for the Period is also adjusted for the
non-cash Gain on deconsolidation of subsidiary of $41.7 million
(2017 - nil), the non-cash Gain on the Disposal of Assets of $4.0
million (2017 - nil), the Loss on investments held at fair value of
$14.3 million (2017 - nil) and Share of net loss of associates
accounted for using the equity method of $7.0 million (2017 - nil).
Adjusted loss for the period is considered to be an appropriate
alternative performance measure due to the exclusion of non-cash
activity, as it is more representative of the operating performance
of the Group.
Result of Operations
Revenue
Revenue in the first half of 2018 relates primarily to Vedanta's
CARB-X grant award, Entrega's research collaboration with Eli
Lilly, and deferred revenue recognition related to Entrega's
collaboration with Google. Given that both the CARB-X award and Eli
Lilly research collaboration were executed in the second half of
2017, they represent the majority of the increase in revenue
compared to the first half of 2017. Future revenues may be earned
under existing and new license and collaboration agreements (such
as the Roche collaboration agreement which was executed in the
second half of 2018) and may include non-refundable license fees.
Management evaluates opportunities to enter new license and
collaboration agreements with the aim of balancing the value of
these partnerships and retaining ownership in our programmes to
achieve meaningful milestones. Revenue from license and
collaboration agreements during the development and approval period
is typically driven by achievement of contractual milestones, which
tend to be event-driven. Furthermore, grant revenues are typically
associated with specific deliverables that have finite timelines.
Therefore, significant period to period changes in revenue are to
be expected and are not necessarily indicative of the Consolidated
Group's overall revenue trend.
Operating expenses
Adjusted Operating Expenses (before the impact of the non-cash
items noted in footnote 3 of the Results of Operations Schedule
above) increased 7 percent on a year-over-year basis. The largest
driver of the increase during the first half of 2018 related to an
increase in General and Administrative spending, which is a result
of the pre-launch preparations for Akili and additional costs
related to Vedanta Biosciences as well as PureTech Health, which
grew in line with expectations. Adjusted Research & Development
Expense (APM)(1) grew by 2 percent on a year-over-year basis.
The 2017 Adjusted Operating Expenses included resTORbio, which
was deconsolidated as of November 2017, and six months of expense
for Akili, which was deconsolidated as of 8 May 2018. Excluding
these two entities in both periods, Adjusted Operating Expenses
increased by 22 percent, which included a 25 percent increase to
research and development expenses an 18 percent increase to general
and administration costs. Research and development expense growth
excluding these two subsidiaries was mainly driven by Vedanta
Biosciences and the Internal division.
The Directors anticipate that operating expenses, particularly
research and development-related expenses, will continue to
increase as the Consolidated Group advances its pipeline. These
operating expenses will include regulatory activities, preparation
for the commercial launch of Gelesis, clinical and preclinical
studies, intellectual property registration, and the cost of
acquiring, developing, and manufacturing clinical study materials.
General and administrative costs, consisting primarily of
personnel-related costs, lease costs, and professional fees, are
anticipated to grow as well, and are primarily attributed to both
marketing and sales efforts for Gelesis as well as increases in
overall corporate expenses.
1) Adjusted Research & Development Expenses is an
alternative performance measures (APM) which represents the
Research & Development Expense stated before the effect of
non-cash items, including a share-based payment of $1.1 million (30
June 2017: $3.0 million), depreciation of $0.1 million (30 June
2017: $0.3 million), and impairment of tangible assets of nil (30
June 2017: $0.5 million). Non-cash items are excluded due to the
fact that the Group's businesses require the cash investment in
order to operate and continue with their R&D activities.
Adjusted Research & Development Expense is therefore considered
to be an appropriate alternative performance measure, as it is more
representative of the research spending of the Group.
Net finance income/(cost)
The Consolidated Group's results of finance activities before
consideration of the items noted in footnote 4 of the Results of
Operations Schedule above, was a modest net finance income
consistent with the prior year. The income in both periods is
related to interest received on short-term investments held at
PureTech Health and certain subsidiaries. The Consolidated Group,
as described below, has adopted a conservative cash management
policy and invested the significant cash reserves generated since
the IPO in US Treasuries, which resulted in $1.4 million of income
from interest earned on those securities.
On 1 January 2018 the Consolidated Group adopted IFRS 9. Under
IFRS 9, the Consolidated Group reassessed certain financial
instruments and whether it qualified for fair value accounting, and
concluded that it did qualify. As a result of the adoption of IFRS
9, there was a cumulative effect adjustment to equity of $12.2
million. The net finance income in the first half of 2018 was
mainly attributable to fair value adjustments associated with
third-party financial instruments including preferred stock,
convertible notes, and warrants held at the subsidiary level.
Consistent with IAS 39, when the Consolidated Group realises a
change in the value of the subsidiaries that are consolidated for
accounting purposes, income or expense will be recognised when
there are external preferred shareholders. The Consolidated Group
continues to hold certain financial instruments at amortised cost,
resulting in modest costs categorized as Finance cost - subsidiary
preferred shares. These costs are expected to be insignificant in
future periods.
The income generated within Finance income/(costs) - fair value
accounting during 2018 is a result of the reduction of the fair
value liability, which is primarily attributable to a decrease in
the third-party liability for Akili. The third party liability
attributable to the Akili shares decreased as a result of the
Series C proceeds having first order liquidation preference,
decreasing the fair value of the other outstanding preferred
securities. Excluding Akili, the fair value of liabilities
increased by $3.7 million, attributable to the growth in the
underlying value of the subsidiaries.
The balance of subsidiary preferred stock held by external
parties, and therefore the related balance of the aggregate
liquidation preference, decreased during the first half of 2018 due
to the deconsolidation of Akili and the asset sale of The Sync
Project to Bose Corporation, which was partially offset by new
issuances of Growth 2 Preferred Stock by Gelesis.
Refer to notes 9, 10, and 11 in the financial statements for
more information.
Deconsolidation of Akili Interactive Labs
In May 2018, Akili completed the first closing of its Series C
Preferred Stock financing, which resulted in PureTech's voting
ownership percentage related to Akili reduced to 44.7 percent,
triggering deconsolidation. Although PureTech Health does not
control Akili, PureTech Health maintains significant influence over
the company's strategy and the direction of the company by virtue
of its large, albeit non-majority, ownership stake and continued
representation on Akili's Board of Directors.
Upon deconsolidation, PureTech Health recognised the fair value
of the Series A-1, Series A-2, and Series B Preferred Stock
(collectively the "Akili Preferred Stock") held in Akili, resulting
in a gain of $41.7 million. The Akili Preferred Stock was
classified as an Investments held at fair value upon
deconsolidation. Akili did not realise additional gains related to
the growth in the fair value of the stock between the
deconsolidation and 30 June 2018 given the short duration between
the Series C financing and the reporting date. PureTech Health does
not hold common stock in Akili and therefore is not subject to
equity method accounting under IAS 28.
Subsequent to the period, on 9 August 2018, Akili completed a
second closing of its Series C Preferred Stock financing, which
raised an additional $13.0 million. This resulted in PureTech's
voting ownership decreasing to 41.9 percent. PureTech Health will
continue to account for the Akili Preferred Stock as an Investments
held at fair value until such a time the Akili Preferred Stock is
converted to common stock.
Refer to note 3 in the financial statements for further
information.
Financial Position
2018 2017
(30 June) (31 December)
$ millions $ millions
Total non-current
assets 225.1 141.7
Total current assets 209.8 198.1
------------------------------ ------ ---------------
Total assets 434.9 339.8
------------------------------ ------ ---------------
Non-current liabilities 1.9 2.0
Total current liabilities(1) 216.0 273.9
------------------------------ ------ ---------------
Total liabilities(2) 217.8 275.8
------------------------------ ------ ---------------
1) Included in current liabilities are $202.4 million related to
non-cash liabilities associated with the fair value of financial
instruments held by third parties under IFRS 9 as of 30 June 2018,
and $254.9 million related to non-cash liabilities related to the
derivatives, warrants and preferred shares under IAS 39 at 31
December 2017.
2) Number do not add up due to rounding
Cash and short-term investments make up a significant portion of
the Consolidated Group's current assets of $209.8 million. Amounts
that cannot be immediately deployed have been used to purchase US
Treasuries with durations of less than two years. The consolidated
cash reserves, consisting of cash, cash equivalents and US
Treasuries, which are classified as both long and short term, were
$229.2 million at 30 June 2018 (31 December 2017 - $188.7 million).
Of this amount, $196.7 million (31 December 2017 - $126.7 million)
of cash reserves is held at the PureTech Health level to fund
activities of the Group, including supporting future activities of
the subsidiaries, progressing affiliate programmes toward
meaningful milestone events, funding the internal pipeline, and
maintaining an appropriate infrastructure.
Other significant items impacting the Consolidated Group's
financial position include:
-- Investments held at fair value and Investments in associates increased by $52.8 million to $184.2 million
primarily driven by the deconsolidation of Akili but partially offset by the fair value decrease and equity
method accounting of the Series A Preferred Stock in resTORbio, which was converted to common stock at the time
of resTORbio's IPO. PureTech holds 9,800,396 shares of resTORbio publicly traded on the NASDAQ.
-- Non-current assets include $29.7 million of US Treasuries with a duration greater than one year, which are
included in the consolidated and PureTech Health level cash reserves.
-- Current liabilities decreased to $216.0 million, primarily as a result of the deconsolidation of Akili and were
partially offset by the issuance of preferred stock to Gelesis and an increase in the fair value of financial
instruments held by third parties.
Cash Flows
H1 2018 H1 2017
$ millions $ millions
Net cash outflow from operating
activities (44.2) (44.6)
Net cash inflow/(outflow) from
investing activities (43.2) 40.2
Net cash inflow from financing
activities 104.8 11.6
As noted above, the Consolidated Group increased spending as
expected, with increases in both research and development costs as
well as general and administrative costs to support launch
activities and corporate activities during the first half of 2018.
The Directors anticipate that the Consolidated Group's funds will
be sufficient to continue to progress both the deconsolidated
affiliates and Affiliates division programmes to meaningful
milestone events, invest in the Internal division through 2020 and
to fund infrastructure costs through 2021. The Consolidated Group's
net operating cash outflow reflects the payment of operating
expenses which, with the exception of the non-cash charges
highlighted in footnotes 3, 4, and 5 of the Results of Operations
Schedule, are cash based. Offsetting operating cash inflows were
primarily driven by interest earned on US Treasuries.
The net cash outflow from investing activities during the first
half of 2018 relates to investments in US Treasuries with durations
of less than two years as well as the deconsolidation of Akili's
cash balance as of 8 May 2018 which totalled $13.4 million. In
addition, PureTech Health invested $3.5 million in resTORbio's IPO
and the Consolidated Group expended $2.0 million for property and
equipment.
The net cash inflow from financing activities during the first
half of 2018 primarily relates to the April 2018 Offering completed
by PureTech Health, generating gross proceeds of GBP72 million
(approximately $100 million based on exchange rates at the time of
the announcement of the transaction). Existing shareholder, Invesco
Asset Management Limited, participated in the Offering purchasing
14,365,000 ordinary shares at the placing price of 160 pence per
share. Based on the exchange rates at the time of the completion of
the transaction, the gross proceeds of GBP72 million translated
into $101.2 million. There were approximately $3.7 million of
transaction costs associated with the Offering, resulting in net
proceeds of $97.5 million. In addition to the PureTech Offering,
Gelesis received $8.5 million as part of their Series Growth 2
Preferred financing. Offsetting the two aforementioned cash inflows
was an outflow of $1.1 million related to distribution to
third-party Sync preferred shareholders as a result of the asset
purchase by Bose Corporation.
The Consolidated Group is focused on maintaining liquidity as
well as capital preservation of investments. As a result, surplus
cash reserves have been placed in highly-rated, short duration
vehicles, primarily US Treasuries with maturities under two years.
The Consolidated Group monitors market conditions to manage any
risk to the investment portfolio and investigates opportunities to
increase the yield on the amounts invested, while maintaining the
Consolidated Group's liquidity and capital preservation objectives.
At 30 June 2018, the Consolidated Group had $1.9 million of cash
reserves held in Euros. These cash reserves are used to fund the
operation of Gelesis' Italian manufacturing and research and
development subsidiary. The Directors believe it is prudent to have
these cash reserves denominated in Euros to fund operations.
Principal Risks and Uncertainties
The principal risks and uncertainties surrounding the Group's
business are set out in detail in the Risk Management section of
the Strategic Report included in the 2017 Annual Report and
Accounts. Those risks and uncertainties include, but are not
limited to, the following factors:
Technical Risk: 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 businesses may fail or not succeed as
anticipated, potentially resulting in significant decline of the
Group's value.
Clinical Trial Risk: Clinical trials and other tests to assess
the commercial viability of a product candidate 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.
Regulatory Risk: 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. The Group may not obtain regulatory
approval for its products. Moreover, approval in one territory
offers no guarantee that regulatory approval will be obtained in
any other territory. 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.
Safety Risk: 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, 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.
Reimbursement and Commercial Risk: 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 sufficiently strong 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 Group. 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
Group.
Intellectual Property Risk: The Group may not be able to obtain
patent protection for some of its products or maintain the secrecy
of its trade secrets and know-how. If the Group is unsuccessful in
doing so, others may market competitive 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 Group licenses certain
intellectual property rights from third parties. If the Group fails
to comply with its obligations under these agreements, it may
enable the other party to terminate the agreement. This could
impair the Group's freedom to operate and potentially lead to third
parties preventing it from selling certain of its products.
Profitability Risk: The Group expects to continue to incur
substantial expenditure in further research and development
activities. There is no guarantee that the Group will become
profitable, either through commercial sales, strategic partnerships
or sales of a business, and, even if it does so, it may be unable
to sustain profitability.
Personnel Risk: 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.
A copy of the 2017 Annual Report and Accounts is available on
the Company's website at www.puretechhealth.com under "Investors -
Reports & Presentations."
Condensed Consolidated Statement of Income/(Loss) and Other
Comprehensive Income/(Loss)
For the Six Months Ended 30 June
2018 2017
-------- --------
Unaudited
--------------------------------------------------- ----- ------------------
Notes $'000 $'000
Revenue from customers 1,711 625
Grant revenue 3,266 40
---------------------------------------------------- ----- -------- --------
Total revenue 4,977 665
Operating expenses:
General and administrative expenses (24,059) (22,294)
Research and development expenses (33,258) (35,391)
---------------------------------------------------- ----- -------- --------
Operating loss (52,340) (57,020)
Other income/(expense):
Gain on deconsolidation of subsidiary 3 41,730 -
Loss on investments held at fair value 3 (14,308) -
Gain on sale of assets 14 4,039 -
Other expense (468) -
---------------------------------------------------- ----- -------- --------
Other income 30,993 -
Finance income/(costs):
Finance income 1,368 728
Finance costs - subsidiary preferred shares (106) (6,050)
Finance costs - contractual (115) (217)
Finance income/(costs) - fair value accounting 11,147 (4,668)
---------------------------------------------------- ----- -------- --------
Net finance income/(costs) 7 12,294 (10,207)
Share of net loss of associates accounted
for using the equity method 3 (7,007) -
Loss before taxes (16,060) (67,227)
---------------------------------------------------- ----- -------- --------
Loss before taxes pre IFRS 9/IAS 39 fair
value accounting, finance income/(costs)
- subsidiary preferred shares, share-based
payment expense, depreciation of tangible
assets and amortisation of intangible assets (22,344) (47,911)
Finance costs - subsidiary preferred shares (106) (6,050)
Finance income/(costs) - IFRS 9/IAS 39 fair
value accounting 11,147 (4,668)
Share-based payment expense (3,755) (7,126)
Impairment of tangible assets - (454)
Depreciation of tangible assets (912) (787)
Amortisation of intangible assets (90) (231)
Loss before taxes (16,060) (67,227)
---------------------------------------------------- ----- -------- --------
Taxation 8 68 (113)
---------------------------------------------------- ----- -------- --------
Loss for the period (15,992) (67,340)
Other comprehensive income/(loss)
Items that are or may be reclassified as
profit or loss:
Gain/(loss) on investments held at fair value (85) 257
Foreign currency translation differences (127) 227
---------------------------------------------------- ----- -------- --------
Total other comprehensive income/(loss) (212) 484
Total comprehensive loss, net of tax (16,204) (66,856)
---------------------------------------------------- ----- -------- --------
Loss attributable to:
Owners of the Company (7,999) (42,193)
Non-controlling interests 12 (7,993) (25,147)
---------------------------------------------------- ----- -------- --------
(15,992) (67,340)
Comprehensive loss attributable to:
Owners of the Company (8,211) (41,709)
Non-controlling interest 12 (7,993) (25,147)
---------------------------------------------------- ----- -------- --------
(16,204) (66,856)
Loss per share:
Basic loss per share 5 ($0.03) ($0.18)
Diluted loss per share 5 ($0.03) ($0.18)
See accompanying notes to the condensed consolidated interim
financial statements
Condensed Consolidated Statement of Financial Position
As of the Period Ended
31 December
30 June 2018 2017
------------ -----------
Unaudited Audited
------------ -----------
Notes $'000 $'000
Assets
Non-current assets
Long-term investments 29,675 -
Property and equipment, net 7,583 6,862
Investments held at fair value 3 72,495 131,351
Investment in associate 3 111,703 -
Intangible assets, net 3,197 3,309
Deferred tax assets 347 142
Other non-current assets 108 73
------------------------------------ ----- ------------ -----------
Total non-current assets 225,108 141,737
------------------------------------ ----- ------------ -----------
Current assets
Trade and other receivables 3,373 1,797
Prepaid expenses and other current
assets 5,984 6,638
Other financial assets 872 927
Short-term investments 109,464 116,098
Cash and cash equivalents 90,074 72,649
------------------------------------ ----- ------------ -----------
Total current assets 209,767 198,109
------------------------------------ ----- ------------ -----------
Total assets 434,875 339,846
------------------------------------ ----- ------------ -----------
Equity and liabilities
Equity
Share capital 5,305 4,679
Merger reserve 138,506 138,506
Share premium 278,454 181,588
Translation reserve 97 224
Other reserve 18,790 17,178
Accumulated deficit (127,821) (127,873)
------------------------------------ ----- ------------ -----------
Equity attributable to the owners
of the Company 313,331 214,302
Non-controlling interests 12 (96,272) (150,305)
------------------------------------ ----- ------------ -----------
Total equity 217,059 63,997
------------------------------------ ----- ------------ -----------
Non-current liabilities
Deferred revenue 120 159
Other long-term liabilities 1,740 1,828
------------------------------------ ----- ------------ -----------
Total non-current liabilities 1,860 1,987
------------------------------------ ----- ------------ -----------
Current liabilities
Deferred revenue 73 1,652
Trade and other payables 12,272 16,358
Subsidiary:
Notes payable 10 12,437 7,455
Derivative liability 9 - 114,263
Warrant liability 9 13,043 13,095
Preferred shares 11 176,917 120,051
Other current liabilities 1,214 988
------------------------------------ ----- ------------ -----------
Total current liabilities 215,956 273,862
------------------------------------ ----- ------------ -----------
Total liabilities 217,816 275,849
------------------------------------ ----- ------------ -----------
Total equity and liabilities 434,875 339,846
------------------------------------ ----- ------------ -----------
See accompanying notes to the condensed consolidated interim
financial statements.
Condensed Consolidated Statement of Changes in Equity
Attributed to equity holders of the parent
-------------------------------------------------------------------------------------------------------------
Total Non-
Share Merger Translation Other Accumulated parent controlling Total
Amount premium reserve reserve reserve deficit equity interests equity
Shares $'000s $'000s $'000s $'000s $'000s $'000s $'000s $'000s $'000s
----------------------- --- ----------- ------ ------- ------- ----------- ------- ----------- ------- ----------- --------
Balance 1 January 2017 232,712,542 4,609 181,658 138,506 (184) 13,412 (160,335) 177,666 (85,255) 92,411
Net income/(loss) - - - - - - 30,869 30,869 (101,566) (70,697)
Foreign currency exchange - - - - 408 - - 408 - 408
Unrealised gain on
investments - - - - - - 1,750 1,750 - 1,750
---------------------------- ----------- ------ ------- ------- ----------- ------- ----------- ------- ----------- --------
Total comprehensive
income/(loss) for the
period - - - - 408 - 32,619 33,027 (101,566) (68,539)
Gain/(loss) arising from
change in NCI - - - - - (16) - (16) 28,449 28,433
Issuance of shares as
equity incentives 3,932,178 70 (70) - - - - - - -
Subsidiary dividends - - - - - - (91) (91) - (91)
Buyback of shares, net of
tax (30,028) - - - - - (66) (66) - (66)
Equity settled share-based
payments - - - - - 3,782 - 3,782 8,067 11,849
---------------------------- ----------- ------ ------- ------- ----------- ------- ----------- ------- ----------- --------
As at 31 December 2017 236,614,692 4,679 181,588 138,506 224 17,178 (127,873) 214,302 (150,305) 63,997
Adjustment on initial
application of IFRS 9 - - - - - - 7,525 7,525 4,719 12,244
---------------------------- ----------- ------ ------- ------- ----------- ------- ----------- ------- ----------- --------
Adjusted balance at 1
January 2018 236,614,692 4,679 181,588 138,506 224 17,178 (120,348) 221,827 (145,586) 76,241
Net loss - - - - - - (7,999) (7,999) (7,993) (15,992)
Foreign currency exchange - - - - (127) - - (127) - (127)
Unrealised loss on
investments - - - - - - (85) (85) - (85)
---------------------------- ----------- ------ ------- ------- ----------- ------- ----------- ------- ----------- --------
Total comprehensive loss
for the period - - - - (127) - (8,084) (8,211) (7,993) (16,204)
Deconsolidation of
subsidiary - - - - - (4) 619 615 55,168 55,783
Issuance of placing shares 45,000,000 626 96,866 - - - - 97,492 - 97,492
Issuance of shares as
equity incentives 815,004 - - - - - - - - -
Subsidiary dividends to
non-controlling interest - - - - - - (8) (8) - (8)
Equity settled share-based
payments - - - - - 1,616 - 1,616 2,139 3,755
---------------------------- ----------- ------ ------- ------- ----------- ------- ----------- ------- ----------- --------
Balance 30 June 2018
(unaudited) 282,429,696 5,305 278,454 138,506 97 18,790 (127,821) 313,331 (96,272) 217,059
----------------------- --- ----------- ------ ------- ------- ----------- ------- ----------- ------- ----------- --------
See accompanying notes to the condensed consolidated interim
financial statements.
Condensed Consolidated Statements of Cash Flows
30 June 30 June
2018 2017
Note $'000 $'000
----------------------------------------------------- ----- --------- --------
Cash flows from operating activities
Loss for the period (15,992) (67,340)
Adjustments to reconcile net operating loss
to net cash used in operating activities:
Non-cash items:
Depreciation and amortisation 1,002 1,018
Equity settled share-based payment expense 6 3,755 7,126
Gain on deconsolidation of subsidiary 3 (41,730) -
Impairment of fixed assets - 454
Loss on investments held at fair value 3 14,308 -
Unrecognised gain on investment (102) -
Share of net loss of associates 3 7,007 -
Deferred tax asset (205) -
Unrealised gain on foreign currency transactions (100) -
Finance costs 7 (10,814) 11,101
Changes in operating assets and liabilities:
Other non-current assets - (10)
Trade and other receivables (1,578) 120
Prepaid expenses and other current assets 432 119
Deferred revenues (1,609) (643)
Trade and other payables 1,479 3,204
Other liabilities (70) 246
------------------------------------------------------ ----- --------- --------
Net cash used in operating activities (44,217) (44,605)
------------------------------------------------------ ----- --------- --------
Cash flows from investing activities:
Purchase of property and equipment (2,020) (1,107)
Proceeds from sale of assets 14 50 -
Disposal of property and equipment 125 -
Purchases of shares in associate (3,500) -
Cash in subsidiary eliminated upon deconsolidation 3 (13,390) -
Purchases of short term investments (126,625) (79,338)
Proceeds from maturity of short term investments 102,182 120,656
------------------------------------------------------ ----- --------- --------
Net cash provided by/(used in) investing
activities (43,178) 40,211
------------------------------------------------------ ----- --------- --------
Cash flows from financing activities:
Proceeds from issuance of convertible notes 150 1,884
Repayment of long-term debt (185) (163)
Proceeds from issuance of shares 4, 11 105,949 9,900
Subsidiary distributions to non-controlling
interests (1,070) (23)
------------------------------------------------------
Net cash provided by financing activities 104,844 11,598
------------------------------------------------------ ----- --------- --------
Effect of exchange rates on cash and cash
equivalents (24) 169
Net increase/(decrease) in cash and cash
equivalents 17,425 7,373
Cash and cash equivalents at beginning of
period 72,649 62,959
------------------------------------------------------ ----- --------- --------
Cash and cash equivalents at end of period 90,074 70,332
------------------------------------------------------ ----- --------- --------
Supplemental disclosure of Akili Deconsolidation:
Assets less cash and cash equivalents 1,951 -
Liabilities (42,106) -
Equity 26,765 -
------------------------------------------------------ ----- --------- --------
Total cash and cash equivalents - deconsolidated (13,390) -
------------------------------------------------------ ----- --------- --------
Supplemental disclosure of Sync asset sale:
Net cash received 4,049 -
Assets divested (56) -
Liabilities transferred 6 -
------------------------------------------------------ ----- --------- --------
Gain on sale of assets 3,999 -
------------------------------------------------------ ----- --------- --------
See accompanying notes to the condensed consolidated interim
financial statements.
Notes to the Condensed Consolidated Interim Financial
Statements
1. General Information
Reporting Entity
PureTech Health plc ("PureTech", "PureTech Health", the "Parent
Company", or the "Company") is an advanced biopharmaceutical
company developing novel medicines for dysfunctions of the
Brain-Immune-Gut ("BIG") Axis. PureTech Health consists of the
Parent 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 traded on the
Main Market of the London Stock Exchange.
PureTech Health has developed deep insight into the connection
between the individual components of the BIG Axis and the resulting
role in many chronic diseases, which represent the majority of
healthcare spend and have proven resistant to established
therapeutic approaches. By harnessing this emerging field of human
biology, PureTech Health is developing new categories of medicines
with the potential to have great impact on people with serious
diseases.
The Group may obtain third party validation of its programmes
through strategic collaboration, industry partnerships, and grants.
Use of partnerships, grants, external debt, and to a lesser extent,
equity investments in its subsidiaries enables the Group to
distribute development and financial risk, while preserving
significant equity ownership and control of its subsidiaries.
Basis of Preparation
These interim financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34
Interim Financial Reporting and should be read in conjunction with
the Group's last consolidated financial statements as of and for
the year ended 31 December 2017. They do not include all the
information required for a complete set of IFRS financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and
performance since the last annual consolidated financial
information included in the annual report and accounts as of and
for the year ended 31 December 2017.
Subsidiaries are fully consolidated from the date of
acquisition, or the date on which the Group obtains the power to
control the company, and continue to be consolidated until the date
when such control ceases. The financial information of the
subsidiaries is prepared for the same reporting period as the
Parent, using consistent accounting policies. All intra-group
balances, transactions, and unrealised gains and losses resulting
from intra-group transactions and dividends are eliminated in
full.
Associates are entities over which the group has significant
influence but not control. Investments in associates are accounted
for using the equity method of accounting. The investment is
initially recognised at cost, and the carrying amount is increased
or decreased to recognise the investor's share of the profit or
loss of the investee after the acquisition date. The group's
investment in associates includes goodwill identified on
acquisition.
Non-controlling interests ("NCI") are measured at their
proportionate share of the acquiree's identifiable net assets at
the acquisition date. If there is an obligation to deliver cash or
other assets, the investment is classified as subsidiary preferred
shares. Changes in the Group's interest in a subsidiary that does
not result in a loss of control are accounted for as equity
transactions.
The financial information presented in these half-yearly results
has been prepared under the historical cost convention. The
reporting currency adopted by the Company is US dollar ("$") as
this is the functional currency of the majority of the entities in
the group.
The Company has prepared trading and cash flow forecasts for the
Group covering the period to 31 December 2020. After making
enquiries and considering the impact of risks and opportunities on
expected cash flows, the Directors have a reasonable expectation
that the Group has adequate cash to continue in operational
existence for the foreseeable future. For this reason, they have
adopted the going concern basis in preparing the half-yearly
results.
The financial information contained in this half-yearly report
does not constitute full statutory accounts as defined in Section
434 of the Companies Act 2006. The condensed consolidated financial
statements are not audited and the results for the six months ended
30 June 2018 are not necessarily indicative of results for future
operating periods.
These interim financial statements are unaudited and were
approved by the Board of Directors and authorised for issue on 4
September 2018.
Use of Judgments and Estimates
In preparing these consolidated financial statements, management
has made judgments, estimates, and assumptions that affect the
reported amounts of assets, liabilities, income, and expenses.
Actual results may differ from those estimates. Estimates and
underlying assumptions are reviewed on an on-going basis. Revisions
to estimates are recognised prospectively.
Significant judgments and estimates in determining the Fair
Value of Financial instruments by the Group are made when
determining the appropriate methodology for valuing the subsidiary
companies and then in deriving the estimated fair value including
making certain estimates of the future earnings potential of the
businesses and determining the appropriate discount rate.
Significant judgment is also applied in determining the
following:
-- the valuation of investments held at fair value, investments in associates, warrants, convertible notes and
preferred shares;
-- the classification of financial instruments (debt vs. equity);
-- revenue recognition; and
-- when the power to control the subsidiaries exists.
Accounting Policies
The accounting policies applied by the Group in these
half-yearly results are the same as those applied by the Group in
its consolidated financial information in its 2017 Annual Report
and Accounts, with the exception of the new standards the Group
adopted as of 1 January 2018, included below.
Standards issued and adopted
IFRS 9, Financial Instruments
As of 1 January 2018, the Company adopted IFRS 9, Financial
Instruments ("IFRS 9"), which replaced IAS 39, Financial
Instruments: Recognition and Measurement. IFRS 9 addresses the
classification, measurement and recognition of financial assets and
liabilities. IFRS 9 retains but simplifies the mixed measurement
model and establishes three primary measurement categories for
financial assets: amortised cost, fair value through other
comprehensive income ("FVOCI"), and fair value through the profit
and loss statement ("FVTPL"). The basis of classification depends
on the entity's business model and the contractual cash flow
characteristics of the entity's business model and of the financial
asset. Investments in equity instruments are required to be
measured at FVTPL with the irrevocable option at inception to
present changes in fair value in other comprehensive income. There
is now a new expected credit losses model that replaces the
incurred loss impairment model previously 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 FVTPL. 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 uses for risk management purposes.
Contemporaneous documentation is still required but is different
than what was prepared under IAS 39.
The Group has applied IFRS 9 retrospectively but has elected not
to restate comparative information. As a result, the comparative
information provided continues to be accounted for in accordance
with the Group's previous accounting policy. The reclassification
and adjustment arising from the adoption of the new accounting
policy has been recognised in the opening balance sheet as of 1
January 2018.
The accounting policy that reflects the new accounting standard
for IFRS 9 is effective from 1 January 2018 and is as follows:
Financial instruments
Classification
From 1 January 2018, the Group classifies its financial assets
in the following measurement categories:
-- Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or
loss), and
-- Those to be measured at amortised cost.
The classification depends on the Group's business model for
managing the financial assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and losses will either
be recorded in profit or loss or other comprehensive income. For
investments in debt instruments, this will depend on the business
model in which the investment is held. For investments in equity
instruments that are not held for trading, this will depend on
whether the Group has made an irrevocable election at the time of
initial recognition to account for the equity investment at
FVOCI.
Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at FVTPL,
transaction costs that are directly attributable to the acquisition
of the financial asset. Transaction costs of financial assets are
expensed and carried at FVTPL.
Equity instruments
The Group subsequently measures all equity investments at fair
value. Where the Group's management has elected to present fair
value gains and losses on equity investments in other comprehensive
income, there is no subsequent reclassification of fair value gains
and losses to profit or loss following the derecognition of the
investment. Dividends from such investments continue to be
recognised in profit or loss as other income when the Group's right
to receive payment is established.
Changes in the fair value of financial assets at FVTPL are
recognised in other gain/(loss) in the statement of profit or loss
as applicable. Impairment losses (and reversal of impairment
losses) on equity investments measured at FVOCI are not reported
separately from other changes in fair value.
Impairment
The Group assesses on a forward-looking basis the expected
credit losses associated with its debt instruments carried at
amortised cost and FVOCI. The impairment methodology applied
depends on whether there has been a significant increase in credit
risk. For trade receivables, the group applies the simplified
approach permitted by IFRS 9, which requires expected lifetime
losses to be recognised from initial recognition of the
receivables.
The Group has reviewed the financial assets and liabilities and
determined the following impact from the adoption of the new
standard:
Financial Assets
The Group reviewed the financial assets reported in its
Consolidated Statements of Financial Position and completed an
assessment between IAS 39 and IFRS 9 to identify any accounting
changes. The financial assets subject to this review were: Cash and
cash equivalents, US Treasuries, Certificates of deposits, Other
deposits, Trade and other receivables, and Investments held at fair
value. Due to the nature of the financial assets held and their
lack of complexity, the classification and measurement model,
impairment, and interest income, the accounting impact on financial
assets was not material.
Financial Liabilities
The Group reviewed the financial liabilities reported on its
Consolidated Statements of Financial Position and completed an
assessment between IAS 39 and IFRS 9 to identify any accounting
changes. The financial liabilities subject to this review were the
Subsidiary notes payable, Derivative liability, Warrant liability,
and Preferred share liability. Based on this assessment of the
classification and measurement model, impairment and interest
income, the accounting impact on financial liabilities was
determined not to be material. As part of the transition
requirement, entities have the option upon implementation of the
new standard to designate a financial liability as measured at
FVTPL. The Group re-assessed its financial liabilities and has
elected not to split out embedded derivatives and retrospectively
recorded changes in fair value of the entire financial liability
instrument through the statement of profit and loss, leading to
changes in the carrying value of the instruments when looked at in
the aggregate. Upon the adoption of IFRS 9, the Group recognised a
cumulative adjustment of $12.2 million for all instruments which
qualified, as shown in note 9.
IFRS 15, Revenue from Contracts with Customers
IFRS 15 establishes principles for reporting useful information
to users of financial statements about the nature, amount, timing,
and uncertainty of revenue and cash flows arising from an entity's
contracts with customers. The standard is effective for annual
periods beginning on or after 1 January 2018, and supersedes: IAS
11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programmes, IFRIC 15 Agreements for the Construction of
Real Estate, IFRIC 18 Transfers of Assets from Customers, and
SIC-31 Revenue-Barter Transactions Involving Advertising Services.
The standard establishes a five-step principle-based approach for
revenue recognition and is based on the concept of recognising an
amount that reflects the consideration for performance obligations
only when they are satisfied, and the control of goods or services
is transferred.
The majority of the Group's revenue is derived from fees related
to collaboration agreements, service agreements, and government
grants entered into or received by the Group's subsidiaries. During
2017, the Group completed an impact assessment of IFRS 15 and
concluded that the adoption of IFRS 15 does not have a material
impact on its consolidated results. The Group adopted IFRS 15 with
effect from 1 January 2018 using the Modified Retrospective
approach.
Management reviewed contracts where the Group received
consideration in order to determine whether or not they should be
accounted for in accordance with IFRS 15. To date, PureTech Health
has entered into few transactions that meet the scope of IFRS 15.
Instead, most income has been generated through collaboration
agreements and grants with counterparties that do not meet the
definition of a customer, and therefore the contracts fall outside
the scope of IFRS 15 and have been accounted for in accordance with
IAS 20. For those few agreements where the counterparty meets the
definition of a customer, the contracts are accounted for in
accordance with IFRS 15, and revenue is recognised at either a
point-in-time or over time, depending on the nature of the services
and existence of acceptance clauses.
The accounting policy that reflects the new accounting standard
for IFRS 15 is effective from 1 January 2018 and is as follows:
Revenue generated by collaboration and service agreements is
accounted for under IFRS 15. The Group accounts for agreements that
meet the definition of IFRS 15 by applying the following five step
model:
-- Identify the contract(s) with a customer - A contract with a customer exists when (i) the Group enters into an
enforceable contract with a customer that defines each party's rights regarding the goods or services to be
transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial
substance and, (iii) the Group determines that collection of substantially all consideration for goods or
services that are transferred is probable based on the customer's intent and ability to pay the promised
consideration.
-- Identify the performance obligations in the contract - Performance obligations promised in a contract are
identified based on the goods or services that will be transferred to the customer that are both capable of being
distinct, whereby the customer can benefit from the good or service either on its own or together with other
resources that are readily available from third parties or from the Group, and are distinct in the context of the
contract, whereby the transfer of the goods or services is separately identifiable from other promises in the
contract.
-- Determine the transaction price - The transaction price is determined based on the consideration to which the
Group will be entitled in exchange for transferring goods or services to the customer. To the extent the
transaction price includes variable consideration, the Group estimates the amount of variable consideration that
should be included in the transaction price utilising either the expected value method or the most likely amount
method depending on the nature of the variable consideration. Variable consideration is included in the
transaction price if, in the Group's judgment, it is probable that a significant future reversal of cumulative
revenue under the contract will not occur. Determining the transaction price requires significant judgment, which
is discussed by revenue category in further detail below.
-- Allocate the transaction price to the performance obligations in the contract - If the contract contains a single
performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts
that contain multiple performance obligations require an allocation of the transaction price to each performance
obligation based on a relative standalone selling price basis unless the transaction price is variable and meets
the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms
part of a single performance obligation. The Group determines standalone selling price based on the price at
which the performance obligation is sold separately. If the standalone selling price is not observable through
past transactions, the Group estimates the standalone selling price taking into account available information
such as market conditions and internally approved pricing guidelines related to the performance obligations.
-- Recognise revenue when (or as) the Group satisfies a performance obligation - The Group satisfies performance
obligations either over time or at a point in time as discussed in further detail below. Revenue is recognised at
the time the related performance obligation is satisfied by transferring a promised good or service to a
customer.
Revenue generated from services agreements is determined to be
recognised over time when it can be determined that the services
meet one of the following: (a) the customer simultaneously receives
and consumes the benefits provided by the entity's performance as
the entity performs; (b) the entity's performance creates or
enhances an asset that the customer controls as the asset is
created or enhanced; or (c) the entity's performance does not
create an asset with an alternative use to the entity and the
entity has an enforceable right to payment for performance
completed to date.
It was determined that the Group has contracts that meet the
following criteria and revenue is recognised using the input method
based on labour hours, laboratory expenses and supplies. For cases
where the entity does not have an enforceable right to payment due
to acceptance clauses, it was determined that costs incurred to
fulfill the services are to be capitalised until acceptance is
received for the milestone. This resulted in PureTech Health
capitalising services related expenses as of 31 December 2017 and
recognising the consideration as revenue once acceptance was
received in the first half of fiscal year 2018.
IFRS 16, Leases
IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases. The standard is
effective for annual periods beginning on or after 1 January 2019,
and supersedes: IAS 17 Leases; IFRIC 4 Determining whether an
Arrangement contains a Lease; SIC-15 Operating Leases - Incentives;
and SIC-27 Evaluating the Substance of Transactions Involving the
Legal Form of a Lease. The standard introduces a single, on-balance
sheet accounting model, which requires the lessee to recognise
assets representative of the right to use the leased item, and
liabilities to pay rentals for all leases. The objective is to
ensure that lessees and lessors provide relevant information in a
manner that faithfully represents those transactions. This
information gives a basis for users of financial statements to
assess the effect that leases have on the financial position,
financial performance and cash flows of the entity. The Group has
set up a project team which is in the process of reviewing all of
the Group's lease arrangements. The Group is currently evaluating
the potential impact and has concluded that the standard will
primarily affect the accounting for the Group's operating
leases.
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.
2. Segment Information
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 three 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 US and
accordingly, no geographical disclosures are provided.
During the six months ended 30 June 2018, the Company revised
its definition of operating segments. The change reflects how the
Company's Board of Directors review the Group's results, allocates
resources and assesses performance. This change has been adjusted
in both the current period and the prior period in the tables
below.
Internal
The Internal division (the "Internal division"), is advancing a
pipeline fuelled by recent discoveries in lymphatics and immune
cell trafficking to modulate disease in a tissue-specific manner.
These programmes leverage the transport and biodistribution of
various immune system components for the targeted treatment of
diseases with major unmet needs, including cancers, autoimmune
diseases, and neuroimmune disorders. The Internal division is
comprised of the technologies that will be advanced through either
PureTech Health funding or non-dilutive sources of financing in the
near-term. The operational management of the Internal division will
be conducted by the PureTech Health team, who will be responsible
for the strategy, business development, and research and
development. As of 30 June 2018, this segment included Ariya
Therapeutics, Inc., Calix Biopharma, Inc., Glyph Biosciences, Inc.,
and Nybo Therapeutics, Inc.
Affiliates
The Affiliate segment (the "Affiliate segment") is comprised of
the programmes within PureTech's Affiliates division that are
currently consolidated operational subsidiaries that either have,
or have plans to hire, independent management teams and currently
have already raised, or are currently in the process of raising,
third-party dilutive capital. Currently, these subsidiaries have
active research and development programmes and either have entered
into or plan to seek a strategic partnership with an equity or debt
investment partner, who will provide additional industry knowledge
and networks, as well as additional funding to continue the pursued
growth of the company. As of 30 June 2018, this segment included
Alivio Therapeutics, Inc., Entrega, Inc., Follica, Inc., Karuna
Pharmaceuticals, Inc., Gelesis Inc. and subsidiaries, Sonde Health,
Inc., CommenSe, Inc., Vedanta Biosciences, Inc. and Vor Biopharma,
Inc.
Deconsolidated Affiliates
The Deconsolidated Affiliates segment (the "Deconsolidated
Affiliates segment") is comprised of the programmes within
PureTech's Affiliates division in respect of which PureTech Health
(i) no longer holds majority voting control as a shareholder and
(ii) no longer has the right to elect a majority of the members of
the affiliate's Board of Directors. As of 30 June 2018, resTORbio,
Inc. ("resTORbio") and Akili Interactive Labs, Inc. ("Akili") are
Deconsolidated Affiliates. PureTech utilizes the equity method of
accounting when it owns common stock in this segment. For the six
months ending 30 June 2018, the spend and loss from continuing
operations before taxes in the Deconsolidated Affiliates segment
solely reflects Akili.
Information About Reportable Segments
30 June 2018
---------------------------------------------------------------
Parent
Company
Deconsolidated &
Internal Affiliates Affiliates other Consolidated
$'000 $'000 $'000 $'000 $'000
-------- ----------- --------------- --------- --------------
Consolidated Statement
of Income/(Loss)
and Other Comprehensive
Income/(Loss)
Revenue - 4,943 20 14 4,977
Loss from continuing
operations,
before taxes (3,162) (37,164) 7,050 17,216 (16,060)
----------------------------- -------- ----------- --------------- --------- --------------
Consolidated Statement
of
Financial Position
Total assets 142 50,621 - 384,112 434,875
Total liabilities 5,243 253,300 - (40,727) 217,816
----------------------------- -------- ----------- --------------- --------- --------------
Net (liabilities)/assets (5,101) (202,679) - 424,839 217,059
----------------------------- -------- ----------- --------------- --------- --------------
31 December 2017
---------------------------------------------------------------
Parent
Company
Deconsolidated &
Internal Affiliates Affiliates other Consolidated
$'000 $'000 $'000 $'000 $'000
-------- ----------- --------------- --------- --------------
Consolidated Statement
of
Financial Position
Total assets 127 58,270 20,368 261,081 339,846
Total liabilities 2065 239,814 53,790 (19,820) 275,849
----------------------------- -------- ----------- --------------- --------- --------------
Net (liabilities)/assets (1,938) (181,544) (33,422) 280,901 63,997
----------------------------- -------- ----------- --------------- --------- --------------
30 June 2017
----------------------------------------------------------------
Parent
Company
Deconsolidated &
Internal Affiliates Affiliates other Consolidated
$'000 $'000 $'000 $'000 $'000
-------- ---------- -------------- --------- ------------
Consolidated Statement
of Income/(Loss)
and Other Comprehensive
Income/(Loss)
Revenue - 665 - - 665
Loss from continuing
operations,
before taxes (345) (41,527) (14,755) (10,600) (67,227)
----------------------------- -------- ---------- -------------- --------- ------------
Consolidated Statement
of
Financial Position
Total assets 198 70,084 37,985 161,196 269,463
Total liabilities 543 209,535 41,551 (14,824) 236,805
----------------------------- -------- ---------- -------------- --------- ------------
Net (liabilities)/assets (345) (139,451) (3,566) 176,020 32,658
----------------------------- -------- ---------- -------------- --------- ------------
The Group has retrospectively restated its 2017 segment amounts
to reflect the new segment designation described above.
The activity between the Parent Company and the reporting
segments has been eliminated in consolidation. These elimination
amounts are included in the Parent Company and other amounts shown
above.
3. Investments in Associates
resTORbio
As of November 2017, resTORbio was deconsolidated from the
Group's financial statements, resulting in only the profits and
losses generated by resTORbio through November 2017 being included
in the Group's Condensed Consolidated Statements of Income/(Loss)
and Other Comprehensive Income/(Loss). Upon the date of
deconsolidation, PureTech Health recognised an investment in
resTORbio related to its common shares of $17.6 million and an
investment held at fair value related to its Series A Preferred
Shares of $72.2 million. As a result of the deconsolidation and
fair value accounting for investments held on the date of
deconsolidation, PureTech Health recorded an unrealised gain of
$85.0 million in the Condensed Consolidated Statements of
Income/(Loss) and Other Comprehensive Income/(Loss).
As of 31 December 2017, PureTech's investment in resTORbio was
subject to equity method accounting. In accordance with IAS 28,
PureTech's investment was adjusted by the share of profits and
losses generated by resTORbio subsequent to the date of
deconsolidation. resTORbio's loss for December 2017 was greater
than the initial investment recorded by PureTech Health upon
deconsolidation; therefore, the share of net loss was accounted for
using the equity method and will be constrained to the investment
recognised upon deconsolidation. PureTech Health recognised $17.6
million as its share of loss from resTORbio through the Condensed
Consolidated Statements of Income/(Loss) and Other Comprehensive
Income/(Loss), bringing PureTech's investment to zero.
On 31 January 2018, resTORbio, Inc., closed its initial public
offering of 6,516,667 shares of common stock at a public offering
price of $15.00 per share, which included the exercise in full by
the underwriters of their option to purchase up to 850,000
additional shares. The gross proceeds from the offering were $97.8
million, before deducting underwriting discounts and commissions
and estimated offering expenses. The shares commenced trading on
the Nasdaq Global Select Market on 26 January 2018 under the ticker
symbol TORC.
Prior to the resTORbio IPO, PureTech Health recorded a loss of
$14.3 million to adjust the investment held at fair value related
to its resTORbio Series A Preferred Share investment. Upon
completion of the public offering, the resTORbio Series A Preferred
Shares held by PureTech Health converted to common shares. In light
of PureTech's common stock holdings in resTORbio and corresponding
voting rights, PureTech Health had a basis to account for its
investment in resTORbio under IAS 28. The preferred stock
investment held at fair value was therefore reclassified to
investment in associate upon the completion of the conversion.
On 30 June 2018, the Company re-evaluated if it maintains
significant influence over resTORbio. It was concluded that there
have been no changes to the facts present as of 31 December 2017
and therefore, significant influence was maintained. As a result,
PureTech Health continued to account for the investment in
resTORbio under IAS 28 and recognised its share of resTORbio's
earnings or losses in income. PureTech Health utilises the
financial statements of its associates for a period ending within
three months of the Group's reporting period to calculate its share
of the associates income or loss. PureTech Health utilised
resTORbio's 31 March 2018 financial statements to calculate its
share of net loss of associates as of 30 June 2018. PureTech Health
also adjusted its share of resTORbio's earnings and basis
differences as appropriate. Equity method investments are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of the investment might not be
recoverable. For the six months ended 30 June 2018, PureTech Health
recognised $7.0 million as its share of loss from resTORbio through
the Condensed Consolidated Statements of Income/(Loss) and Other
Comprehensive Income/(Loss), bringing PureTech's investment to
$111.7 million. PureTech Health reviewed the investment at year end
for any indication of impairment, noting none. As of 7 September
2018, the closing share price for resTORbio stock was $11.77.
Akili
Akili was founded by PureTech Health in 2011 and raised funding
through several rounds of Series A Preferred Stock financings as
well as over $42.0 million in Series B Preferred Stock financing
throughout 2016. As of 31 December 2017, PureTech Health maintained
control of Akili and the subsidiary's financial results were fully
consolidated in the Group's annual report.
On 8 May 2018, Akili completed the first close of a Series C
Preferred Stock financing with Temasek, Baillie Gifford, and
certain other existing investors. PureTech Health did not
participate in this investment round. The financing provided for
the purchase of 6,465,037 shares of Akili's Series C Preferred
Stock at a purchase price of $8.5073 per share. Each investor in
the Series C Preferred Stock financing is entitled to cast the
number of votes equal to the number of whole shares of Common Stock
into which the shares of Series C Preferred Stock held by such
investor are convertible.
As a result of the issuance of the preferred shares to
third-party investors, following the first close of the Series C
financing PureTech's ownership percentage and corresponding voting
rights related to Akili dropped from 61.8% to 44.7%, triggering a
loss of control over the entity. As of May 2018, Akili was
deconsolidated from the Group's financial statements, resulting in
only the profits and losses generated by Akili through May 2018
being included in the Group's Condensed Consolidated Statements of
Income/(Loss) and Other Comprehensive Income/(Loss). While the
Company no longer controls Akili, it was concluded that PureTech
Health still had significant influence over Akili by virtue of its
large, albeit minority, ownership stake and its continued
representation on Akili's Board of Directors. PureTech Health still
has the power to participate in the financial and operating policy
decisions of the entity, although it does not control these
policies. As PureTech Health is able to demonstrate that it has
significant influence over Akili, the entity will be accounted for
as an associate under IAS 28.
Upon the date of deconsolidation, PureTech Health held shares of
preferred stock in Akili and no common shares. As PureTech Health
did not hold common shares in Akili, the voting percentage
attributable to common stock is nil. Therefore, PureTech Health had
no basis to account for its investment in Akili under IAS 28,
Investment in Associates and Joint Ventures. The preferred shares
held by PureTech Health fall under the guidance of IFRS 9 and will
be treated as a financial asset held at fair value and all
movements to the value of PureTech's share in the preferred stock
will be recorded through the Condensed Consolidated Statements of
Income/(Loss) and Other Comprehensive Income/(Loss), in accordance
with IFRS 9.
During the six months ended 30 June 2018, the Company recognised
a $41.7 million gain on the deconsolidation of Akili, which was
recorded to the Gain on the deconsolidation of subsidiary line item
in the Condensed Consolidated Statement of Income/(Loss) and Other
Comprehensive Income/(Loss).
4. Equity
On 12 March 2018, the Company raised GBP72.0 million, or
approximately $100.0 million based on exchange rates at the time of
the announcement of the transaction, before issuance costs and
other expenses, by way of a Placing of 45,000,000 Placing Shares at
the Placing Price of 160 pence per share with both new and existing
institutional investors. The price represented a discount of
approximately 3.0% to the closing mid-market price of 165 pence per
Ordinary Share at the close of business on 12 March 2018 (being the
latest practicable date prior to publication of the Offering
Circular).
Upon Admission, the Company's Enlarged Share Capital comprised
282,429,696 Ordinary Shares with one voting right per Ordinary
Share. The Placing Shares rank pari passu in all respects with each
other and with the existing Ordinary Shares. The Company does not
hold any shares in treasury.
The Company incurred legal and other adviser fees of $3.7
million in connection with the Placing. Costs incurred were
incremental costs directly attributable to the equity transaction
and therefore were accounted for as a deduction from equity.
Other
At 30 June 2018, 282,429,696 ordinary shares were outstanding,
including all vested ordinary shares issued pursuant to PureTech
Health LLC Incentive Compensation arrangements detailed in note
6.
5. Loss per Share
The basic and diluted loss per share has been calculated by
dividing the income/(loss) for the period attributable to ordinary
shareholders by the weighted average number of ordinary shares
outstanding during the six months ended 30 June 2018 and 2017,
respectively.
Loss attributable to ordinary shareholders
For the six months ended: 30 June 2018 30 June 2017
------------------------------------ ---------------- -------------------
Basic Diluted Basic Diluted
$'000 $'000 $'000 $'000
------- ------- -------- --------
Loss for the period, attributable
to the owners of the Company (7,999) (7,999) (42,193) (42,193)
Loss attributable to ordinary
shareholders (7,999) (7,999) (42,193) (42,193)
------------------------------------- ------- ------- -------- --------
Weighted average number of ordinary shares
For the six months ended: 30 June 2018 30 June 2017
---------------------------- ------------------------- ------------------------
Basic Diluted Basic Diluted
----------- ------------ ----------- -----------
Issued ordinary shares 236,897,579 236,897,579 232,712,542 232,712,542
Effect of shares issued 27,939,449 27,939,449 2,741,163 2,741,163
Weighted average ordinary
shares 264,837,028 264,837,028 235,453,705 235,453,705
----------------------------- ----------- ------------ ----------- -----------
The following potentially dilutive securities (which are
ordinary shares issued pursuant to PureTech Health LLC's Incentive
Compensation arrangements prior to PureTech's IPO as detailed in
note 6) have been excluded (on a weighted average basis for the
period) from the computation of diluted weighted-average shares
outstanding as they are subject to vesting conditions. As of 30
June 2018, all the remaining dilutive securities had vested.
30 June 2018 30 June 2017
----------------------------------- ------------ ------------
Weighted average unvested equity
incentive shares - 2,918,789
------------------------------------ ------------ ------------
The loss per share for the six months ended 30 June 2018 and
2017 is as follows
30 June 2018 30 June 2017
---------------- ----------------
Basic Diluted Basic Diluted
----------------- ------- ------- ------- -------
Loss per share ($0.03) ($0.03) ($0.18) ($0.18)
------------------ ------- ------- ------- -------
6. Share-based Payments
Share-based payments includes stock options, restricted stock
units ("RSUs") and performance-based restricted share unit awards
and the expense is recognised based on grant date fair value of
these awards.
Share-based Payment Expense
The Group share-based payment expense for the six months ended
30 June 2018 and 2017, respectively, were comprised of charges
related to the PureTech Health plc incentive stock and stock option
issuances and subsidiary stock plans, as disclosed in the annual
report and accounts.
The following table provides the classification of the Group's
consolidated share-based payment expense as reflected in the
Condensed Consolidated Statement of Income/(Loss) and Other
Comprehensive Income/(Loss):
For the six months ended 30 June
----------------------------------
2018 2017
$'000 $'000
----------------------------- ---------------- ----------------
General and administrative 2,700 4,157
Research and development 1,055 2,969
------------------------------ ---------------- ----------------
Total 3,755 7,126
------------------------------ ---------------- ----------------
There was no income tax benefit recognised for share-based
payment arrangements during the periods presented due to existence
of operating losses for all issuing entities.
The Performance Share Plan
As of 30 June 2018, the Company had issued 15,241,371 RSUs and
stock options under the Performance Share Plan ("PSP"), net of
forfeitures.
RSUs
During the six months ended 30 June 2018, the Company issued
3,207,422 RSUs under the PSP plan. Each RSU entitles the holder to
one ordinary share on vesting. Following vesting, each recipient
will be required to make a payment of one pence per ordinary share
on settlement of the RSUs. Vesting of the RSUs is subject to the
satisfaction of performance conditions. The performance conditions
attached to the RSUs are based on the achievement of total
shareholder return ("TSR"), with 50% of the shares under the award
vesting based on the achievement of absolute TSR targets, 12.5% of
the shares under the award vesting based on TSR as compared to the
FTSE SmallCap Index, 12.5% of the shares under the award vesting
based on TSR as compared to the MSCI Europe Health Care Index, and
25% of the shares under the award vesting based on the achievement
of strategic targets.
The Company incurred share-based payment expense for the RSUs of
$1.3 million and $1.0 million for the six months ended 30 June 2018
and 2017, respectively.
Stock Options
During the six months ended 30 June 2018, the Company granted
2,566,820 stock option awards under the PSP.
The fair value of the stock options awarded by the Company was
estimated at the grant date using the Black-Scholes option
valuation model, taking into account the terms and conditions upon
which options were granted, with the following weighted-average
assumptions:
For the six months ended: 30 June 2018 30 June 2017
---------------------------- ------------ ------------
Expected volatility 45.00% 28.92%
Expected term (in years) 6.07 5.84
Risk-free interest rate 2.79% 1.96%
Expected dividend yield -% -%
Grant date fair value $0.97 $0.43
Share price at grant date $2.05 $1.45
----------------------------- ------------ ------------
The Company incurred share-based payment expense for the stock
options of $0.3 million and $0.2 million for the six months ended
30 June 2018 and 2017, respectively.
Pre-IPO Incentive Compensation
In May 2015 and August 2014, PureTech Health LLC Directors
approved the issuance of shares to management, the directors and
advisors of PureTech Health LLC, subject to vesting restrictions.
No additional shares will be granted under this compensation
arrangement. The fair value of the shares awarded was estimated as
of the date of grant. The Company incurred an expense of $0.2
million and $1.1 million in share-based payment expense for the six
months ended 30 June 2018 and 2017, respectively, related to
PureTech Health LLC incentive compensation.
As of 30 June 2018, all shares related to the pre-IPO incentive
compensation plan had fully vested.
Subsidiary Stock Plans
During the six months ended 30 June 2018, certain subsidiaries
granted an aggregate of 499,978 stock option awards under the stock
plans of these subsidiaries.
The fair value of the stock options awarded by each subsidiary
was estimated at the grant date using the Black-Scholes option
valuation model, taking into account the terms and conditions upon
which options were granted, with the following weighted-average
assumptions:
30 June 2018
-------------------------
For the six months ended: CommenSe Karuna Vedanta
---------------------------- -------- ------ -------
Expected volatility 87.63% 49.48% 92.28%
Expected term (in years) 6.05 5.67 6.14
Risk-free interest rate 2.80% 2.81% 2.65%
Expected dividend yield -% -% -%
Grant date fair value $0.99 $4.46 $11.25
Share price at grant date $1.33 $9.14 $14.66
----------------------------- -------- ------ -------
The subsidiaries incurred $2.1 million and $5.1 million in
share-based payment expense for the six months ended 30 June 2018
and 2017, respectively.
7. Financial Costs
The following table provides the classification of finance
income and costs:
2018 2017
$'000s $'000s
------ --------
Finance income
Interest income on bank deposits 1,368 728
------ --------
Total finance income 1,368 728
------ --------
Finance costs
Contractual interest expense on convertible notes:
Interest expense on other borrowings (2) (199)
Non-cash interest expense on convertible securities (225) (184)
Currency gain 112 166
------ --------
Total finance costs - contractual (115) (217)
Accretion from subsidiary preferred shares (106) (6,050)
Gain from change in fair value of warrant liability 52 1,862
Loss on fair value measurement of derivative - (6,530)
Fair value adjustment - convertible notes 1,394 -
Fair value adjustment - preferred shares 9,701 -
------ --------
Total finance income/(costs) 10,926 (10,935)
------ --------
Finance income/(costs), net 12,294 (10,207)
------ --------
8. Income Taxes
Tax benefit/(expense) is recognised based on management's best
estimate of the weighted-average annual income tax rate expected
for the full financial year multiplied by the pre-tax income of the
interim reporting period.
The Group's consolidated effective tax rate in respect of
continuing operations was 0.4% and 0.2% for the six months ended 30
June 2018 and 2017, respectively.
9. Financial Instruments
As of 1 January 2018, the Company adopted IFRS 9, which replaced
IAS 39. IFRS 9 addresses the classification, measurement and
recognition of financial liabilities. The Group has applied IFRS 9
retrospectively but has elected not to restate comparative
information. As a result, the comparative information provided
continues to be accounted for in accordance with the Group's
previous accounting policy. The reclassification and adjustment
arising from the adoption of the new accounting policy has been
recognised in the opening balance sheet as of 1 January 2018.
As part of the transition requirement, the Company had the
option upon implementation of the new standard to designate a
financial liability as measured at FVTPL. The Group re-assessed its
financial liabilities and elected not to split out the embedded
derivatives for certain instruments and retrospectively recorded
changes in fair value of the entire financial liability instrument
through the statement of profit and loss, leading to changes in the
carrying value of the instruments which, when looked at in the
aggregate, were as follows:
Cumulative Effect
IAS 39 as of Adjustment to IFRS 9 as of
31 December 2017 Accumulated Deficit 1 January 2018
Financial Liability $'000 $'000 $'000
--------------------- ---------------- ------------------- --------------
Notes Payable 7,455 6,435 13,890
Derivative Liability 114,263 (114,263) -
Warrant Liability 13,095 - 13,095
Preferred Shares 120,051 95,584 215,635
---------------- ------------------- --------------
254,864 (12,244) 242,620
---------------- ------------------- --------------
The following table summarised the changes in the Group's
subsidiary warrant liabilities measured at fair value using
significant unobservable inputs (Level 3). In addition, the Company
has provided the adjustment for the embedded subsidiary derivative
liabilities due to the adoption of IFRS 9 for the six months ended
30 June 2018 and the year ended 31 December 2017 is as follows:
Subsidiary
Subsidiary Derivative
Derivative Liability - Subsidiary
Liability - Convertible Warrant
Preferred Shares Notes Liability
$'000 $'000 $'000
--------------------------------------- ---------------- ------------ ----------
Balance as of 31 December 2016 70,192 1,048 14,942
Value of derivatives at issuance 364 2,245 -
Change in fair value 38,678 1,736 (1,847)
---------------------------------------- ---------------- ------------ ----------
Balance as of 31 December 2017 109,234 5,029 13,095
---------------------------------------- ---------------- ------------ ----------
Change in fair value - - (52)
Adjustment for IFRS 9 implementation (109,234) (5,029) -
---------------------------------------- ---------------- ------------ ----------
Balance as of 30 June 2018 - - 13,043
---------------------------------------- ---------------- ------------ ----------
The change in the fair value of the subsidiary warrants was
recorded in finance costs, net in the Condensed Consolidated
Statement of Income/(Loss) and Other Comprehensive Income/(Loss).
The majority of the approximately $13.0 million warrant liability
is attributable to Gelesis.
The following weighted average assumptions were used to
determine the fair value of the Gelesis warrants at 30 June
2018:
Series A-4
Series A-1 Series A-3 (contingent)
Warrants Warrants Warrants
---------- ---------- -------------
Expected term 2.8 years 4.0 years 5.1 years
Expected volatility 87% 81% 71%
Expected dividend yield -% -% -%
Risk free interest rate 2.60% 2.68% 2.73%
Estimated fair value of the convertible preferred stock $13.95 $13.95 $13.95
Exercise price of warrants $4.44 $0.04 $0.04
The fair value of these embedded derivative liabilities may
differ significantly in the future from the carrying value as of 30
June 2018, and, accordingly, adjustments will be recorded in the
Condensed Consolidated Statement of Income/(Loss) and Other
Comprehensive Income/(Loss) at that time.
10. Subsidiary Notes Payable
The subsidiary notes payable are comprised of loans and
convertible notes. As of 1 January 2018 the Group adopted IFRS 9,
and as a result, where the instruments contained liability
classified embedded derivatives, an election was taken to fair
value the entire financial instrument through profit and loss
rather than split out the embedded derivative. During the six
months ended 30 June 2018 and 31 December 2017, the financial
instruments for Entrega, Knode and Endra do not contain embedded
derivatives and therefore these instruments continue to be held at
amortised cost. The notes payable consists of the following:
30 June 2018 31 December 2017
------------ ----------------
$'000s $'000s
--------------------------------- ------------ ----------------
Loans 2,488 2,547
Convertible notes 9,949 4,908
---------------------------------- ------------ ----------------
Total subsidiary notes payable 12,437 7,455
---------------------------------- ------------ ----------------
Convertible notes outstanding were as follows:
Karuna Follica Entrega Knode Appeering Sync Total
------ ------- ------- ------ --------- ------- -------
$'000s $'000s $'000s $'000s $'000s $'000s $'000s
------------------------------------- ------ ------- ------- ------ --------- ------- -------
1 January 2017 3,694 450 125 50 75 10 4,404
Gross principal 404 1,132 - - - 1,080 2,616
Discount (71) (1,127) - - - - (1,198)
Accretion 262 39 - - - - 301
Conversion - - (125) - - (1,090) (1,215)
--------------------------------------- ------ ------- ------- ------ --------- ------- -------
31 December 2017 4,289 494 - 50 75 - 4,908
Adjustment for fair value (837) (557) - - - - (1,394)
Adjustment due to adoption of IFRS 9 1,523 4,912 - - - - 6,435
--------------------------------------- ------ ------- ------- ------ --------- ------- -------
30 June 2018 4,975 4,849 - 50 75 - 9,949
--------------------------------------- ------ ------- ------- ------ --------- ------- -------
The Group adopted IFRS 9 with the effect from 1 January 2018
using the modified retrospective approach. As a result of this
election, an adjustment was recorded for the adoption of IFRS 9 for
Karuna and Follica in the amount of $1.5 million and $4.9 million,
respectively, for the six months ended 30 June 2018. Additionally,
the Group adjusted the balances for Karuna and Follica for the fair
value in the amounts of $0.8 million and $0.6 million,
respectively, during the six months ended 30 June 2018.
In conjunction with its December 2017 private financing, Entrega
converted $0.1 million of notes payable plus accrued interest into
preferred shares.
In May 2017 and September 2017, Follica, Inc. received $0.5
million and $0.6 million, respectively, from an existing
third-party investor through the issuance of convertible notes. The
notes bear interest at an annual rate of 10%, mature 30 days after
demand by the holder, are convertible into equity upon a qualifying
financing event, and require payment of at least five times
outstanding principal and accrued interest upon a change of control
transaction.
Between January 2017 and May 2017, Sync received $1.1 million
from outside investors through the issuance of convertible notes.
In May 2017, these notes, plus accrued interest, converted into
preferred shares in accordance with the terms of the notes.
11. Subsidiary Preferred Shares
On 1 January 2018, the Company adopted IFRS 9, which replaced
IAS 39 for the annual period beginning on 1 January 2018. IFRS 9
addresses the classification, measurement, and recognition of
financial liabilities.
As part of the transition requirement, the Company had the
option upon implementation of the new standard to designate a
financial liability as measured at FVTPL. The Group re-assessed its
financial liabilities and elected to not split out the embedded
derivatives and instead retrospectively recorded changes in fair
value of the entire financial liability instrument through the
statement of profit and loss, leading to changes in the carrying
value of the instruments when looked at in the aggregate.
The preferred shares are convertible into common stock of the
subsidiaries at the option of the holder and mandatorily
convertible into common stock upon a subsidiary listing in a public
market at a price above those specified in the subsidiary's charter
or upon the vote of the holders of subsidiary preferred shares
specified in the charter. Under certain scenarios the number of
common shares receivable on conversion will change and therefore, a
variable number of shares will be issued.
The preferred shares are entitled to vote with holders of common
stock on an as converted basis.
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 a proportion of the subsidiary losses.
The balance as of June 2018 represents the fair value of the
instruments for all subsidiary preferred shares except for Tal,
which represents the host instrument at amortised cost. The balance
as of 31 December 2017 represents the host instrument at amortised
cost. The following summarises the subsidiary preferred share
balance:
30 June 2018 31 December 2017
------------ ----------------
$'000s $'000s
------------------------------------------- ------------ ----------------
Akili - 19,935
Entrega 2,664 2,071
Follica 154 465
Gelesis 128,592 58,714
Karuna 5,985 5
The Sync Project 109 1,734
Tal 11,325 11,219
Vedanta Biosciences 28,088 25,908
-------------------------------------------- ------------ ----------------
Total subsidiary preferred share balance 176,917 120,051
-------------------------------------------- ------------ ----------------
As is customary, in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of a subsidiary, the holders
of subsidiary preferred shares then outstanding are entitled to be
paid their respective liquidation preference out of the assets of
the subsidiary available for distribution to stockholders and
before any payment is made to holders of common stock. A merger,
acquisition, sale of voting control or other transaction of a
subsidiary in which the shareholders of the subsidiary do not own a
majority of the outstanding shares of the surviving company will 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 will also be deemed a liquidation
event.
The minimum liquidation preference for the six months ended 30
June 2018 reflects the FVTPL for the entire financial instrument
for all subsidiary preferred shares except for Tal. The minimum
liquidation preference for Tal represents the host instrument
recorded at amortised cost. The minimum liquidation preference for
the six months ended 30 June 2017 for the host instruments are
recorded at amortised costs. The table represents the amounts that
would be payable to the subsidiary preferred holders upon a
liquidation event of the subsidiaries, which is as follows:
30 June 2018 31 December 2017
------------ ----------------
$'000s $'000s
--------------------------------------- ------------ ----------------
Akili - 21,972
Entrega 2,216 2,216
Follica 2,020 2,020
Gelesis 68,947 60,490
Karuna 413 413
The Sync Project - 1,998
Tal 11,430 11,430
Vedanta Biosciences 30,295 30,295
---------------------------------------- ------------ ----------------
Total minimum liquidation preference 115,321 130,834
---------------------------------------- ------------ ----------------
For the six months ended 30 June 2018 and the year ended 31
December 2017, the Group recognised the following changes in
subsidiary preferred shares:
$'000s
--------------------------------------------------------------- --------
Balance at 31 December 2016 96,937
Issuance of new preferred shares 24,969
Value of derivatives at issuance (364)
Increase in value of preferred shares measured at fair value 31,747
Deconsolidation of resTORbio (42,747)
Accretion 9,509
------------------------------------------------------------------ --------
Balance at 31 December 2017 120,051
Adjustment to preferred shares due to adoption of IFRS 9 95,584
Issuance of new preferred shares 8,457
Decrease in value of preferred shares measured at fair value (9,701)
Sale of Sync (1,062)
Deconsolidation of Akili (36,517)
Accretion 105
------------------------------------------------------------------ --------
Balance at 30 June 2018 176,917
------------------------------------------------------------------ --------
2018
On 1 January 2018, the Group adopted IFRS 9 and as part of the
new standard's implementation it designated the preferred shares as
a financial liability, which is measured at FVTPL. Upon the
adoption of IFRS 9, the Group had a cumulative catch up adjustment
of $95.6 million. Additionally, the Group recorded an increase of
$9.7 million in the value of its preferred share liability for the
six months ended 30 June 2018.
On 28 February 2018, Gelesis received $8.5 million from outside
investors through the issuance of its Series 2 Growth Preferred
Stock. It has been determined that these shares are liability
classified and contain a liability classified embedded derivative.
This embedded derivative is a conversion feature which can result
in settlement in a variable number of shares.
In May 2018, Akili issued Series C Preferred Stock for aggregate
proceeds of $55.0 million; PureTech Health did not participate in
this investment. Upon closing of Akili's Series C financing, the
subsidiary was deconsolidated from PureTech Health (see note
3).
2017
In January 2017, Vedanta Biosciences closed the second tranche
of its Series B Preferred Share financing for gross proceeds of
$24.9 million, with $9.9 million from outside investors.
Between January 2017 and May 2017, Sync received $1.1 million
from outside investors through the issuance of convertible notes,
which is included as proceeds from the issuance of convertible
notes in the Condensed Consolidated Statements of Cash Flows. In
May 2017, these notes, plus accrued interest, converted into
preferred shares in accordance with the terms of the notes.
Between September 2017 and December 2017, Sync received an
additional $0.8 million through the issuance of Series A-2
Preferred Stock, of which PureTech Health purchased $0.3
million.
In December 2017, Entrega closed a Series A-2 Preferred Stock
financing in which Eli Lilly invested $2.0 million. In conjunction
its investment in the financing, Eli Lilly entered into a Research
Collaboration Agreement with Entrega, pursuant to which Eli Lilly
agreed to contribute a total of $3.0 million to Entrega through
2020.
In March 2017, resTORbio executed a licensing agreement with
Novartis pursuant to which resTORbio obtained rights to
intellectual property in exchange for Series A preferred shares
which were valued at $5.0 million. Between March and October 2017,
resTORbio issued additional Series A Preferred Stock for aggregate
proceeds of $25.0 million, of which PureTech Health invested $19.0
million. Upon closing of resTORbio's Series B financing, the
subsidiary was deconsolidated from PureTech Health (see note
3).
12. Non-Controlling Interest
The following summarises the changes in the equity classified
non-controlling ownership interest in subsidiaries by reportable
segment during the six months ended 30 June 2018:
Parent
Deconsolidated Company &
Internal Affiliates Affiliate Other Consolidated
$'000 $'000 $'000 $'000 $'000
-------------------------------------------- -------- ---------- -------------- --------- ------------
Non-controlling interest as of 31 December
2017 (1,484) (87,601) (61,824) 604 (150,305)
Share of comprehensive loss (2,130) (12,915) 7,052 - (7,993)
Deconsolidation of Akili - - 55,168 - 55,168
IFRS 9 implementation impact - 5,487 (768) - 4,719
Equity-settled share-based payment - 1,757 372 10 2,139
--------------------------------------------- -------- ---------- -------------- --------- ------------
Non-controlling interest as of 30 June 2018 (3,614) (93,272) - 614 (96,272)
--------------------------------------------- -------- ---------- -------------- --------- ------------
13. Related Party Transactions
Key Management Personnel Compensation
Key management includes directors and members of the executive
management team of the Group. The compensation of key management
personnel of the Group was as follows:
30 June 2018 30 June 2017
$'000 $'000
------------------------------- ------------ ------------
Short-term employee benefits 1,458 2,003
Share-based payments 2,085 1,200
-------------------------------- ------------ ------------
Total 3,543 3,203
-------------------------------- ------------ ------------
Wages and employee benefits include salaries, health care, and
other non-cash benefits. Share-based payments are 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. As of 30 June 2018 and 31
December 2017, the outstanding related party notes payable totalled
approximately $0.1 million in each period. Interest expense charged
on the related party notes was immaterial for the six months ended
30 June 2018 and 2017, respectively.
The notes issued to related parties bear interest, and include
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 10.
Directors' and Senior Managers' Shareholdings and Share
Incentive Awards
The Directors and senior managers hold beneficial interests in
shares in the operating companies and sourcing companies as at 30
June 2018 as set forth below. These represent legacy holdings from
before the Company's IPO.
Number of Number of
Shares Options
Held as of Held as of
Business Name 30 June 30 June Ownership
Directors: (Share Class) 2018 2018 Interest
----------------------------- ----------------------------------------- ---------- ---------- ---------
Mr. Joichi Ito Akili (Series A-2 Preferred) 26,627 - 0.10%
Ms. Daphne Zohar (2) Gelesis (Common) 59,443 765,915 5.40%
Dame Marjorie Scardino - - - -
Dr. Bennett Shapiro Akili (Series A-2 Preferred) (3) 33,088 - 0.20%
Gelesis (Common) 24,010 10,841 0.20%
Gelesis (Series A-1 Preferred) 23,419 - 0.20%
Tal (Series A-2 Preferred) (3) 14,451 - 0.10%
Vedanta Biosciences (Common) - 25,000 0.40%
Vedanta Biosciences (Series B Preferred) 11,202 - 0.20%
Dr. Robert Langer Entrega (Common) - 302,500 6.20%
Alivio (Common) - 1,575,000 6.50%
Dr. Raju Kucherlapati Enlight (Class B Common) 30,000 - 3.00%
Dr. John LaMattina (4) Akili (Series A-2 Preferred) 37,372 - 0.20%
Gelesis (Common) (4) 54,120 63,050 0.80%
Gelesis (Series A-1 Preferred) (4) 49,524 - 0.30%
Tal (Series A-2 Preferred) 114,411 - 1.10%
Vedanta Biosciences (Common) - 25,000 0.40%
Mr. Christopher Viehbacher - - - -
Mr. Stephen Muniz - - - -
Senior Managers (5) :
Dr. Eric Elenko - - - -
Mr. David Steinberg - - - -
Dr. Joep Muijrers - - - -
Dr. Bharatt Chowrira - - - -
Dr. Joseph Bolen - - - -
------------------------------ ------------------------------------------ ---------- ---------- ---------
Notes:
(1) Ownership interests are as at 30 June 2018 and are
calculated on a diluted basis, including issued and outstanding
shares, warrants and options to purchase shares (and written
commitments to issue options), 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.
(4) 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. Dr John LaMattina holds convertible notes issued by
Appeering in the aggregate principal amount of $50,000.
(5) Directors and senior managers of the Company hold 33.6
million ordinary shares of the Company, options to purchase 2.9
million ordinary shares of the Company and Restricted Stock Units
representing 9.6 million ordinary shares of the Company. The
outstanding ordinary shares of the Company held by such directors
and senior managers represent 11.9% of the voting power of the
Company's outstanding ordinary shares.
Transactions with Other Related Parties
In March 2018, existing shareholder Invesco Asset Management
Limited ("Invesco") participated in the Company's equity offering
purchasing 14,365,000 ordinary shares at the placing price of 160
pence per share.
In addition, in March 2018, the Company announced that Gelesis,
a subsidiary of the Company, closed a $30.0 million financing round
(the "Gelesis Financing"). The funds from this financing will be
drawn down by Gelesis at its discretion. Pursuant to the Gelesis
Financing, Invesco committed $18.0 million of funding through its
subscription for equity in Gelesis and, assuming Gelesis draws down
the full $30.0 million in financing, Invesco will hold
approximately 24.2% of the total issued share capital of Gelesis
(on an undiluted basis).
14. Sale of Assets
In February 2018, The Sync Project, Inc. ("Sync") entered into
an asset purchase agreement with Bose Corporation for the sale of
certain assets and liabilities. The total aggregate purchase price
was $4.5 million, consisting of approximately $4.0 million paid at
closing and $0.5 million in cash deposited into escrow to be held
for 12 months in order to secure the indemnification obligations of
Sync after the closing date.
PureTech Health derecognised certain assets and liabilities
based on their historical costs. The excess of the consideration
transferred over the historical costs of the assets and liabilities
resulted in a gain of approximately $4.0 million, which was
recorded to the line item "Gain on sale of assets" on the
accompanying Condensed Consolidated Statements of Income/(Loss) and
Other Comprehensive Income/(Loss) for the six months ended 30 June
2018.
As part of the derecognition, the Company and certain preferred
shareholders received a cash distribution.
15. Subsequent Events
The Company has evaluated subsequent events through 6 September
2018, the date of issuance of the Condensed Consolidated Financial
Statements, and except for the following events, which have a
material financial impact on the Company's consolidated financial
statements, no other subsequent events have been identified that
required adjustment or disclosure in the Condensed Consolidated
Financial Statements.
On 19 July 2018, the Company entered into a multiyear
collaboration with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche
Inc. ("Roche"), to advance PureTech's milk-derived exosome platform
technology for the oral administration of Roche's antisense
oligonucleotide platform. Under the terms of the agreement, the
Company will receive up to $36.0 million, including upfront
payments, research support, and early preclinical milestones. The
Company is also eligible to potentially receive development
milestone payments of over $1.0 billion and additional sales
milestones and royalties for an undisclosed number of products.
On 25 July 2018, resTORbio announced positive topline results
from its dose-ranging Phase 2b clinical trial that enrolled 652
elderly patients at increased risk of morbidity and mortality
associated with respiratory tract infections (RTIs). In this trial,
RTB101, an oral, selective, and potent inhibitor of target of
rapamycin complex 1 (TORC1), demonstrated a statistically
significant and clinically meaningful reduction in the percentage
of patients with one or more laboratory-confirmed RTIs during the
16-week treatment period compared to placebo, the primary endpoint
of the study, with the 10 mg once daily dose. Greater TORC1
inhibition with RTB101 10 mg in combination with everolimus 0.1 mg
did not meet the primary endpoint, suggesting that less TORC1
inhibition with RTB101 10 mg once daily may have greater benefit in
high-risk elderly patients.
On 18 July 2018, Calix, Glyph, and Nybo merged with Ariya. In
connection with these mergers, Ariya has begun to focus on the
transport and biodistribution of various immune system components
for the targeted treatment of diseases with major unmet needs,
including cancers, autoimmune diseases and neuroimmune
disorders.
On 2 August 2018, Karuna Pharmaceuticals announced the
completion of a $42.0 million Series A financing round, including
the issuance of $22.0 million in shares upon conversion of debt
into equity. Karuna plans to use the proceeds from the financing to
advance its lead product candidate, KarXT
(Karuna-xanomeline-trospium chloride), including the initiation of
a Phase 2 trial in patients with schizophrenia in the third quarter
of 2018 and the expansion into other therapeutic areas, including a
non-opiate pain indication.
On 8 August 2018, Akili raised $13.0 million in new funding as
an extension of its recent Series C financing. The Series C
extension brings the total equity financing it has raised this year
to $68.0 million. Participating investors included CLSA, Omidyar
Technology Ventures, Digital Garage Group, and Fearless Ventures.
Akili's initial Series C financing round was led by Temasek and
included additional investors Baillie Gifford, Amgen Ventures, M
Ventures (the CVC fund of Merck KGaA, Darmstadt, Germany), JAZZ
Venture Partners, Canepa Advanced Healthcare Fund, and Brooklands
Capital Strategies. It will use the funds from this financing to
further advance development and deployment of its pipeline of
prescription digital treatment candidates, including its lead
product candidate, AKL-T01, through key regulatory milestones and
commercial preparations. Akili also plans to use the funds to
advance a number of other digital treatments in development,
including Major Depressive Disorder ("MDD"), multiple sclerosis
("MS"), and various other inflammatory diseases.
On 15 August 2018, PureTech Health announced the appointment of
Steven Paul, MD, as Chief Executive Officer of Karuna
Pharmaceuticals. Co-founder of Karuna and former PureTech Health
Vice President, Andrew Miller, PhD, will assume the role of Chief
Operating Officer at Karuna.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR MMGMLLGVGRZM
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