TIDMPRTC
RNS Number : 2909J
PureTech Health PLC
09 April 2020
9 April 2020
PureTech Health plc
PureTech Health Announces Annual Results for Year Ended 31
December 2019
Strong capital base with $321.5 million(1) in Pro-forma Cash
held at the PureTech level, consisting of $120.6 million(2) as of
31 December 2019 along with $200.9 million in proceeds from the
January 2020 sale of Karuna shares, enables extension of cash
runway into the first quarter of 2024
Growth of Wholly Owned Pipeline with addition of clinical-stage
programme, monetisation of partial stake in Karuna, and one FDA
clearance, 5 clinical trial readouts and 6 clinical trial
initiations across Founded Entities
Founded Entities raised $666.8 million(3) in financing
transactions, of which 93.4% came from third party investors
Regarding the COVID19 outbreak, PureTech has not experienced any
material delays in ongoing work or anticipated milestones and
continues to monitor the situation closely
Company to host a webcast and conference call today at 9.00 EDT
/ 14.00 GMT
PureTech Health plc (LSE: PRTC) ("PureTech Health", "PureTech",
or "the Company"; together with its Founded Entities(4) , "the
Group") a clinical-stage biotherapeutics company dedicated to
discovering, developing and commercialising highly differentiated
medicines for devastating diseases, today announced its annual
results for the year ended 31 December 2019. The following
information represents select highlights from the full Report,
which is available on the Investor Relations section of the
PureTech Health website at
http://puretechhealth.com/reports-presentations .
Webcast and conference call details
Members of the PureTech management team will host a conference
call at 9.00 EDT / 14.00 GMT today, 9 April, to discuss these
results. A live webcast and presentation slides will be available
on the investors section of PureTech's website () under the Reports
and Presentations tab. To join the conference call please dial:
United Kingdom : 0800 640 6441
United Kingdom (Local) : 020 3936 2999
USA (Local) : 1 646 664 1960
All other locations : +44 20 3936 2999
Access code : 007425
Participants should log on approximately 10 minutes in advance
to download slides and ensure proper setup to receive the webcast.
For those unable to listen to the call live, a replay will be
available on the PureTech website.
Cash Position
-- As of 31 December 2019, the Company reports PureTech Level
Cash Reserves of $120.6 million(2) along with $200.9 million in
proceeds from the 22 January 2020 sale of 2.1 million Karuna common
shares, totalling PureTech Level Pro-forma Cash Reserves of $321.5
million(1)
-- In 2019, PureTech's Founded Entities raised $666.8 million(3)
in financing transactions, of which 622.8 million (93.4 per cent)
came from third parties.
Continued growth and expansion of Wholly Owned Pipeline
In 2019, PureTech grew and strengthened its Wholly Owned
Internal Pipeline, which is centred on the lymphatic system and
related immunological disorders. This pipeline includes one
clinical-stage product candidate for the potential treatment of a
range of conditions involving fibrosis, inflammation and impaired
lymphatic flow (LYT-100), two preclinical product candidates for
intractable cancers (LYT-200 and LYT-210) and three discovery
platforms. Key developments include the following:
-- In July 2019, PureTech announced the acquisition of a
clinical--stage product candidate LYT-100 (deupirfenidone) for the
potential treatment of a range of conditions of fibrosis,
inflammation and impaired lymphatic flow, including lymphoedema,
idiopathic pulmonary fibrosis (IPF), acute lung injury and
inflammation, unclassifiable interstitial lung disease (uILD),
focal segmental glomerulosclerosis (FSGS) and radiation-induced
fibrosis.
-- In the March 2020 post-period, PureTech announced the
initiation of a multiple ascending dose study to evaluate the
safety, tolerability and pharmacokinetic profile of LYT-100 in
healthy participants. Results are expected in 2020 and may enable
the initiation of a proof-of-concept study in people with breast
cancer-related, upper limb secondary lymphoedema and an additional
fibrosis and inflammation indication in 2020.
-- In April 2019, PureTech announced a collaboration agreement
with Boehringer Ingelheim (BI) to evaluate the feasibility of
applying PureTech's lymphatic targeting technology to advance
certain of BI's immuno-oncology product candidates. Under the terms
of the agreement, PureTech is eligible to receive up to $26 million
in upfront payments, research support and preclinical milestones,
and is eligible to receive more than $200 million in development
and sales milestones, in addition to royalties on product
sales.
-- PureTech presented preclinical data supporting its
first-in-class, fully-human monoclonal antibodies targeting
galectin-9 (LYT-200) and immunosuppressive <GAMMA> 1 (gamma
delta-1) T cells (LYT-210) at the American Association for Cancer
Research (AACR) Annual Meeting in April 2019 and the Society for
Immunotherapy of Cancer (SITC) Annual Meeting in November 2019.
PureTech is developing LYT-200 and LYT-210 to treat intractable
cancers, including colorectal cancer (CRC), cholangiocarcinoma and
pancreatic cancer, along with other relevant cancers and
immunological disorders.
-- In June 2019, PureTech expanded to new corporate headquarters
and labs in Boston's Seaport District to advance and accelerate
development of the Company's Wholly Owned Pipeline. In addition to
the programmes mentioned above (LYT--100, LYT--200, LYT-210 and the
lymphatic targeting chemistry platform), PureTech's Wholly Owned
Pipeline includes a milk exosome platform to traffic therapeutics
via the lymphatic system and a meningeal lymphatics platform for
treating neurodegenerative diseases.
Strong clinical, regulatory and financial progress across the
Founded Entities
PureTech's Founded Entities have made significant progress
advancing 20 product candidates, 13 of which are clinical stage.
Key developments include the following:
Karuna
-- In June 2019, Karuna announced the successful pricing of its
initial public offering (IPO) of common stock on the Nasdaq Global
Market under the symbol "KRTX." Gross proceeds were approximately
$102.6 million, including the full exercise of the underwriters'
over-allotment option. Karuna previously completed an $82.1 million
Series B round in April 2019, including the issuance of $7.1
million in shares upon conversion of debt into equity.
-- In November 2019, Karuna announced that KarXT achieved the
primary endpoint of its Phase 2 clinical trial for the treatment of
acute psychosis in patients with schizophrenia. In the clinical
trial, KarXT demonstrated a statistically significant and
clinically meaningful 11.6 point mean reduction in total Positive
and Negative Syndrome Scale (PANSS) score compared to placebo
(p<0.0001) and also demonstrated good overall tolerability. A
statistically significant reduction in the secondary endpoints of
PANSS-Positive and PANSS-Negative scores were also observed
(p<0.001). Karuna plans to hold an end-of-Phase 2 meeting with
the FDA in the second quarter of 2020, and pending the outcome of
that meeting, anticipates advancing KarXT into a Phase 3 clinical
trial by the end of 2020.
-- In November 2019, Karuna completed a follow-on offering of
2,600,000 shares of its common stock, with gross proceeds of
approximately $250 million.
-- In the January 2020 post-period, PureTech sold 2.1 million of
its Karuna shares for a cash consideration of approximately $200
million. PureTech intends to use the proceeds from this transaction
to fund its operations and growth for the foreseeable future and to
further expand and advance its clinical-stage Wholly Owned
Pipeline. Following the sale, PureTech continues to hold 5,295,397
shares of Karuna common stock (20.3% as of 13 March 2020) and has a
right to royalty payments as a percentage of net sales.
Gelesis
-- In April 2019, Gelesis received clearance from the FDA for
its first product, Plenity(TM)(5) (Gelesis100), a prescription aid
for weight management in adults with a Body Mass Index (BMI) of 25
- 40 kg/m(2) , when used in conjunction with diet and exercise.
Gelesis initiated a Plenity early experience programme in the
United States in the second half of 2019 and anticipates Plenity
will be available by prescription in the United States in the
second half of 2020, with a broad launch in early 2021. Gelesis
also filed Plenity for marketing authorisation in Europe in
February 2019. Important safety information regarding Plenity can
be found at www.myplenity.com .
-- In December 2019, Gelesis announced a partnership with Ro, a
leading US telehealth provider, to support the US commercialisation
of Plenity, which is expected in the second half of 2020, with a
broad launch in early 2021.
-- In 2019, Gelesis secured nearly $100 million in new capital
and non - dilutive grants to support the US commercialisation of
Plenity, including over $84 million announced in December 2019 and
$10.6 million announced in April 2019.
-- In 2019, Gelesis and its research collaborators presented
clinical data supporting its proprietary hydrogel platform.
Additional safety and efficacy data for Plenity was presented at
ObesityWeek, and clinical data for a GS500 prototype in patients
with chronic idiopathic constipation (CIC) was presented at
Digestive Disease Week. Gelesis also presented preclinical research
at the Endocrine Society Annual Meeting and The International Liver
Congress suggesting that GS300 may restore gut barrier function
after damage as well as prevent the harmful effects of a high-fat
diet on the liver and associated metabolic disorders.
-- In the March 2020 post - period, Gelesis was named to Fast
Company's annual list of the World's Most Innovative Companies for
2020, which honours the businesses making the most profound impact
on both industry and culture.
Akili
-- In the January 2020 post - period, Akili announced that a
study achieved its primary endpoint evaluating the effects of lead
product candidate AKL - T01 in children with Attention Deficit
Hyperactivity Disorder (ADHD) when used with and without stimulant
medication.
-- In December 2019, Akili presented the results from a trial of
AKL - T03 as a potential treatment for cognitive impairments
adjunct to anti - depressant medication in adults with Major
Depressive Disorder (MDD) at the 58th Annual Meeting of the
American College of Neuropsychopharmacology. In the trial, AKL -
T03 demonstrated a statistically significant improvement in
sustained attention compared to control. AKL - T03 is designed to
improve specific cognitive functions and may play a complementary
role to antidepressants in the holistic treatment of MDD.
-- Akili is currently actively pursuing FDA clearance for AKL -
T01. Clearance for AKL - T01 has not yet been granted, and Akili
continues to work with the FDA in an effort to make the product
available for children living with ADHD.
-- In March 2019, Akili entered into a strategic partnership
with Shionogi & Co., Ltd. for the development and
commercialisation of two of Akili's digital medicine product
candidates, AKL - T01 and AKL - T02 (in development for children
with ADHD and Autism Spectrum Disorder, respectively), in Japan and
Taiwan. Under the terms of the agreement, Akili will build and own
the platform technology and received upfront payments totalling $20
million, with potential milestone payments for Japan and Taiwan
commercialisation of up to an additional $105 million in addition
to substantial royalties.
Follica
-- In December 2019, Follica announced topline results from its
safety and efficacy optimisation study of its lead candidate to
treat hair loss in male androgenetic alopecia. The study was
designed to select the optimal treatment regimen using Follica's
proprietary device in combination with a topical drug and
successfully met its primary endpoint. The selected treatment
regimen demonstrated a statistically significant 44% improvement of
non - vellus (visible) hair count after three months of treatment
compared to baseline (p < 0.001, n = 19). The initiation of a
Phase 3 registration study in male androgenetic alopecia is
expected in 2020.
Vedanta
-- In December 2019, Vedanta Biosciences announced the
initiation of a first - in - patient clinical trial of its
immuno-oncology candidate, VE800, in patients with select types of
advanced or metastatic cancer. The trial will evaluate clinical
activity of VE800 in combination with Bristol - Myers Squibb's
programmed death - 1 (PD - 1) immune checkpoint inhibitor Opdivo(R)
(nivolumab). Topline results are anticipated in 2021.
-- In July 2019, Vedanta Biosciences announced the enrolment of
the first patient in its Phase 1/2 clinical study of its product
candidate VE416 for food allergy. Topline results are expected in
2021.
-- In January 2019, Vedanta Biosciences published seminal
research in Nature that underlies Vedanta's proprietary oral immuno
- oncology product candidate, VE800.
-- In May 2019 and September 2019, Vedanta Biosciences announced
extensions to its Series C financing round, bringing the total
capital raised in the round to $62.1 million.
-- In December 2019, Vedanta Biosciences announced that it had
been awarded a $5.8 million grant from Combating Antibiotic -
Resistant Bacteria Biopharmaceutical Accelerator (CARB - X) to
advance its VE707 programme targeting multi - drug resistant
organisms.
-- In May 2019, Vedanta Biosciences presented expanded data from
its Phase 1a/1b study of VE303, the company's product candidate for
high-risk Clostridioides difficile infection (CDI) at Digestive
Disease Week.
Alivio
-- In January 2019, Alivio Therapeutics entered into a
partnership focused on non-opioid approaches to pain management
with Imbrium Therapeutics L.P. to advance ALV-107, a non-opioid
treatment being developed for interstitial cystitis/bladder pain
syndrome (IC/BPS), through clinical development. Under the terms of
the agreement, Alivio is eligible to receive up to $14.75 million
in upfront and near-term license exercise payments and is eligible
to receive royalties on product sales and over $260 million in
research and development milestones. Alivio retains the rights of
its inflammation targeting platform for a broad range of internal
and partnering applications.
Vor
-- In February 2019, Vor completed a $42.9 million Series A
financing round to advance its lead cell therapy product candidate
for the treatment of acute myeloid leukaemia (AML) and to further
build its pipeline to treat haematologic malignancies.
-- In May 2019, the scientific founder of Vor Biopharma, Dr
Siddhartha Mukherjee, and key individuals from his lab at Columbia
University, published a preclinical proof-of-concept study
supporting Vor's lead product candidate, VOR33, and its technology
platform for treating cancer via engineered haematopoietic stem
cells (HSCs) in the Proceedings of the National Academy of Sciences
(PNAS).
-- In the January 2020 post-period, Vor held a pre-IND meeting
with the FDA to gather important feedback to assemble the data
package necessary for a potential IND filing.
Sonde
-- In April 2019, Sonde completed a $16 million Series A
financing round, including the issuance of $6 million in shares
upon conversion of debt into equity, to expand the capability of
its voice - based technology platform for monitoring and diagnosing
mental and physical medical conditions across additional health
conditions and device types and to fund commercialisation
activities.
-- Sonde has collected voice data from over 40,000 subjects as a
part of the ongoing validation of its platform, and it has also
initiated research and development to expand its proprietary
technology into Alzheimer's disease and respiratory and
cardiovascular disease, as well as other health and wellness
conditions.
Entrega
-- Entrega continued to advance its platform for the oral
delivery of biologics, vaccines and other drugs that are otherwise
not efficiently absorbed when taken orally, progressing a broad
range of prototypes in additional preclinical studies as part of
its collaboration with Eli Lilly.
Commenting on the annual results, Daphne Zohar, founder and
chief executive officer of PureTech said:
"2019 was an unprecedented year, and our unique model for drug
development and value creation was validated in many ways. Across
our Wholly Owned Pipeline and our Founded Entities, we now have one
FDA cleared product and 23 product candidates, all of which
potentially address major healthcare needs. 14 of these candidates
are clinical-stage, and we anticipate at least seven readouts and
ten initiations over the course of 2020. We are very proud of this
remarkable clinical progress.
"We also saw the value of our innovation recognized when the
positive results from Karuna's (Nasdaq: KRTX) Phase 2 study of
KarXT, a candidate [co-]invented by PureTech, generated over
several hundred million dollars in value for PureTech. We were able
to monetise a portion of that stake in January 2020, resulting in
$200.9 million in proceeds and extending our cash runway into the
first quarter of 2024, while still maintaining 20.3% share and the
right to receive royalties.
"The team at PureTech has consistently been united behind a
shared goal: to make a difference in human health by bringing truly
novel and differentiated therapeutics to patients where great needs
exist. I can think of no greater need at the present date than the
global SARS-CoV-2 (COVID-19) pandemic, which we have been
monitoring closely. Our mission to develop new classes of medicines
for serious and underserved diseases will continue to be driven by
our internal capabilities and collaborations with our network of
leading experts in an effort to improve care for vulnerable
populations affected by immunological diseases, severe infections,
neurological disorders and intractable cancers, among other serious
disorders."
Across our organisation, we have taken measures to ensure the
safety and well - being of our employees and do our part as global
citizens, while continuing to execute against our business
objectives. As of 8 April, we do not believe that any of our
ongoing work has been materially delayed, but we do anticipate the
strain on the global healthcare system may eventually impact
timelines, as healthcare providers rightly prioritise acute, near -
term needs. We are so grateful to those on the front lines, and we
have donated lab supplies and personal protective equipment (PPE)
to local hospitals to aid in their heroic efforts.
"This has been an incredibly productive year, as well as a
tremendous display of our commitment to developing transformational
treatments for devastating diseases and building value for our
shareholders. I am grateful to our team, our Board, and our wide
network of collaborators who all share our vision, and I thank our
shareholders for their continued support as we enter this exciting
new phase of PureTech's development."
PureTech also notes that Bennett Shapiro, MD, co-founder of
PureTech, non-executive director and member of the R&D
Committee, will not stand for re-election at the Company's 2020
Annual General Meeting. As a co-founder, Dr Shapiro has played a
critical role in driving the scientific and clinical direction of
PureTech since the genesis of the Company. When he led R&D at
Merck, he emphasised the external R&D model that Merck and
other large pharma companies subsequently embraced, and Dr
Shapiro's guidance was vital to the formation of PureTech's
innovation model and shaping what it is today. His strategic
scientific guidance has contributed to the advancement of all of
the Company's current programs, and he has played a particularly
noteworthy role in driving successes across Karuna, Gelesis,
Vedanta and Akili.
Dr Shapiro will continue to serve on PureTech's R&D
Committee, which is also comprised of:
-- Dennis Ausiello, MD: Massachusetts General Hospital (MGH),
chief emeritus of medicine and director of the Center for
Assessment Technology and Continuous Health (CATCH); Harvard
Medical School, Jackson distinguished professor of clinical
medicine
-- Robert Horvitz, PhD: Nobel laureate; MIT, David H. Koch
professor of biology; Howard Hughes Medical Institute investigator;
MGH neurobiologist (neurology)
-- Raju Kucherlapati, PhD: Harvard Medical School, Paul C. Cabot
professor of genetics and a professor of medicine
-- John LaMattina, PhD: Pfizer, former president of Global Research and Development
-- Robert Langer, ScD: MIT, David H. Koch Institute professor of biology
"It has been an honour to serve as a founding member of
PureTech's Board and to contribute to the Company's unique,
highly-productive and mission-oriented enterprise," said Dr
Shapiro. "Together we have opened up new insights and pathways for
improving human health, and I look forward to continuing those
advancements in my role on the R&D Committee."
PureTech Health today released its Annual Report for the year
ended 31 December 2019. In compliance with the Financial Conduct
Authority's Listing Rule 9.6.3, the following documents have today
been submitted to the National Storage Mechanism and will shortly
be available for inspection at http://www.morningstar.co.uk/uk/NSM
.
-- Annual Report and Accounts for the year ended 31 December 2019; and
-- Notice of 2020 Annual General Meeting.
Printed copies of these documents together with the Form of
Proxy will be posted to shareholders. Copies are also available
electronically on the Investor Relations section of the Company's
website at http://puretechhealth.com/reports-presentations .
PureTech's 2020 Annual General Meeting (AGM) will be held on 11
June 2020 at 11.00 EDT / 16.00 BST at PureTech's headquarters,
which is located at 6 Tide Street, Boston, Massachusetts, United
States. Please note that in light of the spread of COVID-19 and
recent travel restrictions imposed by a number of governments, it
will not be possible for the Directors to travel to the United
Kingdom. Further, the UK Government has published compulsory
measures prohibiting, among other things, public gatherings of more
than two people. These "Stay at Home" measures were passed into law
in England and Wales with immediate effect on 26 March 2020. The
Company has therefore decided to hold the AGM in the United States
where most of the Directors are resident. The Company continues to
closely monitor the evolving situation in respect of COVID-19 and
its forthcoming AGM.
The health and welfare of the Company's shareholders, as well as
its employees and partners, is the Company's number one priority.
The AGM therefore will be kept as concise and efficient as
possible, with social interactions kept to a minimum and additional
hygiene requirements in force at the meeting and venue.
We appreciate that a number of our shareholders are not resident
or located in the United States. Given the recent Government
guidance not to travel unless it is essential, we ask shareholders
to participate in the AGM by submitting any questions in advance
and voting via proxy rather than attending in person. As such, any
specific questions on the business of the AGM and resolutions can
be submitted ahead of meeting by e-mail to ir@puretechhealth.com
(marked for the attention of Mr. Stephen Muniz).
Shareholders are also encouraged to submit their votes by proxy
regardless of whether they expect to attend in person, and to do so
no later than 16.00 BST on Tuesday 9 June 2020. Details of how to
appoint a proxy are set out in the notice of AGM. Shareholders are
reminded of their right to appoint the Chairman of the AGM, or any
other person, as their proxy to attend the meeting and vote on
their behalf.
PureTech is monitoring the rapidly evolving situation and will
refuse entry to the AGM where necessary to ensure the safety of
attendees and compliance with governmental or regulatory orders.
The Company will keep shareholders updated of any changes to the
current plans for the AGM. Please visit the Company's website at
www.puretechhealth.com for the most up to date information.
About PureTech Health
PureTech is a clinical-stage biotherapeutics company dedicated
to discovering, developing and commercialising highly
differentiated medicines for devastating diseases, including
intractable cancers, lymphatic and gastrointestinal diseases,
central nervous system disorders and inflammatory and immunological
diseases, among others. The Company has created a broad and deep
pipeline through the expertise of its experienced research and
development team and its extensive network of scientists,
clinicians and industry leaders. This pipeline, which is being
advanced both internally and through PureTech's affiliates, is
comprised of 23 product candidates and one product that has been
cleared by the US Food and Drug Administration (FDA). All of the
underlying programmes and platforms that resulted in this pipeline
of product candidates were initially identified or discovered and
then advanced by the PureTech team through key validation points
based on the Company's unique insights into the biology of the
brain, immune and gut, or BIG, systems and the interface between
those systems, referred to as the BIG Axis.
For more information, visit www.puretechhealth.com or connect
with us on Twitter @puretechh.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) 596/2014.
Contact: EU media
Investors
Allison Mead Talbot Ben Atwell, Rob Winder
+1 617 651 3156 +44 (0) 20 3727 1000
amt@puretechhealth.com ben.atwell@FTIconsulting.com
Notes
(1) PureTech Level Pro-forma Cash Reserves is an alternative
performance measure (APM) which includes the PureTech Level Cash
Reserves of $120.6 million and the $200.9 million in proceeds from
the 22 January 2020 sale of 2.1 million Karuna common shares.
PureTech Pro-forma Cash Reserves is therefore considered to be more
representative of the Corporate's cash available for the year 2020
and beyond to advance product candidates within the full breadth of
its operations.
(2) PureTech Level Cash Reserves represent cash balances and
short-term investments held at PureTech Health LLC, PureTech
Management, Inc., PureTech Health PLC, PureTech Securities
Corporation of $112.0 million for the year ended 2019 and the
internal pipeline of $8.6 million for the year ended 2019, all of
which are wholly-owned entities of PureTech, excluding cash
balances and short-term investments of Controlled Founded Entities.
The balance excludes the $200.9 million in proceeds from the 22
January 2020 sale of 2.1 million Karuna common shares.
(3) Funding figure includes private equity financings, public
offerings or grant awards. Funding figure excludes upfront payments
and future milestone considerations received in conjunction with
partnerships and collaborations such as those with Roche,
Boehringer Ingelheim, Imbrium Therapeutics L.P., Shionogi &
Co., Ltd. or Eli Lilly.
(4) Unless the context specifically indicates otherwise,
references in this report to "Founded Entities" refer to the
entities that PureTech founded and in which PureTech continues to
hold equity. While PureTech maintains ownership of equity interests
in its Founded Entities, the Company does not, in all cases,
maintain control over these entities (by virtue of (i) majority
voting control and (ii) the right to elect representation to the
entities' board of directors) or direct the management and
development efforts for these entities. Consequently, not all such
entities are consolidated in the financial statements. Where
PureTech maintains control, the entity is referred to as a
Controlled Founded Entity in this report and is consolidated in the
financial statements. Where PureTech does not maintain control, the
entity is referred to as a Non-Controlled Founded Entity in this
report and is not consolidated in the financial statements. As of
31 December 2019, Controlled Founded Entities include Alivio
Therapeutics, Inc., Follica, Incorporated, Entrega, Inc., Vedanta
Biosciences, Inc. and Sonde Health, Inc., and Non-Controlled
Founded Entities include Akili Interactive Labs, Inc., Gelesis,
Inc., Karuna Therapeutics, Inc., Vor Biopharma Inc. and, for all
periods prior to December 18, 2019, resTORbio, Inc.
(5) Plenity has been cleared by the United States Food and Drug
Administration (US FDA) as an aid to weight management in adults
with a Body Mass Index (BMI) of 25-40 kg/m(2) , when used in
conjunction with diet and exercise. Important Safety Information:
Plenity is contraindicated in patients who are pregnant or are
allergic to cellulose, citric acid, sodium stearyl fumarate,
gelatine, or titanium oxide. Plenity may alter the absorption of
medications. Read Sections 6 and 8.3 of the Instructions for Use
carefully. Avoid use in patients with the following conditions:
oesophageal anatomic anomalies, including webs, diverticuli, and
rings; suspected strictures (such as patients with Crohn's
disease); or complications from prior gastrointestinal (GI) surgery
that could affect GI transit and motility. Use with caution in
patients with: active GI conditions such as gastro-oesophageal
reflux disease (GERD), ulcers, or heartburn. Overall, the most
common treatment related adverse events (TRAEs) were GI-related
TRAEs with 38 per cent of adults in the Plenity group and 28 per
cent of adults in the placebo group experiencing a GI-related TRAE.
The overall incidence of AEs in the Plenity group was no different
than the placebo group. Rx Only. For the safe and proper use of
Plenity, refer to the Instructions for Use.
(6) Na ture of announcement: The financial information set out
in this Annual Results Release does not constitute the Company's
statutory accounts for 2018 or 2019. Any references to page numbers
in this announcement are to pages within the Annual Report and
Accounts. Statutory accounts for the year ended 31 December 2019
have been reported on by the Independent Auditor and will be
delivered to the Registrar when due.
(7) Forward looking statements: This Annual Results Release and
the Annual Report and Accounts contain statements that are or may
be forward-looking statements, including statements that relate to
the Company's future prospects, developments and strategies. The
forward-looking statements are based on current expectations and
are subject to known and unknown risks and uncertainties that could
cause actual results, performance and achievements to differ
materially from current expectations, including, but not limited
to, those risks and uncertainties described in the risk management
section. These forward-looking statements are based on assumptions
regarding the present and future business strategies of the Company
and the environment in which it will operate in the future. Each
forward-looking statement speaks only as at the date of this Annual
Results Release. Except as required by law, regulatory requirement,
the Listing Rules and the Disclosure Guidance and Transparency
Rules, neither the Company nor any other party intends to update or
revise these forward-looking statements, whether as a result of new
information, future events or otherwise.
Letter from the Chairman
2019 was a year of validation and transformation for PureTech.
PureTech has a long track record of identifying and incubating
highly innovative technologies to address significant unmet need,
then building highly talented and passionate teams around each
programme while making remarkably efficient use of resources. What
really drives value for investors and patients alike are positive
clinical outcomes, regulatory progress and the validation of third
- party investors - and PureTech has had an incredible series of
such results this past year.
One such example is Karuna. The team identified a portfolio
medicine from Eli Lilly with compelling efficacy signals in
schizophrenia and Alzheimer's disease suggesting it could outstrip
existing therapies. But, unable to resolve the tolerability
profile, Eli Lilly abandoned the drug. PureTech came up with a
novel, scientifically elegant way to offset the mechanism causing
the tolerability problems without reducing efficacy. Karuna's
successful proof - of - concept studies showed that PureTech's
patience and persistence paid off. Karuna subsequently completed an
IPO in July 2019 and, following positive Phase 2 results in
November 2019, became a company worth approximately $2 billion(1) .
Now seeking to validate its Phase 2 findings in a Phase 3 trial,
there is new hope for patients with schizophrenia, who have had
very few new therapeutic options for decades. At the same time,
tremendous value has been created for PureTech investors.
The Karuna results were outstanding in our industry but this was
only one of many positive developments for PureTech in 2019.
Among the many metrics that validate PureTech's novel approach
to drug development, this one stands out as particularly striking:
23 product candidates are now in development across PureTech's
Founded Entities and Wholly Owned Pipeline, including 14 in the
clinic. Another point of pride: Gelesis' Plenity(TM) (2) , a highly
differentiated approach for weight management, is moving rapidly
toward commercialisation after receiving clearance from the US Food
and Drug Administration in April 2019.
Across PureTech's Founded Entities are novel therapeutic
approaches to address cancer, schizophrenia, severe infection,
ADHD, inflammatory bowel disease and other serious disorders.
Tellingly, all these potential breakthroughs originated from
research conducted by PureTech's internal team together with its
global network of advisers and collaborators. We have built a truly
unparalleled ecosystem for identifying pioneering ideas, subjecting
them to rigorous evaluation and then moving the best forward.
This track record of success makes me even more excited about
our focused work to advance our Wholly Owned Pipeline. In these
programmes, we aim to translate our expertise in the Brain - Immune
- Gut axis into novel therapeutics for lymphatic and immunological
disorders and intractable cancers. It's a thrill to be in the
clinic with our most advanced wholly-owned programme, LYT - 100,
which we are initially evaluating for a range of immune and
fibrotic disorders, including the potential treatment of
lymphoedema, a serious and often disfiguring disease for which
there are no approved drugs. LYT - 100 has the potential to be
developed for a range of fibrotic conditions in addition to
lymphoedema. Also advancing quickly through our pipeline are two
novel antibody candidates for hard - to - treat cancers. Our
proprietary lymphatic targeting platform and our meningeal
discovery platform are also building value through substantial
partnerships with top - notch collaborators, such as Boehringer
Ingelheim, and through our own internal R&D efforts.
PureTech is able to take on such an ambitious scope of work due
to strong leadership from the executive team and thoughtful
guidance from our wonderful board. We are all committed to creating
value as we bring transformational medicines to patients living
with substantial need. I extend a sincere thank you to all our
shareholders for supporting and enabling our continued growth and
to my fellow board members for their thoughtful and strategic
guidance. I am proud to be part of the PureTech team and I look
forward to continued success in 2020.
Christopher Viehbacher
Chairman
(1) Based on market cap of $1.96 billion on 31 December 2019.
(2) Plenity has been cleared by the United States Food and Drug
Administration (US FDA) as an aid to weight management in adults
with a Body Mass Index (BMI) of 25-40 kg/m (2) , when used in
conjunction with diet and exercise. Important Safety Information:
Plenity is contraindicated in patients who are pregnant or are
allergic to cellulose, citric acid, sodium stearyl fumarate,
gelatine, or titanium oxide. Plenity may alter the absorption of
medications. Read Sections 6 and 8.3 of the Instructions for Use
carefully. Avoid use in patients with the following conditions:
oesophageal anatomic anomalies, including webs, diverticuli, and
rings; suspected strictures (such as patients with Crohn's
disease); or complications from prior gastrointestinal (GI) surgery
that could affect GI transit and motility. Use with caution in
patients with: active GI conditions such as gastro-oesophageal
reflux disease (GERD), ulcers, or heartburn. Overall, the most
common treatment related adverse events (TRAEs) were GI-related
TRAEs with 38 per cent of adults in the Plenity group and 28 per
cent of adults in the placebo group experiencing a GI-related TRAE.
The overall incidence of AEs in the Plenity group was no different
than the placebo group. Rx Only. For the safe and proper use of
Plenity, refer to the Instructions for Use.
Strategic report
Letter from the Chief Executive Officer
Making a difference in human health
The team at PureTech has consistently been united behind a
shared goal: to make a difference in human health by bringing truly
novel and differentiated therapeutics to patients where great needs
exist.
We are proud of our record of rapidly advancing therapies that
could prove transformational for millions of people who have long
struggled to find effective treatments. These potential
breakthroughs include Karuna's KarXT, which achieved the primary
endpoint in a Phase 2 clinical trial of acute psychosis in patients
with schizophrenia, a condition estimated to affect one per cent of
the population; our wholly-owned product candidate LYT-100, which
entered a clinical trial and has the potential to treat a range of
serious conditions related to fibrosis, inflammation and impaired
lymphatic flow, including lymphoedema, a condition that affects
approximately one million people in the United States and has no
FDA-approved drug treatment; our wholly-owned LYT-200 and LYT-210
programmes for intractable cancers, such as pancreatic cancer,
colorectal cancer and cholangiocarcinoma as well as
gastrointestinal autoimmune diseases; Vedanta's microbiome product
candidates, four of which are being evaluated in the clinic for the
potential treatment of severe infection, cancer, food allergy and
inflammatory bowel disease; Akili's digital therapeutics for
cognition and attention in multiple conditions, such as paediatric
attention deficit hyperactivity disorder, multiple sclerosis and
major depressive disorder; Follica's new approach to potentially
treat millions of men and women with androgenetic alopecia, which
is expected to enter a Phase 3 registration study in 2020; and -
importantly - Gelesis' Plenity(TM)(1) , a novel weight management
aid that was cleared by the US Food and Drug Administration in
April 2019, with a label that extends to approximately 150
million(2) people in the US with overweight and obesity.
That's a remarkable record of which I am very proud.
Leveraging strategic partnerships to accelerate programme
development has always been core to the PureTech strategy. In 2019,
a number of new collaborations were formed, including PureTech's
research collaboration with Boehringer Ingelheim to leverage
PureTech's proprietary lymphatic targeting technology for immune
modulation, starting in immuno-oncology; Akili's strategic
partnership with Shionogi & Co., Ltd to commercialise two of
Akili's digital medicine product candidates, AKL-T01 and AKL-T02,
in Japan and Taiwan; Gelesis' deal with leading US telehealth
provider Ro, making Plenity the first FDA-cleared weight management
aid and first primary care product to launch with both traditional
healthcare provider and telehealth services; and Alivio's
partnership with Imbrium Therapeutics L.P. to advance ALV 107, a
non-opioid treatment being developed for interstitial cystitis/
bladder pain syndrome.
Meanwhile, PureTech's scientific team and collaborators
continued to generate high quality publications and engage at
leading conferences. Among the highlights of 2019: cutting-edge
science being advanced by the Company was published in Nature and
the Proceedings of the National Academy of Sciences and presented
at the annual meetings of the Society for Immunotherapy of Cancer
(SITC) and the American Association for Cancer Research (AACR).
All of these programmes - and indeed, the underlying programmes
and platforms resulting in all 23 of the product candidates in
development across our Wholly Owned Pipeline and those of our
Founded Entities - were discovered and launched by PureTech's team
of world-class scientists and entrepreneurs. In fact, employees of
PureTech have contributed as inventors of key intellectual property
supporting nearly all of our Founded Entities. Our unique model for
drug development and value creation was validated again and again
over the course of last year: we now have 14 product candidates in
the clinic, spanning multiple modalities and indications, across
our wholly-owned programmes and our Founded Entities. These
milestones across the Wholly Owned Pipeline and Founded Entities
resulted in significant share price appreciation in 2019 and drove
value of several hundred millions of dollars, well beyond what was
reflected in our share price. There are many additional
value-driving milestones on the horizon.
We got to this point by thinking differently - very
differently.
Many biotech companies start with a target, a specific discovery
technology or a molecule. We start with a disease where there is
significant unmet need. Our unmatched network of experts helps us
scour the globe for breakthrough research that might suggest a new
way of tackling the disease. Long before it has hit scientific
journals, we've usually seen the best and most novel research in
our area of focus anywhere in the world. If we're intrigued, we
bring the concept or research into our labs and subject it to
rigorous evaluation designed to answer our key "sceptical"
questions. If it fails, we've lost little in the way of investment,
and we've gained substantial scientific knowledge along the way. If
it passes our stringent evaluation, we advance it to the next step
of research and development and in the process have de-risked the
concept.
Historically, we've housed many of those promising early
programmes in Founded Entities, of which we would initially own
close to one hundred per cent. Our model is unique in our industry,
where many companies face binary readouts that will determine their
fate. Biology is a surprising discipline, so we have chosen to
carefully spread risk across multiple wholly-owned programmes and
our Founded Entities. We saw this strategy validated in 2019 with
an outstanding Phase 2 clinical readout from Karuna Therapeutics
that generated nearly $600 million in value for PureTech as of 31
March 2020, along with a binary setback for resTORbio that resulted
in limited losses to PureTech. After resTORbio's disappointing
development, we were able to recover approximately half of our
investment; therefore, our total cash loss on resTORbio was only
around $10 million. This juxtaposition of two binary events is a
perfect example of how our model decreases the risk of any
individual event while creating the opportunity for tremendous
value realisation.
In the January 2020 post-period, we sold a minority of our
Karuna shares for approximately $200 million, and, while this was a
significant sale, we continue to own over 20 per cent of Karuna. In
addition to our equity stake, we also have a right to receive
royalty payments on net sales of its lead product.
While we continue to hold significant equity stakes in our
Founded Entities, which we believe will continue to grow and
potentially serve as a source of funding for us, we have also
embarked on a carefully considered strategy to focus on our
internal research programmes, backed by a stellar R&D team
helmed by chief scientific officer Joe Bolen, PhD. This Wholly
Owned Pipeline is exciting for its scientific promise in the areas
of immunology and oncology, and the potential it holds for
patients. This evolution of our model also allows us to more fully
capture the value of future milestones at a PureTech parent company
level.
In our Wholly Owned Pipeline, we already have a clinical stage
programme, which could be applicable to a range of conditions
involving fibrosis, inflammation and impaired lymphatic flow,
including lymphoedema, idiopathic pulmonary fibrosis (IPF),
interstitial pneumonias, unclassifiable interstitial lung disease
(uILD) and other interstitial lung disease (ILD), radiation-induced
fibrosis and focal segmental glomerulosclerosis (FSGS), multiple
immunomodulatory programmes for cancer and autoimmunity, and strong
milk exosome and lymphatic targeting platforms that hold promise
for expanding a variety of modalities, such as messenger RNA and
antisense, to new disease areas and treatment regimens. This work
has benefited enormously from our leadership position at the
forefront of Brain-Immune-Gut (BIG) and lymphatic biology, which
has given us unparalleled insights and an edge in identifying the
opportunities that will enable us to tackle some of the most
devastating diseases facing humans.
We used a similar lens to identify our immuno-oncology
candidates, undertaking a global, proactive search to discover
important new scientific insights and technologies that could
address the challenge of multiple mechanisms of immunosuppression
in current therapeutics. We identified pioneering research prior to
its publication that formed the basis for our two product
candidates, LYT-200 and LYT-210, and we are planning to file an
Investigational New Drug (IND) application for LYT-200 and initiate
a Phase 1a/1b in solid tumours in 2020.
COVID-19 perspective and update
Given our focus on making a difference in human health, we have
been closely monitoring the global SARS-CoV-2 (COVID-19) outbreak
since January and have put plans and contingencies in place to
enable our business to progress productively while doing our part
as global citizens. This pandemic has brought significant
healthcare concerns to the forefront, and we believe it will also
surface significant opportunities for the industry to innovate,
including the importance of telemedicine and fast monitoring and
screening. The broader community has also begun to glimpse the
power of a more collaborative and fast-moving approach engaging
academic, clinical and industry scientists - a collaborative and
inter-disciplinary problem-solving approach that PureTech has been
harnessing for years.
For the team at PureTech, our mission to develop new classes of
medicines for serious and underserved diseases will continue to be
driven by our internal capabilities and collaborations with our
network of leading experts in an effort to advance important
healthcare needs for vulnerable populations affected by
immunological diseases, severe infections, neurological disorders
and intractable cancers, among other serious disorders.
We've also demonstrated a longstanding commitment to healthcare
innovation, with our eyes set on identifying and addressing
significant unmet needs well ahead of the curve. For example, Sonde
is using seconds of voice that can be captured in consumer devices
to detect and quantify disease in a low to no-burden manner that
could allow for more proactive and potentially effective
interventions. Near-continuous health information, powered by
Sonde's technology, has the potential to improve screening,
monitoring and timeliness of high-cost conditions, broadly
improving outcomes and care efficiency in areas like mental health,
respiratory and cardiovascular disease. Gelesis is another example
of the forward thinking nature of the approaches that we have
taken. The Gelesis-Ro partnership is dedicated to high-quality
remote care for weight management and prescription fulfilment of
Plenity. Akili has also been building a commercial infrastructure
that is based on remote monitoring, care and fulfilment. These are
a few examples of the forward thinking remote medicine driven
approaches deployed across the Group.
Across our organisation, we have also taken measures to ensure
the safety and well-being of our employees while continuing to
execute against our business objectives. As of 8 April, we do not
believe that any of our ongoing work has been materially delayed,
but we do anticipate the strain on the global healthcare system may
eventually impact timelines, as healthcare providers rightly
prioritise acute, near-term needs. We are so grateful to those on
the front lines, and we have donated lab supplies and personal
protective equipment (PPE) to local hospitals to aid in their
heroic efforts.
Strong financing to support focused development
This was an unprecedented period for new capital raising for
PureTech and our Founded Entities with over $666.8 million raised,
$622.8 million of which came from third party investors.
At the PureTech level, we are in a strong cash position. With
the 31 December 2019 cash balance of $120.6 million(3) , we had
enough funding to extend operations into the first quarter of 2022.
Following the sale of Karuna common shares worth $200.9 million on
22 January 2020, our pro-forma cash reserves of $321.5 million(4)
will now extend operations over a four-year period into the first
quarter of 2024.
We also announced in July that we are exploring the potential
for a US listing on Nasdaq of American Depository Shares. Given the
catalysts of the past year and the strength of our current cash
position, we're still very much committed to considering the ADR
listing or other means to broaden our access to the US capital
markets, and we will launch that process from a position of
strength in due course. We believe we have built significant value
for our stakeholders across our growing clinical and preclinical
research programmes, business developments, regulatory achievements
and a deepened capital base, and we are committed to making sure
that value is realised by our shareholders.
I would like to thank Joep Muijrers, PhD, for helping to drive
these accomplishments in his role as chief financial officer (CFO).
Joep has recently moved to Europe with his family, and he will
continue to lead our portfolio analysis, monetisation and strategy
in his new role as chief of portfolio strategy, effective May 2020,
which is a natural fit with his significant background as a
portfolio manager. It is important to have someone based in Boston
full-time to manage operational aspects, so we have begun a search
for a new CFO. We have a strong finance team in place that will be
overseen by our chief operating officer, Stephen Muniz, Esq., who
has run this function for us in the past, until a new CFO is
selected.
I congratulate the PureTech team on an incredibly productive
year and thank our Board for their oversight and counsel. Our wide
network of collaborators continues to be incredible partners in our
shared vision of developing transformational treatments for
devastating diseases, and we look forward to deepening our work
together in the year ahead. To our shareholders - thank you for
your support in this exciting new phase of PureTech's development
as we focus on maximising the value of our ground-breaking
platform.
Daphne Zohar
Chief Executive
(1) Plenity has been cleared by the United States Food and Drug
Administration (US FDA) as an aid to weight management in adults
with a Body Mass Index (BMI) of 25-40 kg/m (2) , when used in
conjunction with diet and exercise. Important Safety Information:
Plenity is contraindicated in patients who are pregnant or are
allergic to cellulose, citric acid, sodium stearyl fumarate,
gelatine, or titanium oxide. Plenity may alter the absorption of
medications. Read Sections 6 and 8.3 of the Instructions for Use
carefully. Avoid use in patients with the following conditions:
oesophageal anatomic anomalies, including webs, diverticuli, and
rings; suspected strictures (such as patients with Crohn's
disease); or complications from prior gastrointestinal (GI) surgery
that could affect GI transit and motility. Use with caution in
patients with: active GI conditions such as gastro-oesophageal
reflux disease (GERD), ulcers, or heartburn. Overall, the most
common treatment related adverse events (TRAEs) were GI-related
TRAEs with 38 per cent of adults in the Plenity group and 28 per
cent of adults in the placebo group experiencing a GI-related TRAE.
The overall incidence of AEs in the Plenity group was no different
than the placebo group. Rx Only. For the safe and proper use of
Plenity, refer to the Instructions for Use.
(2) Plenity has been cleared by the United States Food and Drug
Administration (US FDA) as an aid to weight management in adults
with a Body Mass Index (BMI) of 25-40 kg/m (2) , when used in
conjunction with diet and exercise. A BMI of 25 kg/m (2) and over
is the accepted definition of overweight, and a BMI of 30 kg/m (2)
and above commonly defines obesity. Rx Only. For the safe and
proper use of Plenity, refer to the Instructions for Use.
(3) PureTech Level Cash Reserves represent cash balances and
short-term investments held at PureTech Health LLC, PureTech
Management, Inc., PureTech Health PLC, PureTech Securities
Corporation of $112.0 million for the year ended 2019 and the
internal pipeline of $8.6 million for the year ended 2019, all of
which are wholly-owned entities of PureTech, excluding cash
balances and short-term investments of Controlled Founded Entities.
The balance excludes the $200.9 million in proceeds from the 22
January 2020 sale of 2.1 million Karuna common shares.
(4) PureTech Level Pro-forma Cash Reserves is an alternative
performance measure (APM) which includes the PureTech Level Cash
Reserves of $120.6 million and the $200.9 million in proceeds from
the 22 January 2020 sale of 2.1 million Karuna common shares.
PureTech Pro-forma Cash Reserves is therefore considered to be more
representative of the Corporate's cash available for the year 2020
and beyond to advance product candidates within the full breadth of
its operations.
Letter from the Chief Scientific Officer
This has been a year of immense excitement for PureTech's
formidable R&D team as we built out and advanced a promising
Wholly Owned Pipeline that leverages our leadership position in the
Brain - Immune - Gut (BIG) Axis and the lymphatic system in service
of our mission to develop new classes of medicines for serious and
underserved diseases.
As our Founded Entities advance a number of highly
differentiated approaches targeting the BIG Axis, we have a strong
focus in our internal programmes on the lymphatic system and
related immunology mechanisms. We have been harnessing our
understanding of the underappreciated lymphatic infrastructure to
develop immunomodulatory drugs to treat an array of serious
diseases, including lymphatic and immunological disorders and
intractable cancers.
We're thrilled that our most advanced wholly- owned programme,
LYT - 100, has entered the clinic, with the first participants
dosed in a Phase 1 multiple ascending dose study in March 2020. LYT
- 100 is a deuterium - containing analogue of pirfenidone, which is
approved for the treatment of idiopathic pulmonary fibrosis (IPF)
in the United States, European Union and a number of other
countries. Pirfenidone has also recently been granted Breakthrough
Therapy designation from the FDA for unclassifiable interstitial
lung disease (uILD). LYT - 100 retains the same intrinsic
pharmacology of pirfenidone, while potentially improving its
tolerability and safety through its enhanced pharmacokinetic
profile. LYT - 100 previously completed a Phase 1 clinical trial
conducted by Auspex Pharmaceuticals (now a wholly - owned
subsidiary of Teva Pharmaceuticals) for another indication, and it
may hold therapeutic potential across a range of disorders
characterised by fibrosis, inflammation and impaired lymphatic
flow.
We are initially evaluating LYT - 100 for the potential
treatment of lymphoedema, a painful and chronic condition that can
lead to disability, disfigurement and risks of serious
comorbidities. There are currently no FDA - approved drugs for
lymphoedema; the standard of care is management, primarily via
compression and physical therapy. We hope to bring this large
patient population - estimated to be at least one million people in
the US alone - the first drug to address the root cause of this
debilitating disease, and we plan to initiate a proof - of -
concept study in patients with breast cancer-related secondary
lymphoedema later this year.
LYT - 100 also has the potential to treat a range of fibrotic
and inflammatory conditions of the lung, kidney, liver and other
organs, including IPF, interstitial pneumonias, uILD and other
interstitial lung disease (ILD), radiation-induced fibrosis and
focal segmental glomerulosclerosis (FSGS). There are several lung
diseases that have a common mechanism of fibrosis and inflammation.
There are acute diseases that have high mortality and lead to long
-- term fibrosis. There are chronic diseases linked to a specific
cause, like a virus or autoimmune disease. And there are diseases
like idiopathic pulmonary fibrosis (IPF), where the cause is
unclear. Outside of IPF, there are no approved treatments that
address inflammation and fibrosis. Many of these diseases can
increase risk for worsening lung fibrosis, and there is a clear
unmet need to stop inflammation and fibrosis and preserve lung
function. We have GMP supply of LYT - 100 from our ongoing Phase 1,
multiple ascending dose study, which is designed to evaluate the
safety, tolerability and pharmacokinetics of LYT - 100, and we have
increased our clinical supply and are actively pursuing a path
forward for this candidate for the treatment of fibrotic and
inflammatory disorders in 2020.
We are also delighted with the progress of both our novel, fully
- human monoclonal antibody candidates targeting powerful
immunosuppressors to treat intractable cancers and other immune
disorders. We are advancing LYT - 200, which targets galectin - 9
for a range of cancer indications, and LYT--210, which targets
<GAMMA> 1 T cells for a range of solid tumours and autoimmune
disorders. We were proud to present significant - and quite
encouraging - preclinical findings for these candidates at the
Society for Immunotherapy of Cancer (SITC) 34th Annual Meeting and
the American Association for Cancer Research (AACR) 110th Annual
Meeting.
For LYT - 200, we have shown preliminary proof-of-concept in
both human organoids and preclinical cancer models. We're
particularly excited about this compound because galectin - 9 is a
foundational immunosuppressive protein that is prominently
expressed in a number of cancers, especially in hard - to - treat
cancers, such as colorectal and pancreatic cancer and
cholangiocarcinomas. This is aligned with our mission to deliver
transformative therapies to patients with serious diseases who are
not well served by existing therapies. We intend to file an
Investigational New Drug (IND) application for LYT - 200 in 2020
and anticipate initiating a Phase 1a/1b in solid tumours soon
after.
LYT - 210 targets pathogenic and immunosuppressive <GAMMA>
1 T cells. To our knowledge, no other company is developing a
candidate against this target. We believe LYT - 210 has strong
potential as a novel immuno - oncology agent acting against solid
tumours by killing immunosuppressive <GAMMA> 1 T cells. We
also plan to evaluate it in autoimmune diseases affecting the
gastrointestinal (GI) tract.
In addition to these three product candidates, our R&D team
is exploring other mechanisms to modulate lymphatic flow throughout
the body and brain. This is a cutting - edge line of inquiry,
driven in part by ground-breaking research from one of our
collaborators, Jonathan Kipnis, PhD. He discovered a functional
lymphatic system in the meninges of the brain and then demonstrated
that blocking the lymphatic flow in the meninges leads to an
accumulation of pathogenic macromolecules, such as amyloid - beta
and tau, which are both associated with Alzheimer's disease, and
alpha-synuclein, which is associated with Parkinson's disease. This
research adds to the large body of evidence we have developed about
the crucial role of the lymphatic system in health and disease. In
the past year, we have made significant progress in mapping the
lymphatics networks in the brain - something that has never been
done before.
This meningeal discovery platform is just one plank of our
internal R&D. Lymphatic flow also plays a critical role in the
immune and GI systems. Our insights into these connections have
guided our development of two additional discovery platforms: a
synthetic lymphatic targeting chemistry platform and a milk exosome
platform.
In April of 2019, we announced a research collaboration with
Boehringer Ingelheim to develop novel product candidates to
leverage our proprietary lymphatic targeting chemistry platform for
immune modulation. The collaboration will initially focus on
applying our technology to an immuno - oncology product candidate.
By masking the drug as a fat, we hope to steer it into the
lymphatic vasculature and thereby send it directly to the gut,
where it will come into direct contact with the tumour cells it's
targeting. Outside of the specific programmes covered under this
partnership, we have maintained ownership for all other
applications, which we will advance through both our own discovery
efforts and other potential partnerships.
We have also made significant progress with our milk exosome
technology for the oral administration of macromolecules. This
technology is designed to ferry macromolecular medicines, such as
peptides, proteins and nucleic acids, to selected mucosal cell
types of the intestinal tract where the therapeutics act either
directly in the GI tract, transit through the mucosa to the
underlying lymphatic vascular network or, in the case of cargos
that yield mRNAs, produce complex biologics such as antibodies
within mucosal cells that are secreted into the mucosal lymphatic
vascular network for subsequent systemic distribution. We believe
our proprietary milk exosome technology has the potential to
transform the treatment paradigm for a number of serious diseases,
such as rheumatoid arthritis, diabetes and cancer, in which the
standard of care requires intravenous infusion or subcutaneous
injection of monoclonal antibodies (e.g. anti-PD1, anti - TNF) or
protein/peptides (e.g. GLP--1, <BETA>-glucocerebrosidase,
Factor IX, Erythropoietin). Using our milk exosome technology, it
may be possible for a patient to take an oral drug product that
will permit their own GI tract cells to make virtually any type of
therapeutic protein. This approach also has the potential to
provide a more convenient and significantly less expensive means to
deliver biological medicines.
This approach is particularly relevant as world health
authorities consider the potential impact of infectious diseases,
and the clear utility of providing passive immune protection for
those most seriously affected, as well as for health care
professionals on the front line of treatment has been highlighted.
Towards this goal, scientists around the world have generated
monoclonal antibodies that have the ability to lessen the impact of
disease in SARS-CoV - 2 infected individuals and lower the inter -
individual transmission rate. However, the lengthy time required to
produce sufficient supplies of such monoclonal antibodies by
standard manufacturing processes, accompanied by the significant
manufacturing cost and the need for intravenous monoclonal antibody
infusion, render this approach less than ideal. This is underscored
if it turns out that not one, but two, or potentially three
anti-virus antibodies need to be combined in order to achieve virus
control. In contrast, the milk exosome platform may allow for rapid
transfer of the DNA sequences or other nucleic acid expression
systems coding for the monoclonal antibodies into the milk
exosomes, thereby enabling the body to make its own "drug" and
permitting oral administration at significantly lower cost than
traditional approaches. Importantly, we believe this approach will
permit the generation of multiple antibody combinations where
needed for more optimal therapeutic efficacy. Thus, whether
combating emerging epidemic/pandemic pathogens or other diseases
where monoclonal antibody therapeutics offer significant clinical
benefit, our milk exosome platform has the potential to transform
the range of biotherapeutics clinical indications while also
lowering costs and simplifying administration. As you can see, this
has been quite a momentous year for PureTech's R&D team. It's
exciting to see what we have been able to accomplish since we
combined our labs and corporate activities in our new headquarters
in Boston's Seaport District. The first thing you see when you step
off the elevator is the lab, front and centre, which buzzes with
energy and ideas. It's a statement about our commitment to science
leading the way as we tackle important diseases.
Our insights into to the lymphatic system have paved the way for
pioneering drug discovery. Our internal team and our global network
of collaborators bring unmatched experience to bolster these
efforts. Most importantly, we all share an unquenchable drive to
transform the lives of patients, and I am overjoyed to see this
aspiration coming to fruition through several of our Founded
Entities. We are proud of what we've accomplished across the
organisation in 2019 and are excited about the milestones to come.
I look forward to sharing updates as we advance towards these
goals.
Joseph Bolen
Chief Scientific Officer
How PureTech is building value for investors
PureTech, which is comprised of PureTech Health plc and its
Founded Entities (together, "the Group"), is a clinical-stage
biotherapeutics company dedicated to discovering, developing and
commercialising highly differentiated medicines for devastating
diseases, including intractable cancers, lymphatic and
gastrointestinal (GI) diseases, central nervous system (CNS)
disorders and inflammatory and immunological diseases, among
others.
PureTech established the underlying programmes and platforms
that have resulted in 23 product candidates and one product cleared
by the US Food and Drug Administration (FDA) that are being
advanced within PureTech's Wholly Owned Pipeline or by its Founded
Entities.
All of these underlying programmes and platforms were initially
identified or discovered and then advanced by PureTech through key
validation points based on the Company's unique insights into the
biology of the Brain, Immune and Gut (BIG) systems and the
interface between those systems (the BIG Axis).
The architectural framework supporting BIG Axis cross - talk is
built on evidence highlighting the presence of 70 per cent of the
entire immune cell population in the gut, approximately 500 million
neurons innervating the GI tract, enteric neurons as part of the
autonomic nervous system and key components such as the gut
epithelial barrier, microbiome, metabolites and neurotransmitters
that play important roles in protecting and influencing the immune
system and CNS.
The brain, immune system and gut lymphatic system form an
interconnected adaptive network to respond to acute and chronic
environmental change. Using the immune system to act as a bridge,
the body relies on the bidirectional relationship between the gut
and brain to maintain normal homoeostasis. Dysregulation of immune
signalling through gut inflammation, microbiome changes and a
compromised intestinal barrier all contribute to a range of
immunological, GI and CNS disorders. PureTech has been at the
forefront of research and development in the BIG Axis, including
the role of gut - immune transport, immune - microbial signalling,
gut barrier dysfunction and repair and gut and inflammation
selective targeting strategies. Through the Company's wholly -
owned programmes, PureTech is pursuing strategies to directly reach
the immune system via the mesenteric lymph nodes, addressing
lymphatic flow and vessel restoration disorders and targeting
immunosuppressive and pathogenic lymphocytes.
PureTech's team, network and expertise in the BIG Axis enable it
to identify and advance the latest scientific discoveries at the
interface of the BIG systems. PureTech begins by collaborating with
a cross - disciplinary group of experienced clinicians and the
world's leading experts in brain, immune and gut biology in a
discovery process that breaks down specific diseases and
comprehensively identifies, reviews and empirically tests
unpublished scientific discoveries in a modality agnostic and
unbiased way. Through this process, PureTech prioritises approaches
that have the potential to reduce early development risk based on
preliminary signals of human efficacy and favourable expected
safety profiles. PureTech identifies potential programmes from
their laboratories of origin, other companies or its own internal
discovery platforms. The Company's key relationships have
consistently provided access to important discoveries before they
were known to others in the industry. This proactive approach has
enabled PureTech to license or file patents around the discoveries
underlying its Wholly Owned Pipeline and Founded Entities' product
candidates prior to the publication of that work in dozens of
papers in top tier scientific journals like Science, Cell and
Nature.
This model has enabled PureTech to rapidly convert these
findings into valuable therapeutic product candidates.
Historically, these programmes and product candidates have been
developed with strategic allies, including equity partners who
helped advance those programmes via PureTech's Founded Entities. As
these programmes have succeeded and PureTech's resources have
grown, the Company has increasingly focused on its wholly-owned
programmes.
PureTech will continue to leverage its experience and network
with the goal of identifying, inventing, developing and
commercialising innovative new therapeutics leveraging the science
of the BIG Axis to address significant medical needs. This also
enables the accretion of value via three paths as illustrated
above. The first is centred on the development of PureTech's wholly
- owned programmes, which includes three product candidates (LYT -
100, LYT - 200 and LYT - 210) and three innovative technology
platforms. The second is based on the strategic monetisation of
PureTech's equity holdings in its Founded Entities after
significant value creation has occurred. The third is through
advancing PureTech's discovery programmes by partnering non - core
applications via non - dilutive funding sources, including
partnerships and grants, to enable retention of value.
This combination of development of the wholly - owned
programmes, advancement of the Founded Entities and non - dilutive
partnerships and funding provides a unique and multi - pronged
engine fuelling potential future growth.
As part of PureTech's commitment to driving value for
shareholders, the Company announced in July 2019 that it is
exploring the potential for a US listing on Nasdaq of American
Depository Shares. Given the catalysts of 2019 and the strength of
the Company's current cash position, PureTech is assessing the ADR
listing or other means to access US capital and will launch that
process in due course.
Risk management
The execution of the Group's strategy is subject to a number of
risks and uncertainties. As a developer of advanced and early stage
technologies addressing significant unmet medical needs, the Group
inherently operates in a high-risk environment. The overall aim of
the Group's risk management effort is to achieve an effective
balancing of risk and reward, although ultimately no strategy can
provide an absolute assurance against loss.
Risks are formally identified by the Board and appropriate
processes are put in place to monitor and mitigate them on an
ongoing basis. If more than one event occurs, it is possible that
the overall effect of such events would compound the possible
effect on the Group. The principal risks that the Board has
identified as the key business risks facing the Group are set out
in the table below along with the consequences and mitigation of
each risk. Any number of these could have a material adverse effect
on the Group or its financial condition, development, results of
operations, subsidiary companies and/or future prospects.
1. Risks related to science and technology failure
The science and technology being developed or commercialised by
some of the Group's businesses may fail and/or the Group's
businesses may not be able to develop their intellectual property
into commercially viable products or technologies.
There is also a risk that certain of the businesses may fail or
not succeed as anticipated, resulting in significant decline of the
Group's value.
Impact: The failure of any of the Group's businesses could
decrease the Group's value. A failure of one of the major
businesses could also impact on the perception of the Group as a
developer of high value technologies and possibly make additional
fundraising at the PureTech or subsidiary company level more
difficult.
Mitigation : Before making any decision to develop any
technology, extensive due diligence is carried out by the Group
that covers all the major business risks, including technological
feasibility, market size, strategy, adoption and intellectual
property protection.
A capital efficient approach is pursued such that some level of
proof of concept has to be achieved before substantial capital is
committed and thereafter allocated. Capital deployment is generally
tranched so as to fund programmes only to their next value
milestone. Members of the Group's Board serve on the Board of
directors of each business so as to continue to guide each
business's strategy and to oversee proper execution thereof. The
Group uses its extensive network of advisors to ensure that each
business has appropriate domain expertise as it develops and
executes on its strategy. Additionally, the Group has a diversified
model with numerous assets such that the failure of any one of the
Group's businesses would not result in a significant decline of the
Group's value.
2. Risks related to clinical trial failure
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.
Impact : A critical failure of a clinical trial may result in
termination of the programme and a significant decrease in the
Group's value. Significant delays in a clinical trial to support
the appropriate regulatory approvals could impact the amount of
capital required for the business to become fully sustainable on a
cash flow basis.
Mitigation : The Group has a diversified model such that any one
clinical trial outcome would not significantly impact the Group's
ability to operate as a going concern. It has dedicated internal
resources to establish and monitor each of the clinical programmes
in order to try to maximise successful outcomes. Significant
scientific due diligence and preclinical experiments are done prior
to a clinical trial to attempt to assess the odds of the success of
the trial. In the event of the outsourcing of these trials, care
and attention is given to assure the quality of the vendors used to
perform the work.
3. Risks related to regulatory approval
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.
Impact: The failure of one of the Group's products to obtain any
required regulatory approval, or conditions imposed in connection
with any such approval, may result in a significant decrease in the
Group's value.
Mitigation: The Group manages its regulatory risk by employing
highly experienced clinical managers and regulatory affairs
professionals who, where appropriate, will commission advice from
external advisors and consult with the regulatory authorities on
the design of the Group's preclinical and clinical programmes.
These experts ensure that high-quality protocols and other
documentation are submitted during the regulatory process, and that
well-reputed contract research organisations with global
capabilities are retained to manage the trials. Additionally, the
Group has a diversified model with numerous assets such that the
failure to receive regulatory approval or subsequent regulatory
difficulties with respect to any one product would not result in a
significant decline of the Group's value.
4. Risks related to product safety
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. These risks are also applicable to our
Founded Entities and any trials they conduct or product candidates
they develop.
Impact: Adverse reactions or unacceptable side effects may
result in a smaller market for the Group's products, or even cause
the products to fail to meet regulatory requirements necessary for
sale of the product. This, as well as any claims for injury or harm
resulting from the Group's products, may result in a significant
decrease in the Group's value.
Mitigation: The Group designs its products with safety as a top
priority and conducts extensive preclinical and clinical trials
which test for and identify any adverse side effects. Insurance is
in place to cover product liability claims which may arise during
the conduct of clinical trials.
5. Risks related to product profitability
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. These risks are also applicable to our
Founded Entities and could result in a decrease in their value.
Impact : The failure of the Group to obtain reimbursement from
third party payers, as well as competition from other products,
could significantly decrease the amount of revenue the Group may
receive from product sales for certain products. This may result in
a significant decrease in the Group's value.
Mitigation : The Group engages reimbursement experts to conduct
pricing and reimbursement studies for its products to ensure that a
viable path to reimbursement, or direct user payment, is available.
The Group also closely monitors the competitive landscape for all
of its products and adapts its business plans accordingly.
6. Risks related to intellectual property protection
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.
Impact : The failure of the Group to obtain patent protection
and maintain the secrecy of key information may significantly
decrease the amount of revenue the Group may receive from product
sales. Any infringement litigation against the Group may result in
the payment of substantial damages by the Group and result in a
significant decrease in the Group's value.
Mitigation : The Group spends significant resources in the
prosecution of its patent applications and has an in-house patent
counsel. Third party patent filings are monitored to ensure the
Group continues to have freedom to operate. Confidential
information (both of the Group and belonging to third parties) is
protected through use of confidential disclosure agreements with
third parties, and suitable provisions relating to confidentiality
and intellectual property exist in the Group's employment and
advisory contracts. Licenses are monitored for compliance with
their terms.
7. Risks related to enterprise profitability
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.
Impact : The strategic aim of the business is to generate
profits for its shareholders through the commercialisation of
technologies through product sales, strategic partnerships and
sales of businesses. The timing and size of these potential inflows
is uncertain, and should revenues from our activities not be
achieved, or in the event that they are achieved but at values
significantly less than the amount of capital invested, then it
would be difficult to sustain the Group's business.
Mitigation : The Group retains significant cash in order to
support funding of its Founded Entities and its Wholly Owned
Pipeline. The Group has close relationships with a wide group of
investors and strategic partners to ensure it can continue to
access the capital markets and additional monetisation and funding
for its businesses. Additionally, its Founded Entities are able to
raise money directly from third party investors and strategic
partners.
8. Risks related to hiring and retaining qualified employees
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.
Impact : The failure to attract highly effective personnel or
the loss of key personnel would have an adverse impact on the
ability of the Group to continue to grow and may negatively affect
the Group's competitive advantage.
Mitigation : The Board annually seeks external expertise to
assess the competitiveness of the compensation packages of its
senior management. Senior management continually monitors and
assesses compensation levels to ensure the Group remains
competitive in the employment market. The Group maintains an
extensive recruiting network through its Board members, advisors
and scientific community involvement. The Group also employs an
executive as a full-time in-house recruiter.
9. Risks related to business, economic or public health disruptions
Business or economic disruptions or global health concerns could
seriously harm our development efforts and increase our costs and
expenses.
Impact : Broad-based business or economic disruptions could
adversely affect our ongoing or planned research and development
activities. For example, in December 2019 an outbreak of a novel
strain of coronavirus originated in Wuhan, China, and has since
spread to a number of other countries, including the United States.
To date, this outbreak has already resulted in extended shutdowns
of certain businesses around the world. Global health concerns,
such as coronavirus, could also result in social, economic, and
labour instability in the countries in which we or the third
parties with whom we engage operate. We cannot presently predict
the scope and severity of any potential business shutdowns or
disruptions, but if we or any of the third parties with whom we
engage, including the suppliers, clinical trial sites, regulators
and other third parties with whom we conduct business, were to
experience shutdowns or other business disruptions, our ability to
conduct our business in the manner and on the timelines presently
planned could be materially and negatively impacted. It is also
possible that global health concerns such as this one could
disproportionately impact the hospitals and clinical sites in which
we conduct any of our current and/or future clinical trials, which
could have a material adverse effect on our business and our
results of operation and financial impact.
Mitigation : To date, we have seen limited impact on our
research and development activities and the operation of our
company more generally, but we will continuously monitor this
pandemic and its impact on our business going forward and may see
further impact as the situation continues to develop.
Brexit
The United Kingdom withdrew from the European Union on 31
January 2020 (Brexit). However, it remains unclear what the
regulatory and economic position will be for the United Kingdom
after the transition period ends on 31 December 2020. The
uncertainty in the political, economic and regulatory landscape is
expected to continue while negotiations between the United Kingdom
and the European Union continue to establish an exit agreement and
ongoing trade arrangements. The uncertainty surrounding Brexit has
and may continue to contribute to volatility in the prices of
securities of companies listed in Europe and currency exchange
rates, including the valuation of the euro and British pound in
particular. Any one of these factors, or the combination of more
than one of these factors, could negatively affect such foreign
securities market and the price of securities therein.
Although the Board has considered the potential impact of Brexit
as part of its risk management, given that the Group principally
operates in the United States and holds substantially all assets in
US dollars, the Group does not believe there will be any material
financial effect on our business, or any significant operational
issues which could arise, as a result of Brexit.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
By Order of the Board
Stephen Muniz
Company Secretary
8 April 2020
Financial Review
Financial Highlights
2019 2018
$ millions $ millions
Cash Reserves
Consolidated Cash Reserves(1) 162.4 250.9
Consolidated Pro-Forma Cash Reserves - Alternative
Performance Measure (APM)(1,3) 363.3 -
PureTech Level Cash Reserves(2) 120.6 178.2
PureTech Level Pro-Forma Cash Reserves - Alternative
Performance Measure (APM)(2,4) 321.5 -
Results of Operations
Revenue 9.8 20.7
Operating Loss (135.4) (104.0)
Adjusted Operating Loss - Alternative Performance
Measure (APM)(5) (114.3) (88.6)
Income/(loss) for the Period 366.1 (70.7)
Adjusted Loss for the Period - Alternative Performance
Measure (APM)(6) (112.4) (83.7)
======================================================= ------------ ------------
1. Consolidated Cash Reserves includes cash balances of $132.4
million and $117.1 million, and short-term investments of $30.1
million and $133.8 million for the year ended 2019 and 2018,
respectively as shown on the Consolidated Statements of Financial
Position.
2. PureTech Level Cash Reserves represent cash balances and
short-term investments held at PureTech Health LLC, PureTech
Management, Inc., PureTech Health PLC, PureTech Securities
Corporation of $112.0 million and $177.7 million for the year ended
2019 and 2018, respectively, and the internal pipeline of $8.6
million and $0.5 million for the year ended 2019 and 2018,
respectively, all of which are wholly owned entities of PureTech,
excluding cash balances and short-term investments of Controlled
Founded Entities.
3. Consolidated Pro-Forma Cash Reserves is an alternative
performance measure (APM) which includes the Consolidated Cash
Reserves of $162.4 million and the $200.9 million in proceeds from
the 22 January 2020 sale of 2.1 million Karuna common shares. As of
13 March 2020, PureTech Health held 5.3 million common shares, or
20.3 per cent of Karuna. Consolidated Pro-Forma Cash Reserves is
therefore considered to be more representative of the Group's cash
available for the year 2020 and beyond to advance product
candidates within the full breadth of its operations.
4. PureTech Level Pro-Forma Cash Reserves is an alternative
performance measure (APM) which includes the PureTech Level Cash
Reserves of $120.6 million and the $200.9 million in proceeds from
the 22 January 2020 sale of 2.1 million Karuna common shares.
PureTech Pro-Forma Cash Reserves is therefore considered to be more
representative of the Corporate's cash available for the year 2020
and beyond to advance product candidates within the full breadth of
its operations.
5. Stated before the effect of non-cash charges consisting of
share-based payments of $14.5 million (2018 - $12.6 million),
depreciation of $3.2 million (2018 - $2.5 million) and amortisation
of $3.4 million (2018 - $0.3 million). Non-cash items are excluded
due to the fact that the Group's businesses require cash investment
in order to operate and continue with their R&D activities.
Adjusted operating loss is therefore considered to be more
representative of the operating performance of the Group and an
appropriate alternative performance measure.
6. Stated before the charges discussed in Note 5 above as well
as fair value accounting costs of $46.5 million (2018 - charge of
$22.6 million) and finance cost - subsidiary preferred shares of
$1.5 million (2018 - $0.1 million) and share of net gain/ (loss) of
associates accounted for using the equity method of $30.8 million
(2018 - ($11.5) million). Adjusted Loss for the Period is also
adjusted for impairment of investment in associate totalling $42.9
million (2018 - nil), the non-cash gain from the deconsolidation of
subsidiary of $264.4 million (2018 - $41.7 million), a Loss on
investments held at fair value of $37.9 million (2018 - $34.6), and
tax impact of $112.4 million. Adjusted Loss for the Period is
further adjusted for the Gain on Loss of Significant Influence of
$445.6 million for the year ended 31 December 2019 (2018 - $10.3
million). These items are also non-cash expenses and income,
respectively. Adjusted loss for the period is therefore considered
to be more representative of the operating performance of the
Group.
Revenue
Revenue for 2019 relates primarily to the Internal segment's
agreements with Roche and Boehringer Ingelheim, and Entrega's
research collaboration agreement with Eli Lilly, as well as the
Alivio's agreement with Imbrium Therapeutics, and grant revenue.
Future revenue may be earned under existing license and
collaboration agreements, as well as under grant awards. Management
evaluates opportunities to enter new license and collaboration
agreements with the aim of balancing the potential value of these
partnerships with our interest in retaining ownership over our
programmes as they achieve meaningful milestones. Revenue from
license and collaboration agreements during the development and
approval period is typically driven by the achievement of
contractual milestones, which tend to be event-driven. Furthermore,
grant revenues are typically associated with specific deliverables
that have finite timelines and do not extend over long periods.
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
Operating Losses increased by 30.2 per cent, or $31.4 million,
for the year ended 31 December 2019 compared to the year ended 31
December 2018. The largest driver of the increase was the increase
in research and development expenditures within the Internal
segment. In 2019, the Group continued to shift its focus towards
the Internal segment, investing in research and development
activities to advance a wholly owned pipeline of lymphatic system
and related immuno-oncology programmes. We progressed LYT-100 and
LYT-200 towards first patient dosing in 2020. Research and
development expenditures within the Internal segment increased by
190.9 per cent, or $17.0 million, for the year ended 31 December
2019 compared to the year ended 31 December 2018.
Within the Internal segment, general and administrative expenses
increased by $0.9 million, or 59.2 per cent, for the year ended 31
December 2019 compared to the year ended 31 December 2018. The
year-over-year increase in general and administrative expenses
reflects costs incurred in conjunction with the move to new
corporate headquarters and labs in Boston's Seaport area and the
subsequent development of this space, as well as wage and benefit
growth related to increased headcount.
The Group continued to support research and development
activities within its Controlled Founded Entities segment, which
resulted in an increase of 15.8 per cent, or $5.8 million, for the
year ended 31 December 2019 compared to the year ended 31 December
2018. As the Controlled Founded Entities approached meaningful
milestones, general and administrative expenses within the
Controlled Founded Entities segment increased by $4.2 million or
40.7 per cent for the year ended 31 December compared to the year
ended 31 December 2019.
The Parent segment continued to support the operating activities
of the Internal and Controlled Founded Entities segments. General
and administrative expenses increased by $12.8 million, or 66.8 per
cent, for the year ended 31 December 2019 compared to the year
ended 31 December 2018. In 2019, the Parent segment incurred
one-time costs associated with the acquisition of minority
interests in internal pipeline programmes, the move to Boston's
Seaport area, and additional tax expense related to share based
payment awards.
The Directors anticipate that operating expenses, particularly
research and development-related expenses, will continue to
increase as the Group advances its pipeline. These operating
expenses will include regulatory activities, conducting 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
increases in overall corporate expenses.
Net finance costs
Net finance costs excluding finance income/(costs) in respect of
fair value accounting (2019 - $46.5 million expense ; 2018 - $22.6
million income) and finance costs - subsidiary preferred shares
(2019 - $1.5 million expense; 2018 - $0.1 million expense) resulted
in income of $1.8 million for the year ended 31 December 2019
compared to income of $3.4 million for the year ended 31 December
2018, a decrease in income of $1.6 million. 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 $4.4
million and $3.4 million of income from interest earned on these
securities for the years ended 31 December 2019 and 2018,
respectively. The increase in interest income was more than offset
by an increase in contractual finance costs of $2.6 million for the
year ended 31 December 2019 in respect of the Company's lease
obligations. The lease obligations resulted from the adoption of
IFRS 16 Leases as of 1 January 2019 as well as from new lease
agreements the Company entered into during the year ended 31
December 2019. Therefore no such finance costs exist for the year
ended 31 December 2018.
During the year ended 31 December 2019, the Group recognised
finance costs related to fair value accounting of $46.5 million, as
compared to a finance income related to fair value accounting for
the year ended 31 December 2018 of $22.6 million. The costs
generated within Finance income/(costs) - fair value accounting
during 2019 is primarily attributable to the increase in fair value
of the Group's investments in Follica, Sonde and Vedanta as well as
Gelesis during the period of consolidation in addition to Sonde and
Vedanta preferred share issuances during the year.
The balance of subsidiary preferred shares held by external
parties, and therefore the related balance of the aggregate
liquidation preference, decreased during 2019 due to the
deconsolidations of Vor, Karuna and Gelesis, which was partially
offset by new issuances of Series A-2 preferred shares by Sonde and
Series C and C-2 preferred shares by Vedanta. Please refer to Note
15 in the financial statements for more information.
During the year ended 31 December 2019, the Group realised a
year-over-year decrease of $72.1 million as it recognised finance
costs of $46.1 million, compared to a finance income of $25.9
million for the year ended 31 December 2018. The decrease resulted
from the change in fair value of the Group's investments in the
common and preferred shares of other entities.
Deconsolidations
Vor
In February 2019, Vor completed the first closing of its Series
A-2 preferred shares financing round. As a result of this closing,
PureTech Health's ownership percentage of Vor's voting shares
dropped from 79.5 per cent to 47.5 per cent , triggering
deconsolidation. Although PureTech Health no longer controls Vor,
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 Vor's Board of Directors.
Upon deconsolidation, PureTech Health recognised the fair value
of the Series A-1 and Series A-2 preferred shares (collectively the
"Vor preferred shares"), resulting in a gain of $6.4 million. The
Vor preferred shares were classified as an Investment held at fair
value upon deconsolidation.
PureTech Health does not hold common shares in Vor and therefore
is not subject to equity method accounting under IAS 28. PureTech
Health will continue to account for the Vor preferred shares as an
Investment held at fair value until such time that Vor Preferred
Shares is converted to common shares. Please refer to Note 5 in the
financial statements for further information.
Karuna
In March 2019, Karuna completed a Series B preferred shares
financing round. As a result of this financing, PureTech Health's
ownership percentage of Karuna's voting shares dropped from 70.9
per cent to 44.3 per cent, triggering deconsolidation. Upon the
date of deconsolidation, PureTech Health held preferred shares,
preferred share warrants and common shares of Karuna. Although
PureTech Health no longer controlled Karuna, PureTech Health
maintained 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
Karuna's Board of Directors through December 2019.
Upon deconsolidation, PureTech Health recognised the fair value
of the Karuna preferred shares and the preferred shares warrant,
resulting in a gain of $102.0 million. The Karuna preferred shares
and warrant were classified as Investments held at fair value upon
deconsolidation. PureTech Health's investment in the common shares
of Karuna is subject to equity method accounting following
deconsolidation and has been adjusted for PureTech Health's share
of Karuna's net income or loss. Due to the relatively small initial
fair value of the common shares investment, it was remeasured to
nil immediately following deconsolidation.
In June 2019, Karuna completed an initial public offering
("IPO"). Upon completion of the IPO, the Karuna preferred shares
held by PureTech Health converted to common shares. In light of
PureTech's common share holdings in Karuna and corresponding voting
rights, PureTech had re-established a basis to account for its
investment in Karuna under the equity method. The preferred shares
investment held at fair value was therefore reclassified to an
investment in associate upon completion of the conversion and the
Company recognised a gain of $40.6 million related to the IPO.
Subsequent to the IPO, PureTech's ownership percentage of Karuna's
voting shares was 31.6 per cent.
In December 2019, it was concluded that PureTech Health no
longer exerted significant influence over Karuna. As a result,
Karuna was no longer deemed an associate of PureTech Health and did
not meet the scope of equity method accounting. Upon PureTech
Health's loss of significant influence, the investment in Karuna
was reclassified to an investment held at fair value and PureTech
Health recognised a gain on loss of significant influence of Karuna
of $445.6 million. Please refer to Note 5 in the financial
statements for further information.
Gelesis
In July 2019, the Gelesis Board of Directors was restructured,
resulting in two of the three PureTech representatives resigning
from the Board and triggering the deconsolidation of Gelesis. At
the deconsolidation date, PureTech held 25.2 per cent of the
outstanding voting shares of Gelesis. While the Company no longer
controls Gelesis, it was concluded that PureTech Health still had
significant influence over Gelesis by virtue of its large, albeit
minority, ownership stake and its continued representation on
Gelesis' Board of Directors.
Upon the date of deconsolidation, PureTech Health held preferred
shares and common shares of Gelesis, as well as a preferred share
warrant. Upon deconsolidation, PureTech Health recognised the fair
value of the Gelesis preferred shares and the preferred shares
warrant resulting in a gain of $156.0 million. The Gelesis
preferred shares and warrant were classified as Investments held at
fair value upon deconsolidation. As PureTech Health is able to
demonstrate that it has significant influence over Gelesis,
PureTech Health's investment in the Gelesis common shares will be
subject to equity method accounting following deconsolidation and
will subsequently be adjusted for PureTech Health's share of
Gelesis' net income or loss. Please refer to Note 6 in the
financial statements for further information.
Financial Position
Cash and short-term investments make up a significant portion of
the Consolidated Group's current assets, which were $168.8 million
for the year ended 31 December 2019 compared to $259.8 million for
the year ended 31 December 2018. The decrease in cash and
short-term investments of 31 December 2019 compared to 31 December
2018 was attributable to the deconsolidation of Vor, Karuna and
Gelesis. 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 $162.4 million at 31 December 2019, compared
to $250.9 million for the year ended 31 December 2018. Of this
amount, $120.6 million (31 December 2018 - $178.2 million) of cash
reserves is held at the PureTech Health level (refer to footnotes 1
to 4 of Financial Highlights) to fund activities of the Group
including funding the Internal segment's wholly owned internal
pipeline, progressing Founded Entity
programmes toward meaningful milestone events where necessary
and appropriate, and maintaining a robust Parent support
infrastructure.
In November 2019, Karuna announced results from its Phase 2
clinical trial of KarXT for the treatment of acute psychosis in
patients with schizophrenia. As such, Karuna's share price
witnessed significant price appreciation. On 22 January 2020,
PureTech Health monetised a portion of its common shares holdings
in Karuna. PureTech sold 2.1 million Karuna common shares for
aggregate proceeds of $200.9 million. As of 13 March 2020, PureTech
Health held 5.3 million shares, or 20.3 per cent, of Karuna.
The sale of a minority of its holding in Karuna provided the
Group with additional cash resources to fund operational growth
within the Internal segment. The Group's consolidated cash position
as of 31 December 2019 on a pro-forma basis, inclusive of the
Karuna share sale proceeds, was $363.3 million. The parent level
cash position as of 31 December 2019 on such a pro-forma basis was
$321.5 million.
Other significant items impacting the Consolidated Group's
financial position and health include:
-- Investments held at fair value and Investments in associates
increased by $545.2 million to $725.5 million as of 31 December
2019 compared to 31 December 2018, primarily driven by the
deconsolidation of Vor, Karuna and Gelesis and subsequent fair
value increases, which were partially offset by the fair value
decrease of our resTORbio shares and subsequent reduction of
ownership.
-- In November and December 2019, PureTech sold 7.7 million
common shares of resTORbio for aggregate proceeds of $9.3 million.
As of 31 December 2019, PureTech held 2.1 million common shares, or
5.8 per cent, of resTORbio.
-- Current Liabilities decreased by $126.6 million, or 47.6 per
cent, to $139.2 million for the year ended 31 December 2019
compared to $265.8 million for the year ended 31 December 2018,
which is primarily attributable to the deconsolidation of Vor,
Karuna and Gelesis. This was partially offset by additional
Controlled Founded Entity preferred share issuances and subsidiary
preferred share and subsidiary warrant fair value increases during
the year ended 31 December 2019.
Financial Position
2019 2018
$ millions $ millions
Non-current assets 772.3 182.0
Current assets 168.8 259.8
Total assets 941.1 441.8
Non-current liabilities 151.6 9.0
Total current liabilities 139.2 265.8
Total liabilities 290.8 274.8
========================== ----------- ===========
The Directors anticipate the continued strong financial health
of the Group's Parent and expect the Group's wholly owned internal
pipeline to significantly progress during this period. The Group
also expects key Controlled Founded Entities and Non-Controlled
Founded Entities to achieve meaningful milestones. The Consolidated
Group's funds are sufficient to continue to progress the Internal
segment, Controlled Founded Entities and Non-Controlled Founded
Entities to meaningful milestone events into the first quarter of
2024.
The Group's net cash used in operating activities reflects the
payment of operating expenses, which, with the exception of its
non-cash charges highlighted in footnotes 5 and 6 of the Results of
Operations Schedule above, are primarily cash based.
Net cash used in operating activities was $98.2 million for the
year ended 31 December 2019, compared to $72.8 million for the year
ended 31 December 2018. The increase in outflows was primarily due
to the increased Company operating loss that resulted from
increased research and development activities throughout the Group.
In 2019 the Company's income resulted from increased non-cash
gains, that had no impact on the cash used in operating
activities.
The net cash inflow of $63.7 million from investing activities
during 2019 relates to the maturity of investments in US Treasuries
with durations of less than two years which totalled $104.5
million. The cash provided by the maturity of short-term
investments was offset by the purchase of fixed assets totalling
$12.1 million and the purchase of intangible assets totalling $0.4
million. The inflow was further offset by the Group's investment in
Gelesis convertible promissory notes totalling $6.5 million as well
as Gelesis Series 3 Growth and Karuna Series B preferred shares
totalling $13.7 million. The inflow was further offset by the
derecognition of cash totalling $16.0 million held by Vor, Karuna
and Gelesis upon deconsolidation.
The net cash inflow of $49.9 million from financing activities
during 2019 was primarily attributable to $51.0 million in
aggregate proceeds received from the Vedanta Series C and Series
C-2 closings ($32.2 million), Sonde Series A-2 closings ($7.3
million) and Gelesis Series 2 Growth closings ($8.6 million).
Further inflows were attributable the sale of resTORbio shares. In
November and December 2019, PureTech sold 7.7 million common shares
of resTORbio for aggregate proceeds of $9.3 million. As of 31
December 2019, PureTech held 2.1 million common shares, or 5.8 per
cent, of resTORbio.
The 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 one year. The 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 Group's liquidity and
capital preservation objectives.
Cash Flows
2019 2018
$ millions $ millions
Operating Cash Flows (98.2) (72.8)
Investing Cash Flows 63.7 (39.6)
Financing Cash Flows 49.9 156.9
===================== ============ ============
Consolidated Statements of Comprehensive Income/(Loss)
For the years ended 31 December
Note 2019 2018
$000s $000s
Contract revenue 3 8,688 16,371
Grant revenue 3 1,119 4,377
Total revenue 9,807 20,748
Operating expenses:
General and administrative expenses 7 (59,358) (47,365)
Research and development expenses 7 (85,848) (77,402)
Operating income/(loss) (135,399) (104,019)
Other income/(expense):
Gain on deconsolidation 5 264,409 41,730
Gain/(loss) on investments held at fair value 5 (37,863) (34,615)
Loss on impairment of intangible asset - (30)
Gain/(loss) on disposal of assets 11 (82) 4,060
Gain/(loss) on loss of significant influence 6 445,582 10,287
Other income/(expense) 121 (278)
Other income/(expense) 672,167 21,154
Finance income/(costs):
Finance income/(costs) 9 4,362 3,358
Finance income/(costs) - subsidiary preferred
shares 9 (1,458) (106)
Finance income/(costs) - contractual 9 (2,576) 34
Finance income/(costs) - fair value accounting 9 (46,475) 22,631
Net finance income/(costs) (46,147) 25,917
Share of net gain/(loss) of associates accounted
for using the equity method 6 30,791 (11,490)
Impairment of investment in associate 6 (42,938) -
Income/(loss) before taxes 478,474 (68,438)
Taxation 25 (112,409) (2,221)
Income/(loss) for the year 366,065 (70,659)
Other comprehensive income/(loss):
Items that are or may be reclassified as profit
or loss
Foreign currency translation differences (10) (214)
Unrealised gain/(loss) on investments held
at fair value - (26)
Total other comprehensive income/(loss) (10) (240)
Total comprehensive income/(loss) for the
year 366,055 (70,899)
Income/(loss) attributable to:
Owners of the Company 421,144 (43,654)
Non-controlling interests 18 (55,079) (27,005)
366,065 (70,659)
Comprehensive income/(loss) attributable to:
Owners of the Company 421,134 (43,894)
Non-controlling interests 18 (55,079) (27,005)
366,055 (70,899)
Earnings/(loss) per share: $ $
Basic earnings/(loss) per share 10 1.49 (0.16)
Diluted earnings/(loss) per share 10 1.44 (0.16)
================================================= ==== ========= =========
The accompanying Notes are an integral part of these financial
statements.
Consolidated Statements of Financial Position
For the years ended 31 December
Note 2019 2018
$000s $000s
Assets
Non-current assets
Property and equipment, net 11 21,455 8,323
Right of use asset, net 21 22,383 -
Intangible assets, net 12 625 3,080
Investments held at fair value 5 714,905 169,755
Investments in associates 6 10,642 -
Lease receivable - long-term 21 2,082 -
Deferred tax assets 142 449
Other non-current assets 99 370
Total non-current assets 772,333 181,977
Current assets
Trade and other receivables 1,977 1,328
Prepaid expenses and other current assets 1,946 5,380
Lease receivable - short-term 21 350 -
Other financial assets 13, 22 2,124 2,199
Short-term investments 22 30,088 133,828
Cash and cash equivalents 22 132,360 117,051
Total current assets 168,845 259,786
Total assets 941,178 441,763
Equity and liabilities
Equity
Share capital 14 5,408 5,375
Share premium 14 287,962 278,385
Merger reserve 14 138,506 138,506
Translation reserve 14 - 10
Other reserve 14 (18,282) 20,923
Retained earnings/(accumulated deficit) 14 254,444 (167,692)
Equity attributable to the owners of the Company 14 668,038 275,507
Non-controlling interests 14, 18 (17,640) (108,535)
Total equity 14 650,398 166,972
Non-current liabilities
Deferred revenue 3 1,220 83
Deferred tax liability 25 115,445 6,428
Lease liability, non-current 21 34,914 -
Other long-term liabilities 20 - 2,516
Total non-current liabilities 151,579 9,027
Current liabilities
Deferred revenue 3 5,474 6,560
Lease liability, current 21 2,929 -
Trade and other payables 19 19,842 15,875
Subsidiary:
Notes payable 16, 17 1,455 12,010
Warrant liability 16 7,997 13,012
Preferred shares 15, 16 100,989 217,519
Other current liabilities 515 788
Total current liabilities 139,201 265,764
Total liabilities 290,780 274,791
Total equity and liabilities 941,178 441,763
================================================= ====== ======== =========
Please refer to the accompanying Notes to the consolidated
financial information. Registered number: 09582467.
The consolidated financial statements were approved by the Board
of Directors and authorised for issuance on 8 April 2020 and signed
on its behalf by:
Daphne Zohar
Chief Executive Officer
8 April 2020
The accompanying Notes are an integral part of these financial
statements.
Consolidated Statements of Changes in Equity
For the years ended 31 December
Share Capital
Shares Amount Share Merger Translation Other reserve Retained Total Non-controlling Total
premium reserve reserve earnings/ Parent interests Equity
(accumulated equity
deficit)
$000s $000s $000s $000s $000s $000s $000s $000s $000s
Balance
1 January
2018 237,429,696 4,679 181,588 138,506 224 17,178 (124,745) 217,430 (145,586) 71,844
Net
income/(loss) - - - - - - (43,654) (43,654) (27,005) (70,659)
Foreign
currency
exchange - - - - (214) - - (214) - (214)
Unrealised
gain/(loss)
on investments - - - - - - (26) (26) - (26)
---------------- ----------- ------- ------- ------------ -------------- ---------------- -------------- ----------- ---------- --------
Total
comprehensive
income/(loss)
for the
period - - - - (214) - (43,680) (43,894) (27,005) (70,899)
Deconsolidation
of subsidiary - - - - - (4) 619 615 55,168 55,783
Issuance
of placing
shares 45,000,000 696 96,797 - - - - 97,493 - 97,493
Exercise
of share-based
awards 64,171 - - - - - 122 122 - 122
Subsidiary
dividends
to
non-controlling
interests - - - - - - (8) (8) - (8)
Equity settled
share-based
payments - - - - - 3,749 - 3,749 8,888 12,637
---------------- ----------- ------- ------- ------------ -------------- ---------------- -------------- ----------- ---------- --------
As at 31
December
2018 282,493,867 5,375 278,385 138,506 10 20,923 (167,692) 275,507 (108,535) 166,972
Adjustment
for the
initial
application
of IFRS16 - - - - - - 999 999 - 999
---------------- ----------- ------- ------- ------------ -------------- ---------------- -------------- ----------- ---------- --------
Adjusted
balance
as of 1
January
2019 282,493,867 5,375 278,385 138,506 10 20,923 (166,693) 276,506 (108,535) 167,971
Net
income/(loss) - - - - - - 421,144 421,144 (55,079) 366,065
Foreign
currency
exchange - - - - (10) - - (10) - (10)
---------------- ----------- ------- ------- ------------ -------------- ---------------- -------------- ----------- ---------- --------
Total
comprehensive
income/(loss)
for the
period - - - - (10) - 421,144 421,134 (55,079) 366,055
Deconsolidation
of subsidiaries - - - - - - - - 97,178 97,178
Subsidiary
note conversion
and changes
in NCI
ownership
interest - - - - - (20,631) - (20,631) 23,049 2,418
Exercise
of share-based
awards 237,090 5 499 - - - - 504 - 504
Shares and
options
issued in
consideration
for
subsidiary's
non-controlling
interest 2,126,338 28 9,078 - - 6,651 - 15,757 - 15,757
Purchase
of subsidiary's
non-controlling
interest - - - - - (39,796) - (39,796) 24,039 (15,757)
Revaluation
of deferred
tax assets
related
to share-based
awards - - - - - 3,061 - 3,061 - 3,061
Equity settled
share-based
payments - - - - - 12,785 - 12,785 1,683 14,468
Vesting
of restricted
stock units 513,324 - - - - (1,280) - (1,280) - (1,280)
Other - - - - - 5 (7) (2) 25 23
---------------- ----------- ------- ------- ------------ -------------- ---------------- -------------- ----------- ---------- --------
Balance
31 December
2019 285,370,619 5,408 287,962 138,506 - (18,282) 254,444 668,038 (17,640) 650,398
---------------- ----------- ------- ------- ------------ -------------- ---------------- -------------- ----------- ---------- --------
The accompanying Notes are an integral part of these financial
statements.
Consolidated Statements of Cash Flows
For the years ended 31 December
2019 2018
Note $000s $000s
Cash flows from operating activities
Income/(loss) for the year 366,065 (70,659)
Adjustments to reconcile net operating loss
to net cash used in operating activities:
Non-cash items:
Depreciation and amortisation 11,12 6,665 2,778
Impairment of intangible assets - 30
Impairment of investment in associate 6 42,938 -
Equity settled share-based payment expense 8 14,468 12,637
(Gain)/loss on investments held at fair value 5 37,863 20,307
(Gain)/loss on short-term investments - (843)
Gain on deconsolidation 5 (264,409) (41,730)
Gain on loss of significant influence 5 (445,582) (10,287)
Conversion of debt to equity - 349
Disposal of assets 11 140 111
Proceeds from sale of assets 11 - 50
Share of net (income)/loss of associate 6 (30,791) 11,491
Deferred income taxes 25 112,077 1,723
Unrealised (gain)/loss on foreign currency
transactions - (271)
Finance costs, net 9 46,229 (8,446)
Changes in operating assets and liabilities:
Accounts receivable 22 747 467
Other financial assets 13 (48) (1,327)
Prepaid expenses and other current assets (25) 774
Deferred revenues 3 186 4,841
Accounts payable and accrued expenses 19 11,166 5,094
Other liabilities 3,002 115
Interest received 3,648
Interest paid 21 (2,495) -
Net cash used in operating activities (98,156) (72,796)
Cash flows from investing activities:
Purchase of property and equipment 11 (12,138) (4,365)
Proceeds from sale of property and equipment - 125
Purchases of intangible assets 12 (400) (125)
Purchase of associate preferred shares held
at fair value 5, 6 (13,670) (3,500)
Purchase of investments held at fair value 5 (1,556) -
Sale of investments held at fair value 5 9,294 -
Purchase of convertible note 6 (6,480) -
Cash derecognised upon loss of control over
subsidiary (16,036) (13,390)
Purchases of short-term investments 22 (69,541) (166,452)
Receipt of payment for finance sub-lease 21 191 -
Proceeds from maturity of short-term investments 22 173,995 148,062
Net cash provided by/(used in) investing activities 63,659 (39,645)
Cash flows from financing activities:
Proceeds from issuance of convertible notes 18 1,606 6,147
Payment of lease liability 21 (1,678) -
Repayment of long-term debt (178) (185)
Distribution to Tal shareholders 27 (112) -
Exercise of stock options 504 -
Proceeds from the issuance of shares 15 51,048 152,030
Vesting of restricted stock units (1,280) -
Buyback of shares - (35)
Distribution to shareholders on dissolution
of subsidiary - (1,062)
Subsidiary dividend payments - (8)
Net cash provided by financing activities 49,910 156,887
Effect of exchange rates on cash and cash
equivalents (104) (44)
Net increase in cash and cash equivalents 15,309 44,402
Cash and cash equivalents at beginning of
year 117,051 72,649
Cash and cash equivalents at end of year 132,360 117,051
Supplemental disclosure of non-cash investment
and financing activities:
Purchase of non controlling interest in consideration
for issuance of shares and options 15,757
Purchase of intangible asset and investment
held at fair value in consideration for issuance
of warrant liability and assumption of other
long and short-term liabilities 15,894
Leasehold improvements purchased through lease
incentives (deducted from Right of Use Asset) 10,680
Conversion of subsidiary convertible note
into preferred share liabilities 4,894 -
Conversion of subsidiary convertible note
into subsidiary common stock (NCI) 2,418
Supplemental disclosure of cash paid for income
taxes:
Cash paid for income taxes 176 92
The accompanying Notes are an integral part of these financial
statements.
Notes to the Consolidated Financial Statements
1. Accounting policies
Description of Business
PureTech Health plc ("PureTech," the "Parent" or the "Company")
is a public company incorporated, domiciled and registered in the
United Kingdom ("UK"). The registered number is 09582467 and the
registered address is 8th Floor, 20 Farringdon Street, London EC4A
3AE, United Kingdom.
PureTech's group financial statements consolidate those of the
Company and its subsidiaries (together referred to as the "Group").
The Parent company financial statements present financial
information about the Company as a separate entity and not about
its Group.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
group financial statements
Basis of Presentation
The consolidated financial statements of the Group are presented
for the years ended 31 December 2019 and 2018. The Group financial
statements have been approved by the Directors and are prepared in
accordance with the International Financial Reporting Standards,
International Accounting Standards, and Interpretations
(collectively "IFRS") issued by the International Accounting
Standards Board ("IASB") as adopted by the European Union (adopted
IFRSs).
For presentation of the Consolidated Statements of Comprehensive
Income/(Loss), the Company uses a classification based on the
function of expenses, rather than based on their nature, as it is
more representative of the format used for internal reporting and
management purposes and is consistent with international
practice.
Basis of Measurement
The consolidated financial statements are prepared on the
historical cost basis except that the following assets and
liabilities are stated at their fair value: investments held at
fair value and financial instruments classified as fair value
through the profit or loss.
Use of Judgements and Estimates
In preparing these consolidated financial statements, management
has made judgements, estimates and assumptions that affect the
application of the Group's accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates. Estimates and underlying
assumptions are reviewed on an on-going basis.
Significant estimation applied in determining the following:
-- Financial instruments valuations (Note 21): when estimating
the fair value of subsidiary undertakings, subsidiary preferred
shares and investments carried at fair value through profit and
loss (FVTPL) according to IFRS 9 at initial recognition and upon
subsequent measurement. This includes determining the appropriate
valuation methodology and making certain estimates of the future
earnings potential of the subsidiary businesses, appropriate
discount rate and earnings multiple to be applied, marketability
and other industry and company specific risk factors.
-- Revenue recognition (Note 3): when estimating the costs to
complete for overtime revenue recognition. This includes making
certain estimates of costs to be incurred relating to contracts
with customers in meeting the overtime performance obligation. The
costs are for research and development activity and the estimation
uncertainty is regarding the level of activity required to meet the
performance obligation and the timing in which that arises during
the term of the contract.
Significant judgement is also applied in determining the
following:
-- Revenue recognition (Note 3): when determining the correct
amount of revenue to be recognised. This includes making certain
judgements when determining the appropriate accounting treatment of
key customer contract terms in accordance with the applicable
accounting standards. In particular, judgement is required to
determine the performance obligations in a contract (if promised
goods and services are distinct or not) and timing of revenue
recognition (on delivery or over a period of time).
-- Subsidiary preferred shares liability classification (Note
21): when determining the classification of financial instruments
in terms of liability or equity. These judgements include an
assessment of whether the financial instrument include any embedded
derivative features, whether they include contractual obligations
upon the Group to deliver cash or other financial assets or to
exchange financial assets or financial liabilities with another
party, and whether that obligation will be settled by the Company
exchanging a fixed amount of cash or other financial assets for a
fixed number of its own equity instruments. Further information
about these critical judgements and estimates is included below
under Financial Instruments.
-- When the power to control the subsidiaries exists (Please
refer to Notes 5 and 6 and accounting policy below Subsidiaries).
This judgement includes an assessment of whether the Company has i)
power over the investee; (ii) exposure, or rights, to variable
returns from its involvement with the investee; and
-- (iii) the ability to use its power over the investee to
affect the amount of the investor's returns. The Company considers
among others its voting shares, representation on the board, rights
to appoint management, investee dependence on the Company etc.
-- When the Company has significant influence over financial and
operating policies of investees in order to determine if the
Company should account for its investment as an associate based on
IAS 28 or based on IFRS 9, Financial Instruments (Please refer to
Note 5). This judgement includes, among others, an assessment
whether the Company has representation on the board of directors of
the investee, whether the Company participates in the policy making
processes of the investee, whether there is any interchange of
managerial personnel, whether there is any essential technical
information provided to the investee and if there are any
transactions between the Company and the investee.
-- Upon determining that the Company does have significant
influence over the financial and operating policies of an investee,
if the Company holds more than a single instrument issued by its
equity-accounted investee, judgement is required to determine
whether the additional instrument
-- forms part of the investment in the associate, which is
accounted for under IAS 28 and scoped out of IFRS 9, or it is a
separate financial instrument that falls in the scope of IFRS 9
(Please refer to Notes 5 and 6). This judgement includes an
assessment of the characteristics of the financial instrument of
the investee held by the Company and whether such financial
instrument provides access to returns underlying an ownership
interest.
Going Concern
After making inquiries and considering the impact of risks and
opportunities on expected cash flows and based on the cash and cash
equivalents available to the Group as of 31 December 2019, the
Directors have a reasonable expectation that the Group had adequate
cash to continue in operational existence into the first quarter of
2022 and, following the sale of 2,100,000 shares of Karuna common
shares worth $200.9 million on 22 January 2020, the Group now has
sufficient cash reserves to fund its operations into the first
quarter of 2024, assuming broadly our expected level of required
investments in businesses and other operating expenditures. The
financial statements have been prepared using the going concern
basis of accounting.
Basis of Consolidation
The consolidated financial information for each of the years
ended 31 December 2019 and 2018 comprises an aggregation of
financial information of the Company and the consolidated financial
information of PureTech Health LLC ("PureTech LLC"). Intra-group
balances and transactions, and any unrealised income and expenses
arising from intra-group transactions, are eliminated. Unrealised
gains arising from transactions with equity-accounted investees are
eliminated against the investment to the extent of the Group's
interest in the investee. Unrealised losses are eliminated in the
same way as unrealised gains, but only to the extent that there is
no evidence of impairment.
Subsidiaries
As used in these financial statements, the term subsidiaries
refers to entities that are controlled by the Group. Financial
results of subsidiaries of the Group as of 31 December 2019 are
reported within the Internal segment, Controlled Founded Entities
segment or the Parent Company and Other segment (Please refer to
Note 4). Under applicable accounting rules, the Group controls an
entity when it is exposed to, or has the rights to, variable
returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity. In
assessing control, the Group takes into consideration potential
voting rights and board interest and holding. The financial
statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the
date that control ceases. Losses applicable to the non-controlling
interests in a subsidiary are allocated to the non-controlling
interests even if doing so causes the non-controlling interests to
have a deficit balance.
A list of all subsidiaries and the Group's total voting
percentage, based on outstanding voting common and preferred shares
as of 31 December 2019 and 2018, is outlined below. All
subsidiaries are domiciled within the United States and conduct
business activities solely within the United States.
Voting percentage at 31 December through the holdings in
2019 2018
Subsidiary Common Preferred Common Preferred
Subsidiary operating companies
Alivio Therapeutics, Inc.(1,2) -% 91.9% -% 92.0%
Entrega, Inc. (indirectly held
through Enlight)(1,2) -% 83.1% -% 83.1%
Follica, Incorporated(1,2,5) 28.7% 56.7% 4.4% 79.2%
PureTech LYT -% 100.0% -% 100.0%
PureTech LYT-100 -% 100.0% -% 100.0%
PureTech Management, Inc.(3) 100.0% -% 100.0% -%
PureTech Health LLC(3) 100.0% -% 100.0% -%
Sonde Health, Inc.(1,2) -% 64.1% -% 96.4%
Vedanta Biosciences, Inc.(1,2) -% 61.8% -% 74.3%
Vedanta Biosciences Securities
Corp. (indirectly held through
Vedanta)(1,2) -% 61.8% -% 74.3%
Nontrading holding companies
Endra Holdings, LLC (held indirectly
through Enlight)(2) 86.0% -% 86.0% -%
Ensof Holdings, LLC (held indirectly
through Enlight)(2) 86.0% -% 86.0% -%
PureTech Securities Corp.(2) 100.0% -% 100.0% -%
Inactive subsidiaries
Appeering, Inc. (2) -% 100.0% -% 100.0%
Commense Inc.(2,6) -% 99.1% -% 99.1%
Enlight Biosciences, LLC (2) 86.0% -% 86.0% -%
Ensof Biosystems, Inc. (held
indirectly through Enlight)(1)
,(2) 57.7% 28.3% 57.7% 28.3%
Knode Inc. (indirectly held
through Enlight)(2) -% 86.0% -% 86.0%
Libra Biosciences, Inc.(2) -% 100.0% -% 100.0%
Mandara Sciences, LLC(2) 98.3% -% 98.3% -%
Tal Medical, Inc.(1,2) -% 100.0% -% 64.5%
------------------------------------- ----- -------- ----- --------
1. The ownership percentage includes liability classified
preferred shares, which results in the ownership percentage not
being the same as the ownership percentage used in allocations to
non-controlling interests disclosed in Note 16. The allocation of
losses/profits to the noncontrolling interest is based on the
common share ownership of the subsidiaries. The ownership of
liability classified preferred shares are quantified in Note
15.
2. Registered address is Corporation Trust Center, 1209 Orange
St., Wilmington, DE 19801, USA.
3. Registered address is 2711 Centerville Rd., Suite 400, Wilmington, DE 19808, USA.
4. The Company's interests in its subsidiaries are predominantly
in the form of preferred shares, which have a liquidation
preference over the common stock, are convertible into common stock
at the holder's discretion or upon certain liquidity events, are
entitled to one vote per share on all matters submitted to
shareholders for a vote and entitled to receive dividends when and
if declared, except in the case of Enlight, Mandara and PureTech
Health LLC in which the holdings are membership interests in an
LLC. The holders of common stock are entitled to one vote per share
on all matters submitted to shareholders for a vote and entitled to
receive dividends when and if declared.
5. On 19 July 2019, all of the outstanding notes, plus accrued
interest, issued by Follica to PureTech converted into 15,216,214
shares of Series A-3 Preferred Shares and 12,777,287 shares of
common share pursuant to a Series A-3 Note Conversion Agreement
between Follica and the noteholders. Please refer to Note 16.
6. CommenSe turned inactive during 2019.
Change in subsidiary ownership and loss of control
Changes in the Group's interest in a subsidiary that do not
result in a loss of control are accounted for as equity
transactions.
Where the Group loses control of a subsidiary, the assets and
liabilities are derecognised along with any related non-controlling
interest ("NCI"). Any interest retained in the former subsidiary is
measured at fair value when control is lost. Any resulting gain or
loss is recognised as profit or loss in the Consolidated Statements
of Comprehensive Income/(Loss).
Associates
As used in these financial statements, the term associates are
those entities in which the Group has no control but maintains
significant influence over the financial and operating policies.
Significant influence is presumed to exist when the Group holds
between 20 and 50 per cent of the voting power of an entity, unless
it can be clearly demonstrated that this is not the case. The Group
evaluates if it maintains significant influence over associates by
assessing if the Group has lost the power to participate in the
financial and operating policy decisions of the associate.
Application of the equity method to associates
Associates are accounted for using the equity method (equity
accounted investees) and are initially recognised at cost, or if
recognised upon deconsolidation they are initially recorded at fair
value at the date of deconsolidation. The consolidated financial
statements include the Group's share of the total comprehensive
income and equity movements of equity accounted investees, from the
date that significant influence commences until the date that
significant influence ceases. When the Group's share of losses
exceeds its investment in an equity accounted investee, including
the Group's investments in other long-term interests, the Group's
carrying amount is reduced to nil and recognition of further losses
is discontinued except to the extent that the Group has incurred
legal or constructive obligations or made payments on behalf of an
investee. To the extent the Group holds interests in associates
that are not providing access to returns underlying ownership
interests and are more akin to debt like securities, the instrument
held by PureTech is accounted for in accordance with IFRS 9.
Change in Accounting Policy
In these financial statements, the Group has adopted new
accounting policies resulting in a change in accounting for leases.
See updated accounting policy for leases (IFRS 16) below.
The Group has also adopted the amendments to IAS 28 Investments
in Associates that addresses the dual application of IAS 28 and
IFRS 9 (see below) when equity method losses are applied against
Long-Term Investments (LTI), as defined in IAS 28. The amendments
provide the annual sequence in which both standards are to be
applied in such a case. The amendment did not have an impact on the
Group's financial statements as the Group has not yet had an
investment in an associate where it applied the equity method
losses against a LTI.
All other accounting policies have remained unchanged from the
previous year.
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 the Company's
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 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.
The Group also reviewed the financial assets reported on its
Consolidated Statements of Financial Position and notes no changes
in the application of IFRS 9.
The accounting policy (effective from 1 January 2018) 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 that
are carried at FVTPL are expensed.
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's financial assets consist of cash and cash
equivalents, trade and other receivables, debt and equity
securities, other deposits and investments in associates' preferred
shares and promissory notes. The Group's financial assets are
classified into the following categories: investments held at fair
value, trade and other receivables and cash and cash equivalents.
The Group determines the classification of financial assets at
initial recognition depending on the purpose for which the
financial assets were acquired.
Investments held at fair value are non-derivative instruments
that are designated in this category or not classified in any other
category. These financial assets are initially measured at fair
value and subsequently re-measured at fair value at each reporting
date. The Company elects if the gain or loss will be recognised in
Other Comprehensive Income/(Loss) or through profit and loss on an
instrument by instrument basis. Financial assets that are
recognised through FVOCI are presented in the Consolidated
Statements of Financial Position as non-current assets, unless the
Group intends to dispose of them within 12 months after the end of
the reporting period. The Company has elected to record the changes
in fair values for most financial assets falling under this
category through profit and loss. Please refer to Note 5.
Trade and other receivables are non-derivative financial assets
with fixed and determinable payments that are not quoted on active
markets. These financial assets are carried at the amounts expected
to be received less any allowance for doubtful debts. Provisions
are made where there is evidence of a risk of nonpayment, taking
into account aging, previous experience and economic conditions.
When a trade receivable is determined to be uncollectible, it is
written off against the available provision and then to the
Consolidated Statements of Comprehensive Income/(Loss). Trade and
other receivables are included in current assets, unless maturities
are greater than 12 months after the end of the reporting
period.
Financial Liabilities
The Group's financial liabilities consist of trade and other
payables, subsidiary notes payable, preferred shares, and warrant
liability. Warrant liabilities are initially recognised at fair
value. After initial recognition, these financial liabilities are
re-measured at FVTPL using an appropriate valuation technique.
Subsidiary notes payable and subsidiary preferred shares without
embedded derivatives are accounted for at amortised cost.
The majority of the Group's subsidiaries have preferred shares
and notes payable with embedded derivatives, which are classified
as current liabilities. These financial instruments are assessed
under IFRS 9 to determine if the instrument qualifies to be
accounted for under the FVTPL method. When the Group has preferred
shares with embedded derivatives that qualify for bifurcation, the
Group has elected to account for the entire instrument as
FVTPL.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
Equity Instruments Issued by the Group
Financial instruments issued by the Group are treated as equity
only to the extent that they meet the following two conditions, in
accordance with IAS 32:
1. They include no contractual obligations upon the Group to
deliver cash or other financial assets or to exchange financial
assets or financial liabilities with another party under conditions
that are potentially unfavourable to the Group; and
2. Where the instrument will or may be settled in the Group's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Group's own
equity instruments or is a derivative that will be settled by the
Group exchanging a fixed amount of cash or other financial assets
for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial
instrument is classified as a financial liability. Where the
instrument so classified takes the legal form of the Group's own
shares, the amounts presented in the financial information for
share capital and merger reserve account exclude amounts in
relation to those shares.
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 income/(expense) in the Consolidated Statements
of Comprehensive Income/(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.
IFRS 15, Contract Revenue
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 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 contract revenue is generated from
licenses, services, and collaboration arrangements. The Group
adopted IFRS 15 with effect from 1 January 2018 using the Modified
Retrospective approach. The adoption of this standard did not have
an impact to the consolidated results.
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 has
entered into transactions that generate revenue and meet the scope
of either IFRS 15 or IAS 20 Accounting for Government Grants.
Contract revenue is recognised at either a point-in-time or over
time, depending on the nature of the services and existence of
acceptance clauses.
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 judgement, it is probable that
a significant future reversal of cumulative revenue under the
contract will not occur. Determining the transaction price requires
significant judgement, 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 (typically where
licenses and related services were combined into one performance
obligation) 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
criteria (a), since the customer simultaneously receives and
consumes the benefits provided by the Company's performance as the
Company performs as well as one contract that meets criteria (b)
above. Therefore revenue is recognised over time 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 fulfil the services are to be capitalised until
acceptance is received for the milestone. This resulted in PureTech
capitalising service-related expenses as of 31 December 2017 and
recognising the consideration as revenue once acceptance was
received during 2018.
Grant Income
The Company recognises grants from governmental agencies as
grant income in the Consolidated Statement of Comprehensive
Income/(Loss), gross of the expenditures that were related to
obtaining the grant, when there is reasonable assurance that the
Company will comply with the conditions within the grant agreement
and there is reasonable assurance that payments under the grants
will be received. The Company evaluates the conditions of each
grant as of each reporting date to ensure that the Company has
reasonable assurance of meeting the conditions of each grant
arrangement and it is expected that the grant payment will be
received as a result of meeting the necessary conditions.
The Company submits qualifying expenses for reimbursement for
certain expenses after the Company has incurred the research and
development expense. The Company records an unbilled receivable
upon incurring such expenses. Grant income is recognised in the
Consolidated Statements of Comprehensive Income/(Loss) over the
periods in which the Company recognises the related reimbursable
expense for which the grant is intended to compensate.
Functional and Presentation Currency
These consolidated financial statements are presented in United
States dollars ("US dollars"). The functional currency of virtually
all members of the Group is the US dollar. The assets and
liabilities of a previously held subsidiary were translated to US
dollars at the exchange rate prevailing on the balance sheet date
and revenues and expenses were translated at the average exchange
rate for the period. Foreign exchange differences resulting from
the translation of this subsidiary were reported in the
Consolidated Statements of Comprehensive Income/(Loss) in Other
Comprehensive Income/(Loss).
Foreign Currency
Transactions in foreign currencies are translated to the
respective functional currencies of Group entities at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are retranslated to the functional currency at
the foreign exchange rate ruling at that date. Foreign exchange
differences arising on remeasurement are recognised in the
Consolidated Statement of Comprehensive Income/(Loss) except for
differences arising on the retranslation of a financial liability
designated as a hedge of the net investment in a foreign operation
that is effective, or qualifying cash flow hedges, which are
recognised directly in other comprehensive income. Non-monetary
assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate
at the date of the transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are stated at fair value are
retranslated to the functional currency at foreign exchange rates
ruling at the dates the fair value was determined.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments
with original maturities of three months or less.
Share Capital
Ordinary shares are classified as equity. The Group is comprised
of share capital, share premium, merger reserve, other reserve,
translation reserve, and accumulated deficit.
Property and Equipment
Property and equipment is stated at cost less accumulated
depreciation and any accumulated impairment losses. Cost includes
expenditures that are directly attributable to the acquisition of
the asset. Assets under construction represent leasehold
improvements and machinery and equipment to be used in operations
or research and development activities. When parts of an item of
property and equipment have different useful lives, they are
accounted for as separate items (major components) of property and
equipment. Depreciation is calculated using the straight-line
method over the estimated useful life of the related asset:
Laboratory and manufacturing equipment 2-8 years
Furniture and fixtures 7 years
Computer equipment and software 1-5 years
Leasehold improvements 5-10 years, or the remaining
term of the lease, if shorter
====================================== ==============================
Depreciation methods, useful lives and residual values are
reviewed at each balance sheet date.
Intangible Assets
Intangible assets, which include purchased patents and licenses
with finite useful lives, are carried at historical cost less
accumulated amortisation, if amortisation has commenced, and
impairment losses. Intangible assets with finite lives are
amortised from the time they are available for use. Amortisation is
calculated using the straight-line method to allocate the costs of
patents and licenses over their estimated useful lives, which is
typically the remaining life of the underlying patents.
Research and development intangible assets, which are still
under development and have accordingly not yet obtained marketing
approval, are presented as In-Process Research and Development
(IPR&D). IPR&D is not amortised since it is not yet
available for its intended use, but it is evaluated for potential
impairment on an annual basis or more frequently when facts and
circumstances warrant.
Impairment
Impairment of Non-Financial Assets
The Group reviews the carrying amounts of its property and
equipment and intangible assets at each reporting date to determine
whether there are indicators of impairment. If any such indicators
of impairment exist, then an asset's recoverable amount is
estimated. The recoverable amount is the higher of an asset's fair
value less cost of disposal and value in use.
The Company's IPR&D intangible assets are not yet available
for their intended use. As such, they are to be tested for
impairment at least annually.
An impairment loss is recognised when an asset's carrying amount
exceeds its recoverable amount. For the purposes of impairment
testing, assets are grouped at the lowest levels for which there
are largely independent cash flows. If a non- financial asset
instrument is impaired, an impairment loss is recognised in the
Consolidated Statements of Comprehensive Income/(Loss).
Investments in associates are considered impaired if, and only
if, objective evidence indicates that one or more events, which
occurred after the initial recognition, have had an impact on the
future cash flows from the net investment and that impact can be
reliably estimated. If an impairment exists the Company measures an
impairment by comparing the carrying value of the net investment in
the associate to its recoverable amount and recording any excess as
an impairment loss. See Note 6 for impairment recorded in respect
of investment in associate.
Impairment of Financial Assets Carried at Fair Value
The Group's financial assets are carried at fair value through
Other Comprehensive Income/(Loss) or through profit and loss,
depending on the election taken for each instrument. Financial
assets that carried at fair value through Other Comprehensive
Income/(Loss) are reviewed at each reporting period to assess
whether there is objective evidence that the assets should be
impaired. An impairment loss is recognised when there is a
significant or prolonged decline in fair value below the
instrument's cost. If an instrument is impaired, the impairment
loss is calculated and recognised in the Consolidated Statements of
Comprehensive Income/(Loss).
Impairment of Financial Assets Measured at Amortised Cost
The Group assesses financial assets measured at amortised cost
for impairment at each reporting period. These financial assets are
impaired if one or more loss events occur after initial recognition
that impact the estimated future cash flows of the asset. An
impairment loss is calculated as the difference between its
carrying amount and the present value of the estimated future cash
flows discounted at the asset's original effective interest rate
and is recognised in the Consolidated Statements of Comprehensive
Income/(Loss).
Employee Benefits
Short-Term Employee Benefits
Short-term employee benefit obligations are measured on an
undiscounted basis and expensed as the related service is provided.
A liability is recognised for the amount expected to be paid if the
Group has a present legal or constructive obligation due to past
service provided by the employee, and the obligation can be
estimated reliably.
Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan
under which an entity pays fixed contributions into a separate
entity and has no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution
plans are recognised as an employee benefit expense in the periods
during which related services are rendered by employees. Prepaid
contributions are recognised as an asset to the extent that a cash
refund or a reduction in future payments is available.
Share-based Payments
Share-based payment arrangements, in which the Group receives
goods or services as consideration for its own equity instruments,
are accounted for as equity-settled share-based payment
transactions in accordance with IFRS 2, regardless of how the
equity instruments are obtained by the Group. The grant date fair
value of employee share-based payment awards is recognised as an
expense with a corresponding increase in equity over the period
that the employee is unconditionally entitled to the awards. The
fair value is measured using an option pricing model, which takes
into account the terms and conditions of the options granted. The
amount recognised as an expense is adjusted to reflect the actual
number of awards for which the related service and non-market
vesting conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of
awards that do meet the related service and non-market performance
conditions at the vesting date. For share-based payment awards with
non-vesting and non-market performance conditions, the
grant date fair value is measured to reflect such conditions and
there is no true-up for differences between expected and actual
outcomes.
Development Costs
Expenditures on research activities are recognised as incurred
in the Consolidated Statements of Comprehensive Income/ (Loss). In
accordance with IAS 38 development costs are capitalised only if
the expenditure can be measured reliably, the product or process is
technically and commercially feasible, future economic benefits are
probable, the Group intends to and has sufficient resources to
complete development and to use or sell the asset, and it is able
to measure reliably the expenditure attributable to the intangible
asset during its development. The point at which technical
feasibility is determined to have been reached is when regulatory
approval has been received where applicable. Management determines
that commercial viability has been reached when a clear market and
pricing point have been identified, which may coincide with
achieving recurring sales. Otherwise, the development expenditure
is recognised as incurred in the Consolidated Statements of
Comprehensive Income/(Loss). As of balance sheet date the Group has
not capitalised any development costs.
Provisions
A provision is recognised in the Consolidated Statements of
Financial Position when the Group has a present legal or
constructive obligation due to a past event that can be reliably
measured, and it is probable that an outflow of economic benefits
will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects risks specific to the liability.
Leases
On 1 January 2019, the Group adopted a new accounting standard
for leases. The Group leases real estate and equipment for use in
operations. These leases generally have lease terms of 1 to 10
years. We include options that are reasonably certain to be
exercised as part of the determination of the lease term. We
determine if an arrangement is a lease at inception of the contract
in accordance with guidance detailed in the new standard and we
perform the lease classification test as of the lease commencement
date. ROU assets represent the Group's right to use an underlying
asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. Operating
lease ROU assets and liabilities are recognised at commencement
date based on the present value of lease payments over the lease
term. As most of our leases do not provide an implicit rate, we use
the Group's estimated incremental borrowing rate based on
information available at commencement date in determining the
present value of future payments.
The Group's operating leases impacted by IFRS 16 principally
include leases from real estate.
Existing finance leases continue to be treated as finance
leases. For existing operating leases, the Group has applied a
modified retrospective approach by measuring the right-of-use asset
at an amount equal to the lease liability at the date of transition
and therefore comparative information was not restated. Upon
transition, the Group has applied the following practical
expedients:
-- excluding initial direct costs from the right-of-use assets;
-- using hindsight when assessing the lease term;
-- not reassessing whether a contract is or contains a lease; and
-- not separating the lease components from the non-lease components in lease contracts.
The Group has elected to account for lease payments as an
expense on a straight-line basis over the life of the lease
for:
-- Leases with a term of 12 months or less and containing no purchase options; and
-- Leases where the underlying asset has a value of less than $5,000.
The lease liability was initially measured at the present value
of the lease payments that were not paid at the transition date,
discounted by using the rate implicit in the lease, or if that rate
was not readily determinable, the Group used its incremental
borrowing rate. The right-of-use asset is depreciated on a
straight-line basis and the lease liability will give rise to an
interest charge.
The financial impact of adopting IFRS 16 on the Group was as
follows:
1 January,
2019
$000's
Right of use asset 10,353
Lease liability 10,995
Accumulated deficit (999)
The cumulative impact resulted mainly from lease term extensions
under IFRS 16 offset by the exclusion of short term leases and
leases of low value assets.
In January and April 2019, the Company entered into additional
leases that added substantially more right of use assets and lease
liabilities to the statement of financial position. This includes
three different spaces for the Company and its consolidated
subsidiaries, amounting to approximately $42 million of additional
future lease commitments. In June and August 2019, the Company
entered into two sublease agreements. Further information regarding
the subleases, right of use asset and lease liability can be found
in Note 20.
Finance Income and Finance Costs
Finance income is comprised of interest income on funds invested
in US treasuries, which is recognised as it accrues in the
Consolidated Statements of Comprehensive Income/(Loss) via the
effective interest method. Finance costs comprise loan interest
expenses and the changes in the fair value of warrant and
derivative liabilities associated with financing transactions.
Taxation
Tax on the profit or loss for the year comprises current and
deferred income tax. In accordance with IAS 12, tax is recognised
in the Consolidated Statements of Comprehensive Income/(Loss)
except to the extent that it relates to items recognised directly
in equity.
For the years ended 31 December 2019 and 2018, the Group filed a
consolidated US income tax return which included all subsidiaries
in which the Company owned greater than 80.0 per cent of the vote
and value. For the years ended 31 December 2019 and 2018, the Group
filed certain consolidated state income tax returns which included
all subsidiaries in which the Company owned greater than 50.0 per
cent of the vote and value. The remaining subsidiaries file
separate US tax returns.
Current income tax is the expected tax payable or receivable on
the taxable income or loss for the year, using tax rates enacted or
substantially enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred tax is recognised due to temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax assets are recognised for unused tax losses, unused
tax credits and deductible temporary differences to the extent that
it is probable that future taxable profits will be available
against which they can be used. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
Deferred taxes are recognised in Consolidated Statements of
Comprehensive Income/(Loss) except to the extent that they relate
to items recognised directly in equity or in other comprehensive
income.
Deferred Revenue and Deferred Costs
Deferred revenue includes amounts that are receivable or have
been received per contractual terms but have not been recognised as
revenue since performance has not yet occurred or has not yet been
completed. Deferred costs represent costs to fulfil a contract and
include capitalised labour and research and development
expenditures. The Company classifies non-current deferred revenue
and deferred costs for any transaction which is expected to be
recognised beyond one year or one operating cycle.
Fair Value Measurements
The Group's accounting policies require that its financial and
non-financial assets and liabilities be measured at their fair
value.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs. Fair values
are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as
follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The Group recognises transfers between levels of the fair value
hierarchy at the end of the reporting period during which the
change has occurred.
The carrying amount of cash and cash equivalents, accounts
receivable, short-term investments, restricted cash, deposits,
accounts payable, accrued expenses and other current liabilities in
the Group's Consolidated Statements of Financial Position
approximates their fair value because of the short maturities of
these instruments.
Operating Segments
Operating segments are reported in a manner that is consistent
with the internal reporting provided to the chief operating
decision maker ("CODM"). The CODM reviews discrete financial
information for the operating segments in order to assess their
performance and is responsible for making decisions about resources
allocated to the segments. The CODM has been identified as the
Group's Directors.
Prior period reclassification
During 2019 management identified that for the year ended 31
December 2018, Gain/(loss) on investments held at fair value of
$14.3 million was incorrectly classified as Finance costs -
subsidiary preferred shares. As a result, a prior year
reclassification has been made in the Consolidated Statement of
Comprehensive Income/(Loss) for the year ended 31 December
2018.
2. New Standards and Interpretations Not Yet Adopted
A number of new standards, interpretations, and amendments to
existing standards are effective for annual periods commencing on
or after 1 January 2020 and have not been applied in preparing the
consolidated financial information. The Company's assessment of the
impact of these new standards and interpretations is set out
below.
Effective 1 January 2020 the definition of a "business" has been
amended as an amendment to IFRS 3 Business Combinations. The
amendments include an election to use a concentration test. This is
a simplified assessment that results in an asset acquisition if
substantially all of the fair value of the gross assets is
concentrated in a single identifiable asset or a group of similar
identifiable assets. If an entity chooses not to apply the
concentration test, or fails the test, then the assessment focuses
on the existence of an input and a substantive process applied to
the input/s. These amendments are not expected to have an impact on
the Company's financial statements.
As part of its amendments to IAS 1 and IAS 8, the IASB has
refined its definition of 'material' and issued practical guidance
on applying the concept of materiality. These amendments are
effective 1 January 2020 and are not expected to have an impact on
the Company's financial statements.
None of the other new standards, interpretations, and amendments
are applicable to the Company's financial statements and therefore
will not have an impact on the Company.
3. Revenue
Revenue recorded in the Consolidated Statement of Comprehensive
Income/(Loss) consists of the following:
2019 2018
For the years ended 31 December: $000s $000s
Contract revenue 8,688 16,371
Grant income 1,119 4,377
Total revenue 9,807 20,748
================================= ======= =======
All amounts recorded in contract revenue were generated in the
United States. All of the Company's contracts as of 31 December
2019 and 2018 were determined to have a single performance
obligation which consists of a combined deliverable of license to
intellectual property and research and development services.
Therefore revenue is recognised over time based on the inputs
method which is a faithful depiction of the transfer of goods and
services. Progress is measured based on costs incurred to date as
compared to total projected costs.
Disaggregated Revenue
The Group disaggregates contract revenue in a manner that
depicts how the nature, amount, timing, and uncertainty of revenue
and cash flows are affected by economic factors. The Group
disaggregates revenue based on contract revenue or grant revenue,
and further disaggregates contract revenue based on the transfer of
control of the underlying performance obligations.
2019 2018
Timing of revenue recognition $000s $000s
Transferred at a point in time - 13,415
Transferred over time 8,688 2,956
8,688 16,371
=============================== ======= =======
2019 2018
Customers over 10% of revenue $000s $000s
Janssen Biotech, Inc. - 12,000
BMEB Services LLC - 1,415
Roche Holding AG 4,973 -
Eli Lilly and Company 1,433 -
Boehringer Ingelheim International GMBH 1,091 -
Imbrium Therapeutics L.P. 1,013 -
8,510 13,415
======================================== ======= =======
An estimation uncertainty arises due to management's application
of the inputs method in recognising revenue overtime. In doing so,
the total cost to satisfy the performance obligation includes a
significant estimate by management in its budgets and projected
cash flows. The sensitivity of this calculation for the years ended
31 December 2019 and 2018 is detailed below:
For the year ended 31 December 2019
Budgeted costs to complete +10% (10) %
Revenue (951) 738
For the year ended 31 December 2018
Budgeted costs to complete +10% (10) %
Revenue (265) 323
=================================================== ======= ===== ====
Contract Balances
Accounts receivables represent rights to consideration in
exchange for products or services that have been transferred by the
Group, when payment is unconditional and only the passage of time
is required before payment is due. Accounts receivables do not bear
interest and are recorded at the invoiced amount. Accounts
receivable are included within Trade and other receivables on the
Consolidated Statement of Financial Position.
Contract liabilities represent the Group's obligation to
transfer products or services to a customer for which consideration
has been received, or for which an amount of consideration is due
from the customer. When applicable, contract assets and liabilities
are reported on a net basis at the contract level, depending on the
contracts position at the end of each reporting period. Contract
liabilities are included within deferred revenue on the
Consolidated Statement of Financial Position.
2019 2018
Contract Balances $000s $000s
Accounts receivable 1,699 151
Deferred revenue - long term 1,220 83
Deferred revenue - short term 5,474 6,560
------------------------------ ------- -------
During the year ended 31 December 2019, $5.0 million of revenue
was recognised on deferred revenue outstanding at 31 December
2018.
Remaining performance obligations represent the transaction
price of unsatisfied or partially satisfied performance obligations
within contracts with an original expected contract term that is
greater than one year and for which fulfilment of the contract has
started as of the end of the reporting period. The aggregate amount
of transaction consideration allocated to remaining performance
obligations as of 31 December 2019 was $7.6 million. The following
table summarises when the Group expects to recognise the remaining
performance obligations as revenue. The Group will recognise
revenue associated with these performance obligations as transfer
of control occurs:
Less than 1 Greater Total
Year than 1
Year
Remaining Performance Obligation 6,344 1,220 7,564
============================================ ============ ======= =====
Cost to Fulfil a Contract
Contract fulfilment costs include direct labour for professional
services, payments made to third parties for intellectual property
licenses and direct materials. Incremental costs incurred to fulfil
our contracts are capitalised if these costs (i) relate directly to
the contract, (ii) are expected to generate resources that will be
used to satisfy the Company's performance obligation under the
contract, and (iii) are expected to be recovered through revenue
generated under the contract. The revenue associated with direct
labour for professional services is recognised over time; therefore
the costs associated are expensed as incurred. The payments made to
third parties for intellectual property licenses are capitalised
when paid and recognised in line with associated revenue, whether
this be over time or at a point in time. As of 31 December 2018,
the Group has capitalised $0.8 million of cost to fulfil which are
included within Prepaid expenses and other current assets as well
as Other non-current assets on the Consolidated Statement of
Financial Position. As of 31 December 2019 the remaining
unamortised balance was $0.3 million.
4. 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
Group has determined that each entity is representative of a single
operating segment as the Directors monitor the financial results at
this level. When identifying the reportable segments the Group has
determined that it is appropriate to aggregate multiple operating
segments into a single reportable segment given the high level of
operational and financial similarities across the entities. The
Group has identified four reportable segments which 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 year ended 31 December 2019, the Company
deconsolidated three of its subsidiaries which resulted in a change
to the composition of its reportable segments. Consequently, the
Company has revised the 2018 financial information to conform to
the presentation as of and for the period ending 31 December 2019.
The change in segments reflects how the Company's Board of
Directors reviews the Group's results, allocates resources and
assesses performance. This change has been adjusted in both the
current and the prior period in the tables below.
Internal
The Internal segment (the "Internal segment"), 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 segment 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 segment is
conducted by the PureTech Health team, which is responsible for the
strategy, business development, and research and development. As of
31 December 2019, this segment included PureTech LYT (formerly
Ariya Therapeutics) and PureTech LYT 100.
Controlled Founded Entities
The Controlled Founded Entity segment (the "Controlled Founded
Entity segment") is comprised of the Group's subsidiaries 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. 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 access to networks, as well as additional funding to continue
the pursued growth of the company. As of 31 December 2019, this
segment included Alivio Therapeutics, Inc., CommenSe Inc., Entrega
Inc., Follica Incorporated, Sonde Health Inc., and Vedanta
Biosciences Inc.
Non-Controlled Founded Entities
The Non-Controlled Founded Entities segment (the "Non-Controlled
Founded Entities segment") is comprised of the entities 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 subsidiaries' Board of Directors.
Upon deconsolidation of an entity the segment disclosure is
restated to reflect the change on a retrospective basis, as this
constitutes a change in the composition of its reportable segments.
As of 31 December 2019, the Non-Controlled Founded Entities segment
included resTORbio, Inc. ("resTORbio"), Akili Interactive Labs,
Inc. ("Akili"), Vor Biopharma Inc. ("Vor"), Karuna Therapeutics,
Inc. ("Karuna"), and Gelesis Inc. ("Gelesis").
The Non-Controlled Founded Entities segment incorporates the
operational results of the aforementioned entities to the date of
deconsolidation. Following the date of deconsolidation, the Company
accounts for its investment in each entity at the parent level, and
therefore the results associated with investment activity following
the date of deconsolidation is included in the Parent Company and
Other segment (the "Parent Company and Other segment").
Parent Company and Other Segment
The Parent Company and Other segment includes activities that
are not directly attributable to the operating segments, such as
the activities of the Parent, corporate support functions and
certain research and development support functions that are not
directly attributable to a strategic business segment as well as
the elimination of intercompany transactions. This segment also
captures the accounting for the Company's holdings in entities for
which control has been lost, which is inclusive of the following
items: gain on deconsolidation, gain or loss on investments held at
fair value, gain on loss of significant influence, and the share of
net loss of associates accounted for using the equity method. As of
31 December 2019, this segment included PureTech Health plc,
PureTech Health LLC, PureTech Management, Inc. and PureTech
Securities Corp., as well as certain other dormant, inactive and
shell entities.
Information About Reportable Segments:
2019
Parent
Controlled Non-Controlled Company
Founded Founded &
Internal Entities Entities Other Consolidated
$000s $000s $000s $000s $000s
Consolidated Statements
of Comprehensive Loss
Contract revenue 6,064 2,487 - 137 8,688
Grant revenue 15 1,104 - - 1,119
Total revenue 6,079 3,591 - 137 9,807
General and administrative
expenses (2,385) (14,436) (10,439) (32,098) (59,358)
Research and development
expenses (25,977) (42,780) (15,555) (1,536) (85,848)
Total operating income/(expense) (28,362) (57,216) (25,994) (33,634) (145,206)
Other income/(expense):
Gain on deconsolidation - - - 264,409 264,409
Gain/(loss) on investments
held at fair value - - - (37,863) (37,863)
Gain/(loss) on disposal
of assets 17 (39) - (60) (82)
Gain on loss of significant
influence - - - 445,582 445,582
Other income/(expense) - 166 - (45) 121
Total other income/(expense) 17 127 - 672,023 672,167
Net finance income/(costs) - (16,947) (30,141) 941 (46,147)
Share of net income/(loss)
of associates accounted
for using the equity method - - - 30,791 30,791
Impairment of investment
in associate - - - (42,938) (42,938)
Income/(loss) from continuing
operations (22,266) (70,445) (56,135) 627,320 478,474
Income/(loss) before taxes
pre IFRS 9 fair value accounting,
finance costs - subsidiary
preferred shares, share-based
payment expense, depreciation
of tangible assets and amortisation
of intangible assets (21,889) (48,996) (21,873) 640,298 547,540
Finance income/(costs) -
subsidiary preferred shares - 107 (1,564) (1) (1,458)
Finance income/(costs) -
IFRS 9 fair value accounting - (17,294) (28,737) (444) (46,475)
Share-based payment expense (5) (1,678) (3,543) (9,242) (14,468)
Depreciation of tangible
assets (376) (1,531) (207) (1,114) (3,228)
Amortisation of ROU assets - (1,060) (83) (2,177) (3,320)
Amortisation of intangible
assets 4 7 (128) - (117)
Taxation - (134) (162) (112,113) (112,409)
Income/(loss) for the year (22,266) (70,579) (56,297) 515,207 366,065
Other comprehensive income/(loss) - - (10) - (10)
Total comprehensive income/(loss)
for the year (22,266) (70,579) (56,307) 515,207 366,055
Total comprehensive income/(loss)
attributable to:
Owners of the Company (7,001) (54,719) (32,353) 515,207 421,134
Non-controlling interests (15,265) (15,860) (23,954) - (55,079)
Consolidated Statements
of Financial Position:
Total assets 17,614 41,612 - 881,952 941,178
Total liabilities 12,076 132,935 - 145,768 290,779
Net assets/(liabilities) 5,538 (91,324) - 736,184 650,399
===================================== ======== ========== ============== ========= ============
2018
Parent
Controlled Non-Controlled Company
Founded Founded &
Internal Entities Entities Other Consolidated
$000s $000s $000s $000s $000s
Consolidated Statements
of Comprehensive Loss
Contract revenue 2,110 14,233 - 29 16,371
Grant revenue 86 4,271 20 - 4,377
Total revenue 2,195 18,504 20 29 20,748
General and administrative
expenses (1,498) (10,212) (16,385) (19,270) (47,365)
Research and development
expenses (8,929) (36,930) (29,851) (1,692) (77,402)
Total operating income/(expense) (10,427) (47,142) (46,236) (20,962) (124,768)
Other income/(expense):
Gain on deconsolidation - - - 41,730 41,730
Gain/(loss) on investments
held at fair value - - - (34,615) (34,615)
Gain/(loss) on disposal
of assets - - - 4,054 4,054
Gain on loss of significant
influence - - - 10,287 10,287
Other income/(expense) - - 104 (405) (302)
Other income/(expense) - - 104 21,051 21,154
Net finance income/(costs) - 5,341 5,945 14,631 25,918
Share of net income/(loss)
of associate accounted for
using the equity method - - - (11,490) (11,490)
Income/(loss) from continuing
operations (8,232) (23,297) (40,167) 3,258 (68,438)
(Loss)/income before taxes
pre IFRS 9 fair value accounting,
finance costs - subsidiary
preferred shares, share-based
payment expense, depreciation
of tangible assets and amortisation
of intangible assets (8,210) (24,344) (38,761) (4,234) (75,549)
Finance income/(costs) -
subsidiary preferred shares - - - (106) (106)
Finance income/(costs) -
IFRS 9 fair value accounting - 5,341 5,516 11,775 22,631
Share-based payment expense (11) (2,465) (6,262) (3,899) (12,637)
Depreciation of tangible
assets (7) (1,823) (390) (256) (2,476)
Amortisation of intangible
assets (4) (6) (270) (22) (302)
Taxation - (381) (185) (1,655) (2,221)
Income/(loss) for the year (8,454) (26,206) (41,239) 5,239 (70,659)
Other comprehensive income/(loss) - (214) - (26) (240)
Total comprehensive income/(loss)
for the year (8,454) (26,420) (41,239) 5,213 (70,899)
Total comprehensive income/(loss)
attributable to:
Owners of the Company (1,139) (15,710) (32,258) 5,213 (43,894)
Non-controlling interests (7,315) (10,710) (8,980) - (27,005)
Consolidated Statements
of Financial Position:
Total assets 2,984 15,603 35,934 387,240 441,761
Total liabilities 13,366 60,992 202,161 (1,731) 274,788
Net (liabilities)/assets (10,381) (45,389) (166,227) 388,970 166,973
===================================== ======== ========== ============== ======== ============
The Parent commences initiatives in theme-based technologies,
raises capital for investment in new companies and existing
subsidiaries, provides other corporate shared services and support
for all subsidiaries and manages the new programme creation
process.
The activity between the Parent and the reporting segments has
been eliminated in consolidation. These elimination amounts are
allocated to the subsidiaries.
The proportion of net assets shown above that is attributable to
non-controlling interest is disclosed in Note 16. The
Non-Controlled Founded Entities consist of the Company's minority
interest holdings.
5. Investments held at fair value
Investments held at fair value include both unlisted and listed
securities held by PureTech. These investments, which include
Akili, Vor, Karuna, Gelesis (other than the investment in common
shares - please refer to Note 6), resTORbio and other insignificant
investments, are initially measured at fair value and are
subsequently re-measured at fair value at each reporting date.
Interests in these investments are accounted for as investments
held at fair value, as shown below:
Investments held at fair value $000's
Balance at 1 January 2018 131,351
Deconsolidation of Akili 70,748
Reclassification of investment between investment in associate
and investment held at fair value 2,297
Gain - comprehensive income/(loss) (26)
Loss - fair value through profit and loss (34,615)
Balance at 31 December 2018 and 1 January 2019 169,755
Deconsolidation of subsidiaries (Vor, Karuna and Gelesis,
please refer to Note 6) 138,571
Reclassification of Karuna investment between investment
in associate and investment held at fair value (118,006)
Gain on Karuna investment at initial public offering (1) 40,633
Cash purchase of Gelesis convertible notes (please refer
to Note 6) 6,480
Cash purchase of Gelesis preferred shares (please refer
to Note 6) 8,020
Reclassification of Karuna investment at loss of significant
influence 557,243
Sale of resTORbio shares (9,295)
Loss - fair value through profit and loss(1) (78,496)
As of 31 December 2019 714,905
=============================================================== =========
(1) The net amount of these two items is a loss of $37.9 million
which is reported on the line Gain/(loss) on investments held at
fair value in the
Consolidated Statements of Comprehensive Income/(Loss).
Vor
Vor was founded by PureTech through an initial Series A-1
Preferred Shares financing and raised funds through issuance of
convertible notes. As of 31 December 2018, PureTech maintained
control of Vor and the subsidiary's financial results were fully
consolidated in the Group's consolidated financial statements.
On 12 February 2019, Vor completed a Series A-2 Preferred Shares
financing round with PureTech and several new third party
investors. The financing provided for the purchase of 62,819,866
shares of Vor Series A-2 Preferred Shares at the purchase price of
$0.40 per share.
As a result of the issuance of Series A-2 preferred shares to
third-party investors, PureTech's ownership percentage and
corresponding voting rights dropped from 79.5 per cent to 47.5 per
cent, and PureTech simultaneously gave up control on Vor's Board of
Directors, both of which triggered a loss of control over the
entity. As of 12 February 2019, Vor was deconsolidated from the
Group's financial statements, resulting in only the profits and
losses generated by Vor through the deconsolidation date being
included in the Consolidated Statement of Income/(Loss) and Other
Comprehensive Income/(Loss). While the Company no longer controls
Vor, it was concluded that PureTech still had significant influence
over Vor by virtue of its large, albeit minority, ownership stake
and its continued representation on Vor's Board of Directors.
PureTech still has the power to participate in the financial and
operating policy decisions of the entity, although it does not
control these policies. During the year ended 31 December 2019, the
Company recognised a $6.4 million gain on the deconsolidation of
Vor, which was recorded to the Gain on the deconsolidation of
subsidiary line item in the Consolidated Statement of Income/(Loss)
and Other Comprehensive Income/(Loss).
As PureTech did not hold common shares in Vor upon
deconsolidation and the preferred shares it holds do not have
equity-like features, the voting percentage attributable to common
shares is nil. Therefore, PureTech had no basis to account for its
investment in Vor under IAS 28. The preferred shares held by
PureTech fall under the guidance of IFRS 9 and will be treated as a
financial asset held at fair value through the Consolidated
Statement of Income/(Loss) and Other Comprehensive Income/(Loss).
The fair value of the preferred shares at deconsolidation was $12.0
million.
During the year ended 31 December 2019, the Company recognised a
gain of $0.6 million that was recorded on the line item Gain/(loss)
on investments held at fair value within the Consolidated Statement
of Income/(Loss) and Other Comprehensive Income/(Loss). Please
refer to Note 16 for information regarding the valuation of these
instruments.
Karuna
Karuna was founded by PureTech and raised funding through
Preferred Share financings as well as convertible note issuances.
As of 31 December 2018, PureTech maintained control of Karuna and
the company's financial results were fully consolidated in the
Group's consolidated financial statements.
On 15 March 2019, Karuna completed the closing of a Series B
Preferred Share financing with PureTech and several new third party
investors. The financing provided for the purchase of 5,285,102
shares of Karuna Series B Preferred Shares at a purchase price of
$15.14 per share.
As a result of the issuance of the preferred shares to
third-party investors, PureTech's ownership percentage and
corresponding voting rights related to Karuna dropped from 70.9 per
cent to 44.3 per cent, and PureTech simultaneously lost control
over Karuna's Board of Directors, both of which triggered a loss of
control over the entity. As of 15 March 2019, Karuna was
deconsolidated from the Group's financial statements, resulting in
only the profits and losses generated by Karuna through the
deconsolidation date being included in the Group's Consolidated
Statement of Income/(Loss) and Other Comprehensive Income/(Loss).
At the date of deconsolidation, PureTech recorded a $102.0 million
gain on the deconsolidation of Karuna, which was recorded to the
Gain on the deconsolidation of subsidiary line item in the
Consolidated Statement of Income/(Loss) and Other Comprehensive
Income/(Loss). While the Company no longer controls Karuna, it was
concluded that PureTech still had significant influence over Karuna
by virtue of its large, albeit minority, ownership stake and its
continued representation on Karuna's Board of Directors. PureTech
still had the power to participate in the financial and operating
policy decisions of the entity, although it did not control these
policies. As PureTech was able to demonstrate that it has
significant influence over Karuna, the entity will be accounted for
as an associate under IAS 28.
Upon the date of deconsolidation, PureTech held both preferred
and common shares in Karuna and a warrant issued by Karuna to
PureTech. The preferred shares and warrant held by PureTech fall
under the guidance of IFRS 9 and will be treated as financial
assets held at fair value, and all movements to the value of
preferred shares held by PureTech will be recorded through the
Consolidated Statement of Income/(Loss) and Other Comprehensive
Income/(Loss), in accordance with IFRS 9. The fair value of the
preferred shares and warrant at deconsolidation was $72.4 million.
Subsequent to deconsolidation, PureTech purchased an additional
$5.0 million of Karuna Series B Preferred shares, for a total fair
value immediately following deconsolidation of $77.4 million.
On 28 June 2019, Karuna priced its IPO. PureTech's ownership
percentage and corresponding voting rights related to Karuna
dropped from 44.3 per cent to 31.6 per cent; however, PureTech
retained significant influence due to its continued presence on the
board and its large, albeit minority, equity stake in the company.
Upon completion of the IPO, the Karuna preferred shares held by
PureTech converted to common shares. In light of PureTech's common
share holdings in Karuna and corresponding voting rights, PureTech
had re-established a basis to account for its investment in Karuna
under IAS 28. The preferred shares investment held at fair value
was therefore reclassified to investment in associate upon
completion of the conversion. During the year ended 31 December
2019 and up to 28 June 2019, the Company recognised a gain of $40.6
million that was recorded on the line item Gain on investments held
at fair value within the Consolidated Statement of Comprehensive
Income/(Loss) related to the preferred shares that increased in
value between the date of deconsolidation and the date of Karuna's
IPO.
As of 2 December 2019 it was concluded that the Company no
longer exerted significant influence over Karuna owing to the
resignation of the PureTech designee from Karuna's board of
directors, with PureTech retaining no ability to reappoint
representation. As such, PureTech lost the power to participate in
the financial and operating policy decisions of Karuna. As a
result, Karuna is no longer deemed an Associate and does not meet
the scope of equity method accounting, resulting in the investment
being accounted for as an investment held at fair value. For the
period of 28 June 2019 through 2 December 2019, PureTech's
investment in Karuna was subject to equity method accounting. In
accordance with IAS 28, the Company's investment was adjusted by
the share of losses generated by Karuna (weighted average of 31.4
per cent based on common stock ownership interest), which resulted
in a net loss of associates accounted for using the equity method
of $6.4 million during the year ended 31 December 2019.
Upon PureTech's loss of significant influence, the investment in
Karuna was reclassified to an investment held at fair value. This
change led PureTech to recognise a gain on loss of significant
influence of $445.6 million that was recorded to the Consolidated
Statement of Income/(Loss) on the line item Gain on loss of
significant influence during the year ended 31 December 2019. The
investment in Karuna after the recording of the gain on loss of
significant influence was $557.2 million, which was reclassified
from Investments in associates to Investments held at fair value.
Additionally, from 2 December 2019 PureTech recorded a $0.7 million
loss on the line item Gain/(loss) on investments held at fair value
within the Consolidated Statement of Income/(Loss) and Other
Comprehensive Income/(Loss) for the year ended 31 December
2019.
Akili
On 8 May 2018, Akili completed the first closing of a Series C
Preferred Stock financing in which PureTech Health did not invest.
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 per cent to 41.9 per cent,
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 Consolidated Statements of
Comprehensive Income/(Loss). As a result of the deconsolidation,
PureTech recognised a $41.7 million gain on the deconsolidation
during the year ended 31 December 2018, which was recorded to the
Consolidated Statement of Comprehensive Income/(Loss) on the line
item Gain on the deconsolidation of subsidiary.
As PureTech did not hold common shares in Akili upon
deconsolidation and the preferred shares it holds do not have
equity-like features, the voting percentage attributable to common
shares is nil. Therefore, PureTech had no basis to account for its
investment in Akili under IAS 28. 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 shares will be
recorded through the Consolidated Statements of Comprehensive
Income/(Loss), in accordance with IFRS 9. During the year ended 31
December 2019 and 2018, the Company recognised a gain of $11.5
million and $12.7 million, respectively, that was recorded on the
line item Loss on investments held at fair value within the
Consolidated Statements of Comprehensive Income/(Loss). Please
refer to Note 16 for information regarding the valuation of these
instruments.
resTORbio
On 26 January 2018, resTORbio, Inc., closed its initial public
offering. Prior to the resTORbio IPO, PureTech Health recorded a
loss of $14.3 million during the year ended 31 December 2018 to the
Consolidated Statement of Income/(Loss) within Gain/ (Loss) on
investments held at Fair Value to adjust the 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 shares holdings in resTORbio and corresponding
voting rights, the preferred shares investment held at fair value
was reclassified to investment in associate upon the completion of
the conversion.
For the period of 1 January 2018 through 5 November 2018,
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
(34.9 per cent based on common stock ownership interest), which
resulted in a net loss of associates of $11.5 million accounted for
using the equity method which was recorded to the Consolidated
Statement of Income/(Loss) on the line item Share of net loss of
associates during the year ended 31 December 2018.
As of 6 November 2018, it was that concluded the Company no
longer exerted significant influence over resTORbio, as PureTech
lost the power to participate in the financial and operating policy
decisions of resTORbio. As a result, resTORbio is no longer deemed
an Associate and does not meet the scope of equity method
accounting, resulting in the investment being accounted for as an
investment held at fair value. For the period of 1 January 2018
through 5 November 2018, 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, that resulted a net loss of
associates accounted for using the equity method of $11.5 million
that was recorded to the Consolidated Statement of Income/(Loss) on
the line item Share of net loss of associates accounted for using
the equity method during the year ended 31 December 2018. This
change led PureTech to recognise a gain on loss of significant
influence of $10.3 million that was recorded to the Consolidated
Statement of Income/(Loss) on the line item Gain on loss of
significant influence during the year ended 31 December 2018.
Additionally, PureTech recorded a loss of $33.0 million for the
adjustment to fair value in connection with its investment in
resTORbio to the Consolidated Statement of Income/(Loss) on the
line item Loss on financial asset during the year ended 31 December
2018.
On 15 November 2019, resTORbio announced that top line data from
the Protector 1 Phase 3 study evaluating the safety and efficacy of
RTB101 in preventing clinically symptomatic respiratory illness in
adults age 65 and older, did not meet its primary endpoint and the
Company has stopped the development of RTB101 in this indication.
As a result of ceasing the development of RTB101, resTORbio's share
price witnessed a decline in price. In November and December 2019,
PureTech Health sold 7,680,700 common shares of resTORbio for
aggregate proceeds of $9.3 million. Immediately following the sale
of common shares, PureTech Health held 2,119,696 common shares, or
5.8 per cent, of resTORbio. Additionally, PureTech recorded a loss
of $71.9 million for the adjustment to fair value in connection
with its investment in resTORbio to the Consolidated Statement of
Income/(Loss) on the line item Loss on financial asset during the
year ended 31 December 2019.
Gain on deconsolidation
The following table summarises the gain on deconsolidation
recognised by the Company:
2019 2018
Year ended 31 December $000s $000s
Gain on deconsolidation
of Akili - 41,730
Gain on deconsolidation
of Vor 6,357 -
Gain on deconsolidation
of Karuna 102,038 -
Gain on deconsolidation
of Gelesis [Note 6] 156,014 -
Total gain on deconsolidation 264,409 41,730
------------------------------ ------- ------
6. Investments in Associates
Gelesis
Gelesis was founded by PureTech and raised funding through
preferred shares financings as well as issuances of warrants and
loans. As of 31 December 2018, PureTech maintained control of
Gelesis and the subsidiary's financial results were fully
consolidated in the Group's consolidated financial statements.
On 1 July 2019, the Gelesis Board of Directors was restructured,
resulting in two of the three PureTech representatives resigning
from the Board with PureTech retaining no ability to reappoint
directors to these board seats. As a result of this restructuring,
PureTech lost control over Gelesis' Board of Directors, which
triggered a loss of control over the entity. At the deconsolidation
date, PureTech held a 25.2 per cent voting interest in Gelesis. As
of 1 July 2019, Gelesis was deconsolidated from the Group's
financial statements, resulting in only the profits and losses
generated by Gelesis through the deconsolidation date being
included in the Group's Consolidated Statement of Income/(Loss) and
Other Comprehensive Income/(Loss). At the date of deconsolidation,
PureTech recorded a $156.0 million gain on the deconsolidation of
Gelesis, which was recorded to the Gain on the deconsolidation of
subsidiary line item in the Consolidated Statement of Income/(Loss)
and Other Comprehensive Income/(Loss). While the Company no longer
controls Gelesis, it was concluded that PureTech still has
significant influence over Gelesis by virtue of its large, albeit
minority, ownership stake and its continued representation on
Gelesis' Board of Directors. PureTech 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 is
able to demonstrate that it has significant influence over Gelesis,
the entity will be accounted for as an associate under IAS 28,
starting at the date of deconsolidation.
Upon the date of deconsolidation, PureTech held shares of
preferred shares and common shares of Gelesis and a warrant issued
by Gelesis to PureTech. PureTech's investment in common shares of
Gelesis is subject to equity method accounting with an initial
investment of $16.4 million. In accordance with IAS 28, PureTech's
investment was adjusted by the share of profits and losses
generated by Gelesis subsequent to the date of deconsolidation.
PureTech recognised its share in the net profit of Gelesis
(weighted average of 49.8 per cent based on common stock ownership
interest) for the period from deconsolidation date until 31
December 2019 in the amount of $37.1 million.
The preferred shares and warrant held by PureTech fall under the
guidance of IFRS 9 and will be treated as financial assets held at
fair value and all movements to the value of PureTech's share in
the preferred shares will be recorded through the Consolidated
Statement of Income/(Loss) and Other Comprehensive Income/(Loss),
in accordance with IFRS 9. The fair value of the preferred shares
and warrant at deconsolidation was $49.2 million.
During the year ended 31 December 2019, the Company recognised a
loss of $18.7 million related to the preferred shares and warrants
that was recorded on the line item Gain/(loss) on investments held
at fair value within the Consolidated Statement of Income/(Loss)
and Other Comprehensive Income/(Loss). This loss occurred as a
result of the Gelesis Series 3 Growth financing, which was executed
with terms that resulted in a decrease in fair value across all
other classes of preferred shares.
On 12 August 2019, Gelesis issued a convertible promissory note
to the Company in the amount of $2 million. On 7 October 2019,
Gelesis issued an amended and restated convertible note (the
"Gelesis Note") to the Company in the principal amount of up to
$6.5 million. The Gelesis Note was payable in instalments, with
$2.0 million of the note drawn down upon execution of the original
note in August 2019 and an additional $3.3 million and $1.2 million
drawn down on 7 October 2019 and 5 November 2019, respectively. The
Gelesis Note was convertible upon the occurrence of Gelesis' next
qualified equity financing, or at the demand of the Company at any
date after 31 December 2019. The Gelesis Note falls under the
guidance of IFRS 9 and will be treated as a financial asset held at
fair and all movements to the value of the note will be recorded
through the Consolidated Statement of Income/(Loss) and Other
Comprehensive Income/(Loss).
On 5 December 2019, Gelesis closed its Series 3 Growth Preferred
Stock financing, at which point all outstanding principal and
interest under the Gelesis Note converted into shares of Series 3
Growth Preferred Stock. In addition to the shares issued upon
conversion of the Gelesis Note, PureTech purchased $8 million of
Series 3 Growth Preferred Stock in the December financing.
Impairment loss
Following the issuance of the Gelesis Series 3 Preferred Shares
at a higher valuation than the previous round with some favourable
liquidation provisions primarily to PureTech and also to the other
Series 3 preferred share investors, which resulted in adjustments
to the fair values of other preferred shares, warrant classes and
Gelesis common stock, the Company assessed the investment in common
shares held in Gelesis for impairment. Management compared the
recoverable amount of the investment to its carrying amount as of
31 December 2019, which resulted in an impairment loss to the
Investment in Gelesis. The recoverable amount was estimated based
on the fair value of the Gelesis common shares held by PureTech,
which are considered to be within Level 3 of the fair value
hierarchy. The costs of disposal are immaterial for the calculation
of Gelesis investment's recoverable amount.
During the year ended 31 December 2019, the total fair value of
common shares was determined utilising a hybrid valuation approach
with significant unobservable inputs within the PureTech valuation
framework (refer to Note 16). The multi-scenario hybrid valuation
approach utilised the recent transaction method within an option
pricing framework and an IPO scenario within a
probability-weighted-expected return framework to determine the
value allocation for the common share class of Gelesis. The fair
value of the common shares was determined as the calculated
business enterprise value allocated to the outstanding common
shares treated as call options within the OPM or the value of
common shares within the PWERM. The PWERM maintained a 75.0 per
cent probability of occurrence while the OPM maintained a 25.0 per
cent probability of occurrence. The probability weighted term to
exit was 1.57 years. The discount rate utilised was 20.0 percent
while the risk-free rate and volatility utilised were 1.62 per cent
and 56.0 per cent, respectively.
The impairment loss amounted to $42.9 million and was recorded
to Impairment of investment in associate within the Consolidated
Statement of Income/(Loss) and Other Comprehensive Income/(Loss)
for the year ended 31 December 2019. As of 31 December 2019 the
investment in Gelesis was $10.6 million, which is equal to the fair
value of the common shares held by PureTech.
The following table summarises the activity related to the
investment in associates balance for the years ended 31 December
2018 and 2019.
Investment in Associates $000's
At 1 January 2018 -
Investment upon initial public offering of resTORbio 115,210
Cash investment in Associate 3,500
Share of net loss of resTORbio accounted for using the equity
method (11,490)
Gain on loss of significant influence of resTORbio 10,287
Reclassification of resTORbio investment upon loss of significant
influence (117,507)
As of 31 December 2018 and 1 January 2019 -
Reclassification of Karuna investment at initial public offering 118,006
Investment in Gelesis upon deconsolidation 16,444
Share of net loss of Karuna accounted for using the equity
method (6,345)
Share of net profit of Gelesis accounted for using the equity
method 37,136
Impairment of investment in Gelesis (42,938)
Reclassification of investment upon loss of significant influence (111,661)
As of 31 December 2019 10,642
================================================================== =========
The following table summarises the financial information of
Gelesis as included in its own financial statements, adjusted for
fair value adjustments at deconsolidation and differences in
accounting policies. The table also reconciles the summarised
financial information to the carrying amount of the Company's
interest in Gelesis. The information for the year ended 31 December
2019 includes the results of Gelesis only for the period 1 July
2019 to 31 December 2019, as Gelesis was consolidated prior to this
period.
2019
Year ended 31 December $000s
Percentage ownership interest - common stock 49.3%
Non-current assets 369,336
Current assets 40,079
Non-current liabilities 82,406
Current liabilities 216,852
Net assets (100%) 110,157
Group's share of net assets (49.3%) 54,340
Share in associate's equity settled share based payments (760)
Investment before impairment 53,580
Impairment of investment in associate (42,938)
Investment in associate 10,642
Revenue -
Income from continuing operations (100%) 74,573
Total comprehensive income (100%) 74,573
Group's share of total comprehensive income (49.8%) 37,136
--------------------------------------------------------- --------
7. Operating Expenses
Total operating expenses were as follows:
For the years ending 31 December: 2019 2018
$000s $000s
General and administrative 59,358 47,365
Research and development 85,848 77,402
Total operating expenses 145,206 124,767
================================== ======= =======
The average number of persons employed by the Group during the
year, analysed by category, was as follows:
For the years ending 31 December: 2019 2018
General and administrative 39 55
Research and development 90 90
Total 129 145
================================== ==== ====
The aggregate payroll costs of these persons were as
follows:
For the years ending 31 December: 2019 2018
$000s $000s
General and administrative 24,468 22,939
Research and development 20,682 20,109
Total 45,150 43,048
================================== ====== ======
Detailed operating expenses were as follows:
For the years ending 31 December: 2019 2018
$000s $000s
Salaries and wages 27,703 27,274
Healthcare benefits 1,511 1,465
Payroll taxes 1,468 1,672
Share-based payments 14,468 12,637
Total payroll costs 45,150 43,048
Other selling, general and administrative expenses 34,890 24,426
Other Research and development expenses 65,166 57,293
Total other operating expenses 100,056 81,719
Total operating expenses 145,206 124,767
=================================================== ======= =======
Auditors remuneration:
For the years ended 31 December: 2019 2018
$000s $000s
Audit of these financial statements 870 652
Audit of the financial statements of subsidiaries 290 200
Audit-related assurance services 163 162
Non-audit related services 778 159
Taxation - -
Total 2,101 1,173
================================================== ====== ======
Please refer to Note 8 for further disclosures related to
share-based payments and Note 24 for management's remuneration
disclosures.
8. Share-based Payments
Share-based payments includes stock options, restricted stock
units ("RSUs") and performance-based restricted share unit awards
in which the expense is recognised based on the grant date fair
value of these awards.
Share-based Payment Expense
The Group share-based payment expense for the years ended 31
December 2019 and 2018, were comprised of charges related to the
PureTech Health plc incentive stock and stock option issuances and
subsidiary stock plans.
The following table provides the classification of the Group's
consolidated share-based payment expense as reflected in the
Consolidated Statement of Income/(Loss):
For the years ended 31 December 2019 2018
$000s $000s
General and administrative 10,677 5,293
Research and development 3,791 7,344
Total 14,468 12,637
================================ ====== ======
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. In conjunction with
the acquisition of the remaining minority interests of Ariya
Therapeutics Inc. ("Ariya") PureTech Health granted options to the
co-inventors and advisors of Ariya to purchase 2,147,295 ordinary
shares under the PureTech Health Performance Share Plan (Please
refer to Note 16). Upon the conclusion of the transaction, Ariya
was subsequently renamed PureTech LYT.
The Performance Share Plan
In June 2015, the Group adopted the Performance Stock Plan
("PSP"). Under the PSP and subsequent amendments, awards of
ordinary shares may be made to the Directors, senior managers and
employees of, and other individuals providing services to the
Company and its subsidiaries up to a maximum authorised amount of
10.0 per cent of the total ordinary shares outstanding. The shares
have various vesting terms over a period of service between two and
four years, provided the recipient remains continuously engaged as
a service provider.
The share-based awards granted under the PSP are equity settled
and expire 10 years from the grant date. As of the years ended 31
December 2019 and 2018, the Company had issued share-based awards
to purchase an aggregate of 5,409,751 and 5,657,602 shares,
respectively, under this plan.
RSUs
During the twelve months ended 31 December 2019 and 2018, the
Company issued 1,775, 568 and 2,860,782 performance based RSUs
under the PSP, respectively.
Each RSU entitles the holder to one ordinary share on vesting
and the RSU awards are based on a cliff vesting schedule over a
three-year requisite service period in which the Company recognises
compensation expense on a graded basis for the RSUs. 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 Company recognises the estimated fair value of
performance-based awards as share-based compensation expense over
the performance period based upon its determination of whether it
is probable that the performance targets will be achieved. The
Company assesses the probability of achieving the performance
targets at each reporting period. Cumulative adjustments, if any,
are recorded to reflect subsequent changes in the estimated outcome
of performance-related conditions.
The fair value of the performance-based awards is based on the
Monte Carlo simulation analysis utilising a Geometric Brownian
Motion process with 100,000 simulations to value those shares. The
model considers share price volatility, risk-free rate and other
covariance of comparable public companies and other market data to
predict distribution of relative share performance.
The performance conditions attached to the 2019 RSU awards are
based on the achievement of total shareholder return ("TSR"), with
50.0 per cent of the shares under award vesting based on the
achievement of absolute TSR targets, 12.5 per cent of the shares
under the award vesting based on TSR as compared to the FTSE 250
Index, 12.5 per cent of the shares under the award vesting based on
TSR as compared to the MSCI Europe Health Care Index, and 25.0 per
cent of the shares under the award vesting based on the achievement
of strategic targets. The RSU award performance criteria have
changed over time as the criteria is continually evaluated by the
Group's Remuneration Committee.
The Company incurred share-based payment expenses for
performance based RSUs of $2.2 million and $2.3 million for the
twelve months ended 31 December 2019 and 2018, respectively.
Stock Options
During the twelve months ended 31 December 2019 and 2018, the
Company granted 3,634,183 and 2,796,820 stock option awards under
the PSP, respectively.
The fair value of the stock options awarded by the Company was
estimated at the grant date using the Black-Scholes option
valuation model, considering the terms and conditions upon which
options were granted, with the following weighted- average
assumptions:
At 31 December: 2019 2018
Expected volatility 35.68% 44.18%
Expected terms (in years) 5.81 6.08
Risk-free interest rate 1.85% 2.79%
Expected dividend yield - -
Grant date fair value $2.23 $0.96
Share price at grant date $2.57 $2.05
========================== ===== =====
The Company incurred share-based payment expense for the stock
options of $9.2 million and $1.4 million for the twelve months
ended 31 December 2019 and 2018, respectively. The significant
increase for the year ended 31 December 2019, as compared to the
year ended 31 December 2018, is largely attributable to the
amortisation of share based payments awarded to the Ariya
founders.
As of 31 December 2019, 4,229,793 incentive options are
exercisable with a weighted-average exercise price of $1.42.
Exercise prices ranged from $0.01 to $4.62.
PureTech LLC Incentive Stock Issuance
In May 2015 and August 2014, the directors of PureTech Health
LLC approved the issuance of shares to the management team,
directors and advisors of PureTech Health LLC, subject to vesting
restrictions. The share-based awards granted under the 2016
PureTech LLC Incentive Stock Issuance Plan are equity settled and
expire 10 years from the grant date. 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 nil and $0.2 million in
share-based payment expense for the twelve months ended 31 December
2019 and 2018, respectively, related to PureTech Health LLC
incentive compensation.
As of 31 December 2018, all shares related to the pre-IPO
incentive compensation plan had fully vested.
Subsidiary Plans
Certain subsidiaries of the Group have adopted stock option
plans. A summary of stock option activity by number of shares in
these subsidiaries is presented in the following table:
Outstanding Granted During Exercised Expired During Forfeited Outstanding
as of 1 January the Year During the the Year During the as of 31
2019 Year Year December
2019
Gelesis 3,681,732 - - (110,386) (3,571,346)(1) -
Alivio 2,393,750 1,329,494 (3,125) - (21,875) 3,698,244
PureTech
LYT 2,180,000 - - - (2,180,000)(2) -
Commense 540,416 - - - (540,416) -
Entrega 914,000 58,000 - - - 972,000
Follica 1,229,452 79,588 - - - 1,309,040
Karuna 1,949,927 - - - (1,949,927)(1) -
Sonde 22,500 1,806,504 - - - 1,829,004
Vedanta 1,373,750 154,193 - - (77,843) 1,450,100
========= ================ ============== =========== ============== ============== ===========
1. These shares represent the options outstanding on the date of
deconsolidation of Karuna and Gelesis.
2. These share represent the option outstanding on the date of
conversion to PureTech stock options.
Outstanding Granted Exercised Expired Forfeited Outstanding
as of 1 January During During the During the During as of 31
2018 the Year Year Year the Year December
2018
Gelesis 2,728,232 953,500 - - - 3,681,732
Alivio 2,393,750 - - - - 2,393,750
Akili 2,385,355 - - - (2,385,355)(1) -
PureTech LYT - 2,180,000 - - - 2,180,000
Commense 418,750 121,666 - - - 540,416
Entrega 867,750 60,000 - (3,750) (10,000) 914,000
Follica 1,271,302 - - (41,850) - 1,229,452
Karuna 855,427 1,111,000 - (4,125) (12,375) 1,949,927
Knode 32,500 - - (32,500) - -
Sonde 35,000 - - (6,250) (6,250) 22,500
Tal 1,663,806 - - (30,250) (2,750) 1,630,806
The Sync Project 1,080,000 - - - (1,080,000) -
Vedanta 1,194,014 278,786 - (24,800) (74,250) 1,373,750
================= ================ ========= =========== =========== ============== ===========
1. These shares represent the options outstanding on the date of Akili's deconsolidation.
The weighted average exercise prices for the options outstanding
as of 1 January 2019 were as follows:
Outstanding at 1 January 2019 Number of Weighted-average
options exercise
price
$
Alivio 2,393,750 0.03
Entrega 914,000 0.71
Follica 1,229,452 0.92
Sonde 22,500 0.12
Vedanta 1,373,750 9.30
------------------------------ --------- ----------------
The weighted average exercise prices for the options granted for
the years ended 31 December 2019 and 2018 were as follows:
For the years ended 31 December: 2019 2018
$ $
Alivio 0.49 -
PureTech LYT - 0.03
Commense - 1.34
Entrega - 1.95
Follica 0.03 -
Karuna - 9.42
Sonde 0.20 -
Vedanta 19.13 14.66
================================= ===== =====
The weighted average exercise prices for options forfeited
during the year ended 31 December 2019 were as follows:
Forfeited during the year ended 31 December Number of options Weighted-average
2019 exercise price
$
Gelesis 3,571,346 7.48
Alivio 21,875 0.49
PureTech LYT 2,180,000 0.01
Commense 540,416 0.13
Karuna 1,949,927 5.10
Vedanta 77,843 1.31
-------------------------------------------- ----------------- ----------------
The weighted average exercise prices for options exercisable as
of 31 December 2019 were as follows:
Weighted-average
exercise
Number of price Exercise
Exercisable at 31 December 2019 Options $ Price Range
Alivio 1,419,750 0.04 $0.03 - $0.49
Entrega 882,062 0.60 $0.03 - $2.36
Follica 1,118,635 0.89 $0.03 - $1.40
Sonde 191,405 0.18 $0.13 - $0.20
Vedanta 1,081,005 7.05 $0.02 - $19.94
-------------------------------- --------- ---------------- --------------
Significant Subsidiary Plans
Vedanta 2010 Stock Incentive Plan
In 2010, the Board of Directors for Vedanta approved the 2010
Stock Incentive Plan (the "Vedanta Plan"). Through subsequent
amendments, as of 31 December 2019, it allowed for the issuance of
2,145,867 share-based compensation awards through incentive share
options, nonqualified share options, and restricted shares to
employees, directors, and nonemployees providing services to
Vedanta. At 31 December 2019, 595,642 shares remained available for
issuance under the Vedanta Plan.
The options granted under Vedanta Plan are equity settled and
expire 10 years from the grant date. Typically, the awards vest in
four years but vesting conditions can vary based on the discretion
of Vedanta's Board of Directors.
Options granted under the Vedanta Plan are exercisable at a
price per share not less than the fair market value of the
underlying ordinary shares on the date of grant. The estimated fair
value of options, including the effect of estimated forfeitures, is
recognised over the options' vesting period.
The fair value of the stock option grants has been estimated at
the date of grant using the Black-Scholes option pricing model with
the following range of assumptions:
Assumption/Input 2019 2018
Expected award life (in years) 5.86 - 6.07 6.03-6.16
Expected award price volatility 89.24%- 91.60%-92.56%
95.46%
Risk free interest rate 1.73% - 2.65%-2.78%
1.88%
Expected dividend yield - -
Grant date fair value $14.12 - $11.21-$11.26
$15.61
$18.71 -
Share price at grant date $19.94 $14.66
================================ ============ =============
Vedanta incurred share-based compensation expense of $1.7
million and $2.1 million for the years ended 31 December 2019 and
2018, respectively.
Gelesis 2016 Stock Incentive Plan
In September 2016, the Directors of Gelesis approved the 2016
Stock Incentive Plan (the "2016 Gelesis Plan") which provides for
the grant of incentive stock options, nonqualified stock options,
and restricted stock to employees, directors, and nonemployees
providing services to Gelesis. At 30 June 2019, 329,559 shares
remained available for issuance under the Gelesis Plan.
The options granted under the 2016 Gelesis Plan are equity
settled and expire 10 years from the grant date. Typically, the
awards vest in four years but vesting conditions can vary based on
the discretion of Gelesis Board of Directors.
Options granted under the 2016 Gelesis Plan are exercisable at a
price per share not less than the fair market value of the
underlying ordinary shares on the date of grant. The estimated fair
value of options, including the effect of estimated forfeitures, is
recognised over the options' vesting period.
The fair value of the stock option grants has been estimated at
the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
Assumption/Input 2019 2018
Expected award life (in years) 0 6.22
Expected award price volatility -% 64.58%
Risk free interest rate -% 2.79%
Expected dividend yield - -
Grant date fair value $- $7.84
Share price at grant date $- $12.82
================================ ======
Gelesis used an average historical share price volatility based
on an analysis of reported data for a peer group of comparable
companies which were selected based upon industry similarities. As
there is not sufficient historical share exercise data to calculate
the expected term of the options, Gelesis elected to use the
"simplified" method for all options granted at the money to value
share option grants. Under this approach, the weighted average
expected life is presumed to be the average of the vesting term and
the contractual term of the option.
Gelesis incurred share-based compensation expense of $2.4
million for the six month period prior to deconsolidation ended 30
June 2019 and $3.9 million for the year ended 31 December 2018.
Karuna Pharmaceuticals, Inc. 2009 Stock Incentive Plan
In 2009, the Board of Directors for Karuna Pharmaceuticals, Inc.
approved the 2009 Stock Incentive Plan (the "Karuna 2009 Plan"). It
allowed for the issuance of 1,000,000 share-based compensation
awards through stock options, restricted stock units and other
stock-based awards under the Karuna 2009 Plan to employees,
officers, directors, consultants and advisors of Karuna. At 15
March 2019, 106,865 shares remained available for issuance under
the Karuna 2009 Plan.
The options granted under the Karuna 2009 Plan are equity
settled and expire 10 years from the grant date. Typically, the
awards vest in four years but vesting conditions can vary based on
the discretion of Karuna's Board of Directors.
Options granted under the Karuna 2009 Plan are exercisable at a
price per share not less than the fair market value of the
underlying ordinary shares on the date of grant. The estimated fair
value of options, including the effect of estimated forfeitures, is
recognised over the options' vesting period.
The fair value of the stock option grants has been estimated at
the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
Assumption/Input 2019 2018
Expected award life (in years) 0 6.07
Expected award price volatility -% 50.28%
Risk free interest rate -% 1.95%
Expected dividend yield - -
Grant date fair value $- $3.51
Share price at grant date $- $7.08
================================ =====
Karuna incurred share-based compensation expense of $1.2 million
for the period prior to deconsolidation ended 15 March 2019 and
$1.9 million for the year ended 31 December 2018.
Other Plans
The stock compensation expense under plans at other subsidiaries
of the Group not including Gelesis, Vedanta and Karuna was $0.01
million and $0.8 million for the years ended 31 December 2019 and
2018, respectively. The negative expense incurred during the year
ended 31 December 2019 was largely attributable to Commense
forfeitures.
9. Finance Cost, net
The following table shows the breakdown of finance income and
costs:
For the year ended 31 December 2019 2018
$000s $000s
Finance income
Interest from financial assets not at fair value through
profit or loss 4,362 3,358
Total finance income 4,362 3,358
Finance costs
Contractual interest expense on convertible notes (149) (388)
Interest income/(expense) on other borrowings - (4)
Interest Expense (2,495) -
Gain/(loss) on forgiveness of debt - 289
Gain/(loss) on foreign currency exchange 68 137
Total finance income/(costs) - contractual (2,576) 34
Gain/(loss) from change in fair value of warrant liability (11,890) 82
Gain/(loss) on fair value accounting (34,585) 22,549
Total finance income/(costs) - fair value accounting (46,475) 22,631
Total finance income/(costs) - subsidiary preferred
shares (1,458) (106)
Total finance income/(costs) (47,933) 22,525
Finance income/(costs), net (46,147) 25,917
=========================================================== ======== ======
10. Earnings/(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 years ended 31 December 2019 and 2018,
respectively.
Earnings/(Loss) Attributable to Owners of the Company:
2019 2018
Basic Diluted Basic Diluted
$000s $000s $000s $000s
Earnings/(loss) for the year, attributable
to the owners of the Company 421,144 421,144 (43,654) (43,654)
Earnings/(loss) attributable to ordinary
shareholders 421,144 421,144 (43,654) (43,654)
=========================================== ======= ======= ======== ========
Weighted-Average Number of Ordinary Shares:
2019 2018
Basic Diluted Basic Diluted
Issued ordinary shares at 1 January 282,493,867 282,493,867 236,897,579 236,897,579
Effect of shares issued 932,600 932,600 36,950,688 36,950,688
Effect of dilutive shares - 8,355,866 - -
Weighted average number of ordinary
shareholders at 31 December 283,426,467 291,782,333 273,848,267 273,848,267
==================================== =========== =========== =========== ===========
Earnings/(Loss) per Share:
2019 2018
Basic Diluted Basic Diluted
$ $ $ $
Basic and diluted earnings/(loss)
per share 1.49 1.44 (0.16) (0.16)
==================================== ======= ======= ======= =======
11. Property and Equipment
Cost Laboratory Furniture Computer Leasehold Construction Total
and Manufacturing and Equipment Improvements in $000s
Equipment Fixtures and $000s process
$000s $000s Software $000s
$000s
Balance as of 1 January
2018 6,082 469 1,214 2,899 74 10,738
Additions, net of
transfers 1,586 27 477 2,070 171 4,331
Disposals (261) (8) (260) (27) - (556)
Exchange differences (101) - - (18) (6) (125)
Balance as of 31
December 2018 7,306 488 1,431 4,924 239 14,388
Additions, net of
transfers 3,374 1,126 175 13,494 4,649 22,818
Disposals (183) (168) (9) (45) - (405)
Deconsolidation of
subsidiaries (3,076) - (137) (754) (4,190) (8,157)
Reclassifications (25) 6 48 36 (76) (11)
Exchange differences (11) - - 1 24 14
Balance as of 31
December 2019 7,385 1,452 1,508 17,656 646 28,647
------------------------ ------------------ --------- ---------- ------------- ------------ -------
Accumulated depreciation Laboratory Furniture Computer Leasehold Construction Total
and impairment loss and Manufacturing and Equipment Improvements in $000s
Equipment Fixtures and $000s process
$000s $000s Software $000s
$000s
Balance as of 1 January
2017 (2,360) (175) (534) (807) - (3,876)
Depreciation (1,032) (60) (296) (1,088) - (2,476)
Disposals 114 2 74 20 - 210
Exchange differences 56 - - 21 - 77
Balance as of 31
December 2018 (3,222) (233) (756) (1,854) - (6,065)
Depreciation (1,328) (144) (312) (1,448) - (3,232)
Disposals 102 138 5 20 - 265
Deconsolidation of
subsidiaries 1,457 - 53 319 - 1,829
Reclassifications 15 - (20) 6 - 1
Exchange differences 8 - - 2 - 10
Balance as of 31
December 2019 (2,968) (239) (1,030) (2,955) - (7,192)
========================= ================== ========= ========== ============= ============ =======
Property and Laboratory Furniture Computer Leasehold Construction Total
Equipment, and Manufacturing and Equipment Improvements in $000s
net Equipment Fixtures$000s and $000s process
$000s Software $000s
$000s
Balance as of 31
December 2018 4,084 255 675 3,070 239 8,323
Balance as of 31
December 2019 4,417 1,213 478 14,701 646 21,455
--------------------- ================== ============== ========== ============= ============ ======
Depreciation of property and equipment is included in the
General and administrative expenses and Research and development
expenses line items in the Consolidated Statements of Comprehensive
Income/(Loss). The Company recorded depreciation expense of $3.2
million and $2.5 million for the years ended 31 December 2019 and
2018, respectively.
12. Intangible Assets
Intangible assets consist of licenses of intellectual property
acquired by the Group through various agreements with third parties
and are recorded at the value of cash and non-cash consideration
transferred. Information regarding the cost and accumulated
amortisation of intangible assets is as follows:
Cost Licenses
$000s
Balance at 1 January 2018 5,018
Additions 125
Deconsolidation of subsidiary (76)
Balance as of 31 December 2018 5,067
Additions 400
Deconsolidation of subsidiaries (4,842)
Balance as of 31 December 2019 625
================================ ========
Accumulated amortisation Licenses
$000s
Balance at 1 January 2018 (1,709)
Amortisation (302)
Deconsolidation of subsidiary 24
Balance as of 31 December 2018 (1,987)
Amortisation (117)
Deconsolidation of subsidiary 2,104
Balance as of 31 December 2019 -
=============================== ========
Intangible assets, net Licenses
$000s
Balance as of 31 December 2018 3,080
Balance as of 31 December 2019 625
------------------------------- ========
These intangible asset licenses represent
in-process-research-and-development assets since they are still
being developed and are not ready for their intended use. As such,
these assets are not yet amortised but tested for impairment
annually. The Company tested such assets for impairment as of
balance sheet date and concluded that none were impaired. During
the year ended 31 December 2019, Vor, Karuna and Gelesis were
deconsolidated and as such $2.7 million in net assets were
derecognised.
Amortisation expense is included in the Research and development
expenses line item in the accompanying Consolidated Statements of
Comprehensive Income/(Loss). Amortisation expense, recorded using
the straight-line method, was approximately $0.1 million and $0.3
million for the years ended 31 December 2019 and 2018,
respectively.
13. Other Financial Assets
Other financial assets consist of restricted cash held, which
represents amounts that are reserved as collateral against letters
of credit with a bank that are issued for the benefit of a landlord
in lieu of a security deposit for office space leased by the Group.
Information regarding restricted cash was as follows:
As of 31 December 2019 2018
$000s $000s
Restricted cash 2,124 2,199
Total other financial assets 2,124 2,199
============================= ===== =====
14. Equity
Total equity for PureTech as of 31 December 2019 and 2018 was as
follows:
Equity 31 December 31 December
2019 2018
$000s $000s
Share capital, GBP0.01 par value, issued and paid
285,370,619 and 282,493,867 as of 31 December 2019
and 2018, respectively 5,408 5,375
Merger reserve 138,506 138,506
Share premium 287,962 278,385
Translation reserve - 10
Other reserves (18,282) 20,923
Retained earnings/(accumulated deficit) 254,444 (167,692)
Equity attributable to owners of the Group 668,037 275,507
Non-controlling interests (17,640) (108,535)
Total equity 650,397 166,972
==================================================== =========== ===========
Changes in share capital and share premium relate primarily to
acquisition of Ariya non-controlling interest and incentive options
exercises during the period.
Shareholders are entitled to vote on all matters submitted to
shareholders for a vote. Each ordinary share is entitled to one
vote. Each ordinary share is entitled to receive dividends when and
if declared by the Company's Directors. The Company has not
declared any dividends in the past.
On June 18, 2015, the Company acquired the entire issued share
capital of PureTech LLC in return for 159,648,387 Ordinary Shares.
This was accounted for as a common control transaction at cost. It
was deemed that the share capital was issued in line with movements
in share capital as shown prior to the transaction taking place. In
addition, the merger reserve records amounts previously recorded as
share premium.
Other reserves comprise the cumulative credit to share-based
payment reserves corresponding to share-based payment expenses
recognised through Consolidated Statements of Comprehensive
Income/(Loss).
15. Subsidiary Preferred Shares
IFRS 9 addresses the classification, measurement, and
recognition of financial liabilities. Preferred shares issued by
subsidiaries and affiliates often contain redemption and conversion
features that are assessed under IFRS 9 in conjunction with the
host preferred share instrument.
The subsidiary preferred shares are convertible into ordinary
shares of the subsidiaries at the option of the holder and
mandatorily convertible into ordinary shares upon a subsidiary
listing in a public market at a price above that 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 ordinary shares receivable on conversion will change
and therefore, a variable number of shares will be issued. Because
the possible conversion of the preferred shares is outside of the
control of the Group, these have been classified as liabilities on
the balance sheet and subsequently remeasured at fair value through
the profit and loss.
The preferred shares are entitled to vote with holders of common
shares 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 31 December 2019 and 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 following summarises the subsidiary preferred share
balance:
As of 31 December 2019 2018
$000s $000s
Entrega 3,222 2,780
Follica 11,663 60
Gelesis - 140,192
Karuna - 32,342
Sonde 7,212 -
The Sync Project - 109
Tal - 113
Vedanta Biosciences 78,892 41,923
Total subsidiary preferred share balance 100,989 217,519
========================================= ======= =======
As of 31 December 2019, the total subsidiary preferred share
balance decreased owing to the deconsolidation of Karuna and
Gelesis.
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 which are outstanding shall be
entitled to be paid out of the assets of the subsidiary available
for distribution to shareholders and before any payment shall be
made to holders of ordinary shares. A merger, acquisition, sale of
voting control or other transaction of a subsidiary in which the
shareholders of the subsidiary do not own a majority of the
outstanding shares of the surviving company shall be deemed to be a
liquidation event. Additionally, a sale, lease, transfer or other
disposition of all or substantially all of the assets of the
subsidiary shall also be deemed a liquidation event.
As of 31 December 2019 and 2018, the minimum liquidation
preference reflects the amounts that would be payable to the
subsidiary preferred holders upon a liquidation event of the
subsidiaries, which is as follows:
As of 31 December 2019 2018
$000s $000s
Entrega 2,216 2,216
Follica 6,405 1,895
Gelesis - 77,301
Karuna - 24,343
Sonde 7,250 -
Sync - 109
Tal - 113
Vedanta Biosciences 77,161 41,923
Total minimum liquidation preference 93,032 147,900
===================================== ====== =======
As of 31 December 2018, Tal ceased operations and was in the
process of liquidated. Therefore, the liquidation preference shown
above equals the cash on hand, as this will be paid out to existing
investors.
As of 31 December 2019, the minimum liquidation preference
decreased owing to the deconsolidation of Karuna and Gelesis.
For the years ended 31 December 2019 and 2018, the Group
recognised the following changes in the value of subsidiary
preferred shares:
$000s
Balance as of 31 Balance as of 1 January 2018 215,635
Issuance of new preferred shares 54,537
Conversion of convertible notes 7,930
Decrease in value of preferred shares measured at fair value (23,110)
Sale of The Sync Group (1,062)
Deconsolidation of subsidiary (36,517)
Accretion 106
Balance as of 31 December 2018 and 1 January 2019 217,519
Issuance of new preferred shares 51,048
Conversion of convertible notes 4,894
Increase in value of preferred shares measured at fair value 33,636
Finance costs 1,458
Deconsolidation of subsidiary (207,346)
Other (108)
Cash Distribution (112)
Balance as of 31 December 2019 100,989
============================================================= =========
2019
On 15 March 2019, Karuna was deconsolidated. As of
deconsolidation, the fair value of Karuna's preferred share
liability was $31.7 million.
On 4 April 2019, Sonde Health issued and sold shares of Series
A-2 preferred shares for aggregate proceeds of $11.1 million, of
which $5.3 million was contributed by outside investors.
Approximately $5.8 million of outstanding principal and interest on
convertible promissory notes issued by Sonde to PureTech converted
into Series A-2 preferred shares in this financing in accordance
with their terms. On 29 August 2019, Sonde sold an additional
1,052,632 shares of its Series A-2 preferred shares for aggregate
proceeds of $2.0 million. 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. The instrument is not bifurcated and is measured in whole
at fair value through the profit and loss.
In April 2019, Gelesis completed further closings of its Series
2 Growth financing issuing 799,894 shares for proceeds of $10.2
million, of which $8.6 million was contributed by outside investors
and $1.6 million was contributed by PureTech.
In March and May 2019, Vedanta completed a second and third
closing of its Series C preferred shares financing for aggregate
proceeds of $18.7 million. PureTech Health did not participate in
either closing. 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. The
instrument is not bifurcated and is measured in whole at fair value
through the profit and loss.
On 1 July 2019, Gelesis was deconsolidated. As of
deconsolidation, the fair value of Gelesis' preferred share
liability was $175.6 million.
On 19 July 2019, all of the outstanding notes, plus accrued
interest, issued by Follica converted into 17,639,204 shares of
Series A-3 Preferred Shares and 14,200,044 shares of common share
pursuant to a Series A-3 Note Conversion Agreement between Follica
and the noteholders. Third parties held 2,422,990 A-3 preferred
shares following the conversion. 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. The instrument is not bifurcated and is measured in whole
at fair value through the profit and loss.
In September 2019, Vedanta received $16.7 million from outside
investors through the issuance of its Series C-2 preferred shares
in two separate closings. The issuances provided for the purchase
of 711,772 Series C-2 shares at a purchase price of $23.28.
PureTech Health did not participate in either closing. 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. The instrument is not bifurcated and is
measured in whole at fair value through the profit and loss.
2018
In 2018, Gelesis received $16.8 million from outside investors
through the issuance of its Series 2 Growth preferred shares as
part of a $30.0 million financing with multiple closings. 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. The instrument is not bifurcated
and is measured in whole at fair value through the profit and
loss.
In May 2018, Akili issued Series C preferred shares for
aggregate proceeds of $55.0 million; PureTech Health did not
participate in this financing. Upon closing of Akili's Series C
financing, the subsidiary was deconsolidated by PureTech Health
(Please refer to Note 3).
In August 2018, Karuna issued Series A preferred shares for
aggregate proceeds of $42.1 million, of which $23.9 came from
outside investors. In conjunction with the August 2018 issuance of
Series A preferred shares, $26.1 million of outstanding principal
and accrued interest on notes payable converted, of which $7.9
million related to outside investors. It has been determined that
these shares are liability classified and contain a liability
classified embedded derivative. The instrument is not bifurcated
and is measured in whole at fair value through the profit and
loss.
On 21 December 2018, Vedanta issued Series C preferred shares
for aggregate proceeds of $26.7 million, of which $21.7 million
came from outside investors. It has been determined that these
shares are liability classified and contain a liability classified
embedded derivative. The instrument is not bifurcated and is
measured in whole at fair value through the profit and loss.
16. Financial Instruments
The Group's financial instruments consist of financial
liabilities, including preferred shares, convertible notes,
warrants and loans payable, as well as financial assets classified
as assets held at fair value.
Subsidiary Preferred Shares Liability and Subsidiary Convertible
Notes
The following table summarises the changes in the Group's
subsidiary preferred shares and convertible note liabilities
measured at fair value using significant unobservable inputs (Level
3):
Subsidiary Preferred Subsidiary Convertible
Shares Notes
$000s $000s
Balance at 31 December 2016 - -
Value of derivatives at issuance - -
Change in fair value - -
Balance at 1 January 2018 215,635 11,343
Adjustment for IFRS 9 implementation
Value at issuance 54,537 5,824
Conversion 7,930 (7,581)
Deconsolidation of preferred shares (36,517) -
Change in fair value (24,066) (128)
Balance at 31 December 2018 and 1 January
2019 217,519 9,458
Value at issuance 51,048 1,607
Conversion to preferred 4,894 (4,894)
Conversion to common - (2,418)
Deconsolidation (207,346) (5,017)
Change in fair value 33,636 1,389
Finance Costs 1,458 -
Other (112) -
Cash distribution (108) -
Balance at 31 December 2019 100,989 125
========================================== ==================== ======================
For financial instruments measured at fair value under IFRS 9
the change in the fair value of the entire instrument is reflected
through profit and loss. The techniques used to determine fair
value of the preferred shares and convertible notes included the
market approach, the market backsolve approach and the discounted
cash flow income approach. A market approach uses prices and other
relevant information generated by recent market transactions
involving identical or comparable assets or liabilities. The
discounted cash flow income approach, which represents a Level 3
approach, relies upon unobservable inputs that are supported by
little or no market activity and that are significant to
determining the fair value of certain assets or liabilities. The
market backsolve method is derived from the total equity that is
implied by the most recent financing round in which the only truly
observable value indicator is the financing round and the economic
rights and the allocation inputs are implied by the terms of the
financing, while volatility and term are Management inputs within
the option pricing-method.
During the years ended 31 December 2019 and 2018, at each
measurement date, the total fair value of preferred share, warrants
and convertible note instruments, including embedded conversion
rights that are not bifurcated, was determined using an OPM, PWERM
or with or without framework which consisted of a three-step
process detailed below.
First, the total business enterprise value of each business
within the Group was determined using a discounted cash flow income
approach or market approach, or market backsolve approach through a
recent arm's length financing round.
Second, the principal methods that the Group applies for the
allocation of value are the Option Pricing Method ("OPM") and the
Probability-Weighted Expected Return Method ("PWERM").
-- The OPM treats outstanding securities as call options on the
enterprise's value or overall equity value. The value of a security
is based on the optionality over and above the value of securities
that are senior in the capital structure (e.g. preferred shares),
which takes into consideration the dilutive effects of subordinate
securities. In the OPM, the exercise price is based on a comparison
with the overall equity value rather than per-share value.
-- The PWERM estimates the value of equity securities based on
an analysis of various discrete future outcomes, such as an IPO,
merger or sale, dissolution, or continued operation as a private or
public enterprise until a later exit date. The equity value today
is based on the probability-weighted present values of expected
future investment returns, considering each of the possible
outcomes available to the enterprise, as well as the rights of each
security class.
Third, the fair value of the preferred shares was determined as
the calculated business enterprise value allocated to the
outstanding preferred share classes treated as call options within
the OPM or the value of preferred shares on a converted common
share basis within the PWERM. For convertible notes, the fair value
of the instrument, including the embedded conversion right which
was not bifurcated, was also calculated using a with or without
method.
Quantitative information about the significant unobservable
inputs used in the fair value measurement of the Group's embedded
derivative liability related to the subsidiary preferred shares
designated as Level 3 is as follows:
Option Pricing Model Inputs for Preferred Shares and Convertible
Notes Liabilities under IFRS 9 at 31 December 2019:
Range of Values
Expiration Volatility Risk Free Probability
Measurement Date Date Rate of IPO/M&A
0.3 - 2.5
31/12/2018 years 45.00% - 85.00% 2.47% - 2.60% -%
0.7 - 2.0
31/12/2019 years 30.00% - 85.00% 1.58% - 1.60% 65%/35%
================= =========== ================ ============== -----------
Probability Weighted Expected Return Method Inputs for Preferred
Shares and Convertible Notes Liabilities under IFRS 9 at 31
December 2019:
Range of Values
Probability
of IPO/M&A/
Time to Anticipated Dissolution
Measurement Date Exit Event Sale
0.75 - 1.00
31/12/2018 years 50.0%/50.0%/0.0%
31/12/2019 - -%
================ =================== ================
Quantitative information about the significant unobservable
inputs used in the fair value measurement of the Group's
convertible note liabilities designated as Level 3 for the year
ended 31 December 2018 is as follows:
Range of Values
Significant Unobservable Inputs At Issuance 2018
1.00 - 2.03 0.33 - 1.50
Time to next qualified equity financing years years
Implied discount rate 11.3% - 2,459.0% 10.8% - 44.9%
Probability of a qualified financing or change
of control 0.0% - 100.0% 95.0% - 100.0%
============================================== ================ ==============
Valuation policies and procedures are regularly monitored by the
Company's finance group. Fair value measurements, including those
categorised within Level 3, are prepared and reviewed on their
issuance date and then on an annual basis and any third-party
valuations are reviewed for reasonableness and compliance with the
fair value measurements guidance under IFRS.
Subsidiary Preferred Shares Sensitivity
The following summarises the sensitivity from the assumptions
made by the Company in respect to the unobservable inputs used in
the fair value measurement of the Group's preferred share
liabilities, which do not qualify for bifurcation and are recorded
at fair value (Please refer to Note 15).
Subsidiary Preferred Share
Liability
Sensitivity Financial Liability
Input Range Increase/ (Decrease)
As of 31 December $000s
Enterprise Value -2% (1,785)
2% 1,784
Volatility -10% 410
10% (459)
Time to Liquidity -6 Months 565
+6 Months (501)
Risk-free Rate(1) -0.08%/-0.03% 565
+0.02%/+0.05% (501)
IPO/M&A Event Probability -10% 1,167
+10% (1,162)
-------------------------- ------------------- ---------------------
1. Risk-free rate is a function of the time to liquidity input assumption.
The change in fair value of preferred shares are recorded in
Finance cost, net in the Consolidated Statements of Comprehensive
Income/(Loss).
Financial Assets Held at Fair Value
resTORbio Valuation
ResTORbio (NASDAQ: TORC) is a listed entity on an active
exchange and as such the fair value as of 31 December 2019 was
calculated utilising the quoted common share price. Please refer to
Note 5 for further details.
Karuna Valuation
Karuna (NASDAQ: KRTX) is a listed entity on an active exchange
and as such the fair value as of 31 December was calculated
utilising the quoted common share price. Please refer to Note 5 for
further details.
Akili, Gelesis and Vor Valuation
In accordance with IFRS 9, the Company accounts for its
preferred share investments in Akili, Gelesis and Vor as financial
assets held at fair value through the profit and loss. During the
year ended 31 December 2019, the Company recorded its investment at
fair value and recognised a gain of $48.8 million that was recorded
to the Consolidated Statements of Comprehensive Income/(Loss) on
the line item Gain/(loss) on investments held at fair value.
The following table summarises the changes in the Group's
investments held at fair value using significant unobservable
inputs (Level 3):
$'000s
Balance at 1 January 2018 1,449
Deconsolidation of Akili 70,748
Gain/ (Loss) on changes in fair value 12,966
Issuance of note receivable -
Balance at 31 December 2018 and 1 January 2019 85,163
Deconsolidation of Vor 12,028
Deconsolidation of Karuna 77,373
Deconsolidation of Gelesis 49,170
Reclass of Karuna to Associate (118,006)
Gain/ (Loss) on changes in fair value 48,867
Issuance of note receivable 6,480
Conversion of note receivable (6,630)
Balance at 31 December 2019 154,445
=============================================== =========
Option Pricing Model and Probability Weighted Expected Return
Method Inputs for Investments Held at Fair Value at 31 December
2019 and 2018:
Range of Values
Time to Anticipated Probability
PWERM (IPO Scenario) Measurement Date Exit Event of IPO
31/12/2018 0.50 years 50.0%
1.1 - 3.0
31/12/2019 years 55.0% - 75.0%
====================================== ==================== ===============
Range of Values
OPM (Long-term Exit Scenario) Measurement Expiration Risk Free
Date Date Volatility Rate
31/12/2018 1.25 years 75.0% 2.56%
31/12/2019 1.13 - 3 years 56.0% - 80.0% 1.59% - 1.62%
========================================== =============== ============= =============
The following summarises the sensitivity from the assumptions
made by the Company in respect to the unobservable inputs used in
the fair value measurement of the Group's investments held at fair
value (Please refer to Note 5):
Investments Held at Fair Value
Sensitivity Financial Asset Increase/
Input Range (Decrease)
As of 31 December $000s
Enterprise Value -2% (2,947)
2% 2,947
Volatility -10% 131
10% (143)
Time to Liquidity -6 Months 20,699
+6 Months (17,711)
Risk-free Rate(1) -0.08%/-0.02% 20,699
+0.10%/+0.16% (17,711)
================== ===================== =========================
1. Risk-free rate is a function of the time to liquidity input assumption.
Warrants
Warrants issued by the Group are classified as liabilities, as
they will be settled in a variable number of shares and are not
fixed-for-fixed. The following table summarises the changes in the
Group's subsidiary warrant liabilities measured at fair value using
significant unobservable inputs (Level 3):
Subsidiary Warrant
Liability
$000s
Balance at 1 January 2018 13,095
Adjustment for IFRS 9 implementation -
Change in fair value (83)
Balance at 31 December 2018 13,012
Warrant Issuance 4,706
Gelesis Deconsolidation (21,611)
Change in fair value 11,890
Balance at 31 December 2019 7,997
===================================== ==================
In June 2019, Gelesis amended their existing license and patent
agreement with One S.r.l. As a result of the amendment Gelesis
issued One S.r.l. a warrant equal to 2.7 per cent of as converted
shares following the next financing round. The fair value of the
warrant was $4.7 million at issuance. On 1 July 2019, Gelesis
deconsolidated and warrant liability of $21.6 million relating to
Series A-1, A-3, A-4 and One S.r.l. warrants was derecognised.
In connection with various amendments to its 2010 Loan and
Security Agreement, Follica issued Series A-1 preferred share
warrants at various dates in 2013 and 2014. Each of the warrants
has an exercise price of $0.1425 and a contractual term of 10 years
from the date of issuance. In 2017, in conjunction with the
issuance of convertible notes, the exercise price of the warrants
was adjusted to $0.07 per share. The change in the fair value of
the subsidiary warrants was recorded in finance costs, net in the
Consolidated Statements of Comprehensive Income/(Loss). The $8.0
million warrant liability at 31 December 2019 is attributable to
the outstanding Follica preferred share warrants.
The following weighted average assumptions were utilised by the
Company with respect to determining the fair value of the Follica
warrants at 31 December 2019:
Series A-1
Assumption/Input Warrants
Expected term 3.66
Expected volatility 40.6%
Risk free interest rate 1.6%
Expected dividend yield -%
Estimated fair value of the convertible preferred shares $ 2.93
Exercise price of the warrants $ 0.07
--------------------------------------------------------- ------
The following summarises the sensitivity from the assumptions
made by the Company in respect to the unobservable inputs used in
the fair value measurement of the Group's warrant liabilities as of
31 December 2019:
Warrant Liability
Sensitivity Financial Liability
Input Range Increase/ (Decrease)
As of 31 December $000s
Enterprise Value -2% (128)
2% 127
------------------ ------- ---- ---------------------
Fair Value Measurement and Classification
The fair value of financial instruments by category at 31
December 2019 and 2018:
2019
Carrying Amount Fair Value
Financial Financial Level Level Level
Assets Liabilities 1 2 3 Total
$000s $000s $000s $000s $000s $000s
Financial assets:
US treasuries(1) 30,088 - 30,088 - - 30,088
Money Markets(2) 106,586 - 106,586 - - 106,586
Investments held
at fair value 714,905 - 560,460 - 154,445 714,905
Trade and other
receivables(3) 1,977 - - 1,977 - 1,977
Total financial
assets 853,556 - 697,134 1,977 154,445 853,556
Financial liabilities:
Subsidiary warrant
liability - 7,997 - - 7,997 7,997
Subsidiary preferred
shares - 100,989 - - 100,989 100,989
Subsidiary notes
payable - 1,455 - 1,455 - 1,455
Total financial
liabilities - 110,441 - 1,455 108,986 110,441
======================= ========== ============ ======= ======= ========== =======
(1) Issued by governments and government agencies, as
applicable, all of which are investment grade.
(2) Issued by a diverse group of corporations, largely
consisting of financial institutions, virtually all of which are
investment grade.
(3) Outstanding receivables are owed primarily by corporations
and government agencies, virtually all of which are investment
grade.
2018
Carrying Amount Fair Value
Financial Financial Level Level Level
Assets Liabilities 1 2 3 Total
$000s $000s $000s $000s $000s $000s
Financial assets:
US treasuries(1) 133,828 - 133,828 - - 133,828
Certificates of
deposit(2) 2,199 - - 2,199 - 2,199
Other deposits(2) 100 - - 100 - 100
Investments held
at fair value 169,755 - 84,592 - 85,163 169,755
Loans and receivables:
Trade and other
receivables(3) 1,328 - - 1,328 - 1,328
Total financial
assets 307,210 - 218,420 3,627 85,163 307,210
Financial liabilities:
Subsidiary warrant
liability - 13,012 - - 13,012 13,012
Subsidiary preferred
shares - 217,519 - - 217,519 217,519
Subsidiary notes
payable - 12,010 - 12,010 - 12,010
Total financial
liabilities - 242,541 - 12,010 230,531 242,541
======================= ========== ============ ======= ======= ========== =======
(1) Issued by governments and government agencies, as
applicable, all of which are investment grade.
(2) Issued by a diverse group of corporations, largely
consisting of financial institutions, virtually all of which are
investment grade.
(3) Outstanding receivables are owed primarily by corporations
and government agencies, virtually all of which are investment
grade.
17. Subsidiary Notes Payable
The subsidiary notes payable are comprised of loans and
convertible notes. During the years ended 31 December 2019 and
2018, the financial instruments for Knode and Appeering did not
contain embedded derivatives and therefore these instruments
continue to be held at amortised cost. The notes payable consist of
the following:
As of 31 December 2019 2018
$000s $000s
Loans 1,330 2,552
Convertible notes 125 9,458
Total subsidiary notes payable 1,455 12,010
=============================== ===== ======
Loans
In October 2010, Follica entered into a loan and security
agreement with Lighthouse Capital Partners VI, L.P. The loans are
secured by Follica's assets, including Follica's intellectual
property. The outstanding loan balance totalled approximately $1.3
million as of each of 31 December 2019 and 2018.
In May 2014, Gelesis entered into a grant and loan agreement
with an Italian economic development agency. Borrowings under the
loan totalled EUR1.1 million as of 31 December 2018 (approximately
$1.3 million). Gelesis was required to make interest payments only
in fiscal years 2014 and 2015, with principal and interest payments
from January 2017 through January 2024. As of Gelesis'
deconsolidation, $0.9 million in outstanding principal and interest
remained and the outstanding balance was derecognised.
Convertible Notes
Convertible Notes outstanding were as follows:
Karuna Follica Knode Appeering Total
$000s $000s $000s $000s $000s
1 January 2018 5,812 5,406 50 75 11,343
Gross principal 4,700 1,124 - - 5,824
Change in fair value (93) (35) - - (128)
Conversion (7,581) - - - (7,581)
31 December 2018 and 1 January 2019 2,838 6,495 50 75 9,458
Gross principal 1,607 - - - 1,607
Change in fair value 572 817 - - 1,389
Conversion to preferred - (4,894) - - (4,894)
Conversion to common - (2,418) - - (2,418)
Deconsolidation (5,017) - - - (5,017)
31 December 2019 - - 50 75 125
------------------------------------ ======= ======= ====== ========= =======
Certain of the Group's subsidiaries have issued convertible
promissory notes ("Notes") to fund their operations with an
expectation of an eventual share-based award settlement of the
Notes.
Substantially all Notes become due and payable on or after
either 31 December of the year of issuance or on the thirtieth day
following a demand by the majority of Note holders and bear
interest at a rate of either 8.0 per cent (or 12.0 per cent upon an
Event of Default) or 10.0 per cent (or 15.0 per cent upon an Event
of Default). Interest is calculated based on actual days elapsed
for a 360-day calendar year. Generally, the Notes cannot be prepaid
without approval from the holders of a majority of the outstanding
principle of a series of Notes. During the years ended 31 December
2019 and 2018, the Notes were assessed under IFRS 9 and the entire
financial instruments are elected to be accounted for as FVTPL.
The Notes constitute complex hybrid instruments, which contain
equity conversion features where holders may convert, generally at
a discount, the outstanding principal and accrued interest into
shares of the subsidiary before maturity and redemption options
upon a change of control of the respective subsidiary.
The three key features are described below:
-- Automatic conversion feature - upon a Qualified Financing, as
such term is defined in the applicable Note, the unpaid principal
and interest amounts are automatically converted into shares of the
subsidiary issued in the Qualifying Financing at a conversion price
equal to the price at which shares are sold in such Qualified
Financing, less a discount. The discounts range from 5.0 per cent
to 25.0 per cent and some require the issuance of an equal number
of ordinary shares.
-- Optional conversion feature - upon a Non-Qualified Financing,
holders may convert the outstanding principal balance and unpaid
interest to shares issued in the Non-Qualifying Financing at a
conversion price equal to the price shares are sold in such
Non-Qualified Financing, less a discount. The discounts range from
5.0 per cent to 25.0 per cent and some require the issuance of an
equal number of ordinary shares.
-- Change of control features - The Notes also generally contain
a put option such that, in the event of a Change of Control
transaction of the respective subsidiary prior to conversion or
repayment of the Notes, the holders will be paid an amount equal to
two or three times the outstanding principal balance plus any
accrued and unpaid interest, in cash, on the date of the Change of
Control.
On 15 March 2019, Karuna was deconsolidated in conjunction with
the closing of a Series B Preferred Stock financing and the
outstanding convertible note liability of $5.0 was
derecognised.
In May 2017 and September 2017, Follica 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 10.0 per cent, 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 the
outstanding principal and accrued interest upon a change of control
transaction. On 19 July 2019, all of the outstanding notes, plus
accrued interest, issued by Follica converted into 17,639,204
shares of Series A-3 Preferred Stock and 14,200,044 shares of
common shares pursuant to a Series A-3 Note Conversion Agreement
between Follica and the noteholders. Third parties held 2,422,990
A-3 preferred shares and 1,981,944 common shares following the
conversion. The preferred shares are classified as financial
liabilities at fair value through the profit and loss. The common
shares are accounted for as Non-controlling interests.
18. Non-Controlling Interest
During 2019, the Company deconsolidated three of its
subsidiaries which resulted in a change to the composition of its
reportable segments. As such, the Company has updated the following
disclosures. Please refer to Note 4 "Segment Information" for
further details regarding reportable segments.
The following table summarises the changes in the equity
classified non-controlling ownership interest in subsidiaries by
reportable segment:
Internal Controlled Non-Controlled Parent Company Total
$000s Founded Founded & Other $000s
Entities Entities $000s
$000s $000s
Balance at 1 January 2018
* (1,484) (18,869) (125,758) 525 (145,586)
Share of comprehensive
loss * (7,315) (10,710) (8,980) - (27,005)
Deconsolidation of subsidiary
* - - 55,168 - 55,168
Equity settled share-based
payments * - 2,476 6,345 67 8,888
Balance as of 31 December
2018 and 1 January 2019
* (8,799) (27,103) (73,225) 592 (108,535)
Share of comprehensive
loss (15,264) (15,862) (23,953) - (55,079)
Deconsolidation of subsidiaries - - 97,178 - 97,178
Subsidiary note conversion
and changes in NCI ownership
interest - 23,049 - - 23,049
Equity settled share-based
payments 1,683 - - 1,683
Purchase of minority interest 24,039 - - - 24,039
Other 24 - - 1 25
Balance as of 31 December
2019 - (18,233) - 593 (17,640)
================================ ======== ========== ============== ============== =========
* During the year ended 31 December 2019, the Company
deconsolidated three of its subsidiaries which resulted in a change
to the composition of its reportable segments. Consequently, the
Company has revised the 2018 financial information to conform to
the presentation as of and for the period ending 31 December
2019
The following tables summarise the financial information related
to the Group's subsidiaries with material non-controlling
interests, aggregated for interests in similar entities, and before
intra group eliminations.
2019
Internal Controlled Non-Controlled
$000s Founded Founded
Entities Entities
For the year ended : 31 December $000s $000s
Statement of Comprehensive Loss
Total revenue 6,078 1,968 -
Income/(loss) for the year (24,289) (26,250) (47,905)
Other comprehensive income/(loss) - - (10)
Total comprehensive income/(loss) for the
year (24,289) (26,250) (47,915)
Statement of Financial Position
Total assets 17,614 5,290 -
Total liabilities 11,510 50,554 -
Net assets/(liabilities) 6,104 (45,264) -
========================================== ======== ========== ==============
2018
Internal Controlled Non-Controlled
$000s Founded Entities Founded
$000s Entities
For the year ended : 31 December $000s1
Statement of Comprehensive Loss
Total revenue 2,195 18,504 20
Income/(loss) for the year (8,454) (26,206) (41,239)
Other comprehensive income/(loss) - (214) (214)
Total comprehensive income/(loss) for
the year (8,454) (26,420) (41,453)
Statement of Financial Position
Total assets 2,984 15,603 35,934
Total liabilities 13,366 60,992 202,161
Net Liabilities (10,382) (45,389) (166,227)
====================================== ======== ================= ==============
1. Non-Controlled Founded Entities non-controlling interest
calculation does not include equity method accounting, fair value
method accounting or the gain on the deconsolidation of subsidiary
related to Vor, Karuna, Gelesis, resTORbio or Akili, which is
recorded within PureTech Health, LLC. Please refer to Note 5.
On 19 July 2019 PureTech and a third party investor converted
their convertible debt in Follica to Follica Preferred shares
(presented as liabilities) and Follica common shares. The amount of
convertible debt converted by the third party investor into Follica
common shares amounted to $2.4 million (see also Note 16). As a
result of the conversion Follica NCI share (in Follica common
stock) was reduced from 68% to 19.9%, which resulted in a reduction
in the NCI share in Follica's shareholders' deficit of $20.1
million. The excess of the change in the book value of NCI ($20.1
million noted above) over the contribution made by NCI ($2.4
million) amounted to $17.8 million and was recorded as a loss
directly in shareholders' equity.
During 2019 a subsidiary of the Company fully funded by the
Company ceased its operations and became inactive. This resulted in
a change in the NCI share in the subsidiary deficit. As a result
the Company recorded a loss directly in equity of $3.1 million.
On 1 October 2019, PureTech acquired the remaining 10.0 per cent
of minority non-controlling interests of PureTech LYT, Inc.
(previously named Ariya Therapeutics, Inc.), increasing its
ownership from 90 per cent to 100 per cent. In consideration for
the acquisition of minority interests, PureTech issued 2,126,338
shares of common shares and granted options to the co-inventors and
advisors of PureTech LYT to purchase 2,147,295 ordinary shares
under the PSP. The fair value of the shares and options issued in
consideration for the minority non-controlling interest amounted to
$15.8 million. The carrying amount of the non-controlling interest
at the acquisition was a $24 million deficit and the excess of the
consideration paid over the book value of the non-controlling
interest of approximately $39.8 million was recorded directly in
shareholders' equity.
19. Trade and Other Payables
As of 31 December 2019 2018
$000s $000s
Trade payables 11,098 4,644
Accrued expenses 8,744 11,231
Total trade and other payables 19,842 15,875
=============================== ====== ======
20. Other Long-Term Liabilities
Information regarding Other long-term liabilities was as
follows:
As of 31 December 2019 2018
$000s $000s
Deferred rent - 1,283
Lease incentive obligation - 357
Accrued professional fees - 738
Other - 138
Other long-term liabilities - 2,516
============================ ===== =====
With the implementation of IFRS 16 on 1 January 2019 all other
long-term liabilities were extinguished.
Please refer to Note 3 for a discussion of deferred revenue
balances as of 31 December 2019 and 2018.
21. Leases
On 1 January 2019 the Company adopted IFRS 16, which replaced
IAS 17 for the annual period beginning on 1 January 2019. Further
discussion around the adoption of IFRS 16 is included in Note
1.
The activity related to the Group's right of use asset and lease
liability for the year ended 31 December 2019 is as follows:
Right of use asset,
net
$000s
Balance at 31 December 2018 -
Adoption of IFRS 16 10,353
Balance at 1 January 2019 10,353
Additions 19,434
Subleases (2,580)
Depreciation (3,237)
Deconsolidated (1,587)
Balance at 31 December 2019 22,383
---------------------------- -------------------
Total lease liability
$000s
Balance at 31 December 2018 -
Adoption of IFRS 16 10,995
Balance at 1 January 2019 10,995
Additions 30,305
Cash paid for rent (4,173)
Interest expense 2,495
Deconsolidated (1,779)
Balance at 31 December 2019 37,843
---------------------------- ---------------------
The following reconciles operating lease commitments disclosed
as at 31 December 2018 to the lease liability recognised at 1
January 2019:
2019
$000s
Operating lease commitments disclosed as at 31 December
2018 11,443
Discounted using the lessee's incremental borrowing
rate at the date of initial application (448)
Lease liability recognised at 1 January 2019 10,995
-------------------------------------------------------- ------
The following details the short term and long-term portion of
the lease liability as at 31 December 2019:
Total lease liability
$000s
Short-term Portion of Lease Liability 2,929
Long-term Portion of Lease Liability 34,914
Total Lease Liability 37,843
-------------------------------------- ---------------------
The following table details the future maturities of the lease
liability, showing the undiscounted lease payments to be received
after the reporting date:
2019
$000s
Less than one year 5,257
One to two years 5,409
Two to three years 5,603
Three to four years 6,071
Four to five years 6,247
More than five years 21,494
Total undiscounted lease maturities 50,080
Interest 12,237
Total lease liability 37,843
------------------------------------ ------
Additions in the period relate to three leases that were entered
into by PureTech and its consolidated subsidiaries during the year
ended 31 December 2019. Amounts were arrived at using the
contractual minimal lease payments, present valued using the
applicable incremental borrowing rate, which ranged from 5.49 per
cent to 6.58 per cent. Rent expense related to short-term leases
which are not accounted for under IFRS 16 was $1.3 million for the
year ended 31 December 2019.
During the year ended 31 December 2019, PureTech entered into a
lease agreement for certain premises consisting of approximately
50,858 rentable square feet of space located at 6 Tide Street. The
lease commenced on 26 April 2019 ("Commencement Date") for an
initial term consisting of ten years and three months and there is
an option to extend for two consecutive periods of five years each.
As of 31 December 2019, the Company has not determined whether it
will exercise these extension options.
On 26 June 2019, PureTech executed a sublease agreement with
Gelesis. The lease is for the approximately 9,446 rentable square
feet located on the sixth floor of the Company's former offices at
the 501 Boylston Street building. The sublessee obtained possession
of the premises on 1 June 2019 and the rent period term begins 1
June 2019 and expires on 31 August 2025. The sublease was
determined to be a finance lease and was reclassified from the
right of use asset to a lease receivable at inception of the
sublease. As of 31 December 2019 the balances related to the
sublease were as follows:
Total lease receivable
$000s
Short-term Portion of Lease Receivable 350
Long-term Portion of Lease Receivable 2,082
Total Lease Liability 2,432
The following table details the future maturities of the lease
receivable, showing the undiscounted lease payments to be received
after the reporting date:
2019
$000s
Less than one year 485
One to two years 494
Two to three years 504
Three to four years 513
Four to five years 523
More than five years 353
Total undiscounted lease receivable 2,872
Unearned Finance income 440
Net investment in the lease 2,432
------------------------------------ -----
On 6 August 2019, PureTech executed a sublease agreement with
Dewpoint Therapeutics, Inc. ("Dewpoint"). The sublease is for
approximately 11,852 rentable square feet located on the third
floor of the 6 Tide Street building, where the Company's offices
are currently located. Dewpoint obtained possession of the premises
on 1 September 2019 with a rent period term that begins on 1
September 2019 and expires on 31 August 2021. The sublease was
determined to be an operating lease.
Rental income recognised by the Company during the year ended 31
December 2019 was $0.36 million. The following table details the
future payments under the sublease, showing the undiscounted lease
payments to be received after the reporting date:
2019
$000s
Less than one year 1,083
One to two years 722
Total 1,805
------------------- -----
Prior to the adoption of IFRS 16, minimum rental commitments
under non-cancellable leases were payable as follows:
2018
As of 31 December $000s
Within one year 1,742
Between one and five years 9,349
More than five years 352
Total minimum lease payments 11,443
----------------------------- ------
Some property leases contain extension options exercisable by
the Company before the end of the non-cancellable contract period.
The extension options held are exercisable only by the Company and
not by the lessors. The Company assesses at lease commencement date
whether it is reasonably certain to exercise the extension options.
The Company reassesses whether it is reasonably certain to exercise
the options if there is a significant event or significant changes
in circumstances within its control. The Company has estimated that
the potential future lease payments, should it exercise the
extension option, would result in an increase in lease liability of
$18.7 million.
During the year ended 31 December 2019, the Group reassessed the
anticipated term of its Tide Street lease due to uncertainty as to
whether the two extension options provided for in the lease
agreement will be exercised. It was determined that there was
sufficient uncertainty as to whether these options would be
utilised, resulting in the useful life of the lease being adjusted
from 20 years to 10 years. This resulted in a decrease to the lease
liability and right of use asset, as well as an increase to the
minimum lease payments due within one year and between one and five
years.
During the year ended 31 December 2018, the Group determined
that there were certain tenant improvement allowances that were
originally classified as a reduction to leasehold improvements
rather than as a liability. The Company concluded that the impact
of the change of a reclassification from property and equipment to
other current and long-term liabilities was not material to the
Consolidated Financial Statements presented in the Annual Report of
31 December 2018.
Total rent expense under these leases was approximately $2.5
million during the year ended 31 December 2018. Rent expense is
included in the General and administrative expenses line item in
the Consolidated Statements of Comprehensive Income/(Loss).
22. Capital and Financial Risk Management
The Company's financial strategy policy is to support its
strategic priorities, maintain investor and creditor confidence and
sustain future development of the business through an appropriate
mix of debt and equity. Management monitors the level of capital
deployed and available for deployment in subsidiary companies. The
Directors seek to maintain a balance between the higher returns
that might be possible with higher levels of deployed capital and
the advantages and security afforded by a sound capital
position.
The Group's Directors have overall responsibility for
establishment and oversight of its risk management framework. The
Group is exposed to certain risks through its normal course of
operations. The Group's main objective in using financial
instruments is to promote the development and commercialisation of
intellectual property through the raising and investing of funds
for this purpose. The Group's policies in calculating the nature,
amount and timing of investments are determined by planned future
investment activity. Due to the nature of activities and with the
aim to maintain the investors' funds as secure and protected, the
Group's policy is to hold any excess funds in highly liquid and
readily available financial instruments and maintain insignificant
exposure to other financial risks.
Credit Risk
The Group has exposure to the following risks arising from
financial instruments:
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. Financial instruments that potentially
subject the Group to concentrations of credit risk consist
principally of cash and cash equivalents and trade and other
receivables. The Group held the following balances:
2019 2018
As of 31 December $000s $000s
Cash and cash equivalents 132,360 117,051
Short-term investments 30,088 133,828
Investments held at fair value 714,905 169,755
Trade and other receivables 1,977 1,328
Total 879,330 421,962
=============================== ======= =======
The Group invests its excess cash in US Treasury Bills, US debt
obligations and money market accounts, which the Group believes are
of high credit quality.
The Group assesses the credit quality of customers on an ongoing
basis, taking into account its financial position, past experience
and other factors. The credit quality of financial assets that are
neither past due nor impaired can be assessed by reference to
credit ratings (if available) or to historical information about
counterparty default rates.
The aging of trade and other receivables that were not impaired
at 31 December is as follows:
2019 2018
As of 31 December $000s $000s
Neither past due or impaired 1,977 1,328
Total 1,977 1,328
============================= ===== =====
The Company is also potentially subject to concentrations of
credit risk in its accounts receivable. Concentrations of credit
risk with respect to receivables is owed to the limited number of
companies comprising the Company's customer base. The Group's
exposure to credit losses is low, however, owing largely to the
credit quality of its larger collaborative partners such as Roche,
Boehringer Ingelheim and Eli Lilly.
Liquidity Risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group actively manages its risk of a funds
shortage by closely monitoring the maturity of its financial assets
and liabilities and projected cash flows from operations, under
both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group's reputation. Due to the
nature of these financial liabilities, the funds are available on
demand to provide optimal financial flexibility.
The table below summarises the maturity profile of the Group's
financial liabilities, including subsidiary preferred shares that
have customary liquidation preferences, as of 31 December 2019 and
2018 based on contractual undiscounted payments:
2019
Carrying Within Three to One to Five
Amount Three Months Twelve Months Years Total
As of 31 December $000s $000s $000s $000s $000s
Subsidiary notes payable 1,455 1,455 - - 1,455
Trade and other payables 19,842 19,842 - - 19,842
Warrants 7,997 7,997 - - 7,997
Subsidiary preferred
shares (Note 15) 100,989 100,989 - - 100,989
Total 130,283 130,283 - - 130,283
========================= ======== ============= ============== =========== =======
2018
Carrying Within Three to One to Five
Amount Three Months Twelve Months Years Total
As of 31 December $000s $000s $000s $000s $000s
Subsidiary notes payable 12,010 12,010 - - 12,010
Trade and other payables 15,875 15,875 - - 15,875
Warrants 13,012 13,012 - - 13,012
Subsidiary preferred
shares (Note 15) 217,519 217,519 - - 217,519
Total 258,416 258,416 - - 258,416
========================= ======== ============= ============== =========== =======
In addition to the above financial liabilities, the Group is
required to spend the following minimum amounts under intellectual
property license agreements:
2019 2020 2021 2022
$000s $000s $000s $000s
Licenses 1,366 1,374 1,373 773
Total 1,366 1,374 1,373 773
========= ===== ===== ===== =====
Market Risk
Market risk is due to changes in market prices, such as foreign
exchange rates, interest rates and equity prices that affect the
Group's income or the value of its financial instrument holdings.
The objective of the Group's market risk management is to manage
and control market risk exposures within acceptable parameters,
while optimising its return. The Group maintains the exposure to
market risk from such financial instruments to insignificant
levels. The Group's exposure to changes in interest rates has been
determined to be insignificant.
Controlled Founded Entity Investments
The Group maintains investments in certain Controlled Founded
Entities. The Group's investments in Controlled Founded Entities
are eliminated as intercompany transactions upon financial
consolidation. The Group is however exposed to a preferred share
liability owing to the terms of existing preferred shares and the
ownership of Controlled Founded Entities preferred shares by third
parties. The liability of preferred shares is maintained at fair
value through the profit and loss. The Group's strong cash
position, budgeting and forecasting processes, as well as decision
making and risk mitigation framework enable the Group to robustly
monitor and support the business activities of the Controlled
Founded Entities to ensure no exposure to credit losses and
ultimately dissolution or liquidation. Accordingly, the Group views
exposure to 3rd party preferred share liability as low.
Non-Controlled Founded Entity Investments
The Group maintains certain investments in Non-Controlled
Founded Entities which are deemed associates and accounted for
under the equity method (Please refer to Note 1). The Group's
exposure to investments in associates in limited to the initial
carrying amount upon recognition as an Associate. The Group is not
exposed to further contractual obligations or contingent
liabilities beyond the value of initial investment. As of 31
December 2019, Gelesis was the only associate. The initial carrying
amount of the investment in Gelesis as an associate was $16.4
million. Accordingly, the Group views the risk as high.
Equity Price Risk
We have an investment in common shares of Karuna and resTORbio,
as described further in Note 5. As of 31 December 2019 the fair
value of our investments in resTORbio and Karuna common shares was
$3.2 million and $557.2 million, respectively. These investments
are exposed to fluctuations in the market price of these common
shares. The effect of a 10.0 per cent adverse change in the market
price of resTORbio and Karuna common shares as of 31 December 2019
would have been a loss of approximately $0.3 million and $55.7
million, respectively, recognised as a component of Other income
(expense) in our Consolidated Statements of Comprehensive
Income/(Loss).
Foreign Exchange Risk
With respect to Gelesis, prior to deconsolidation, certain grant
revenues and the research and development costs associated with
those grants are generated and incurred in Euros. As such, the
Group's certain results of operations and cash flows will be
subject to fluctuations due to change in foreign currency exchange
rates. Foreign currency transaction exposure arising from external
trade flows is generally not hedged.
Capital Risk Management
The Group is funded by equity and debt financing as well as
grant and research collaboration income. Total capital is
calculated as Total Equity as shown in the Consolidated Statements
of Financial Position.
The Group's objectives when managing capital are to safeguard
its ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to
maintain an optimal capital structure to reduce the cost of
capital. To maintain or adjust the capital structure, the Group may
issue new shares or incur new debt. The Group has some external
debt and no material externally imposed capital requirements. The
Group's share capital is clearly set out in Note 15.
As discussed in Note 15, certain of the Group's subsidiaries
have issued preferred shares that include the right to receive a
payment in the event of any voluntary or involuntary liquidation,
dissolution or winding up of a subsidiary, which shall be paid out
of the assets of the subsidiary available for distribution to
shareholders and before any payment shall be made to holders of
ordinary shares.
23. Commitments and Contingencies
Gelesis is a party to a patent license and assignment agreement
whereby it will be required to pay approximately $8.0 million upon
the achievement of certain milestones, pay royalties on future
sales and/or a percentage of sublicense income. Gelesis accrued
$6.6 million as potential expenses under the patent license and
assignment agreement for the year ended 31 December 2018. During
the year ended 31 December 2019 Gelesis was deconsolidated.
Therefore, there are no additional contingencies recorded related
to Gelesis at 31 December 2019.
Other members of the Group are also parties to certain licensing
agreements that require milestone payments and/or royalties on
future sales. None of these payments have become due and the
amounts of any future milestone or royalty payments cannot be
reliably measured as of the date of the financial information.
24. Related Parties Transactions
Related Party Subleases
During 2019, PureTech executed sublease agreements with related
parties Gelesis and Dewpoint Therapeutics. Please refer to Note 20
for further details regarding the sublease.
Key Management Personnel Compensation
Key management includes executive directors and members of the
executive management team of the Group. The key management
personnel compensation of the Group was as follows for the years
ended 31 December:
2019 2018
As of 31 December $000s $000s
Short-term employee benefits 5,543 3,998
Share-based payments 2,774 3,062
Total 8,317 7,060
============================= ===== =====
Wages and employee benefits include salaries, health care and
other non-cash benefits. Share-based payments are generally subject
to vesting terms over future periods.
Convertible Notes Issued to Directors
Certain members of the Group have invested in convertible notes
issued by the Group's subsidiaries. As of 31 December 2019 and
2018, the outstanding related party notes payable totalled $84
thousand and $79 thousand, respectively including principal and
interest.
The notes issued to related parties bear interest rates,
maturity dates, discounts and other contractual terms that are the
same as those issued to outside investors during the same
issuances, as described in Note 17.
Directors' and Senior Managers' Shareholdings and Share
Incentive Awards
The Directors and senior managers hold beneficial interests in
shares in the following businesses and sourcing companies as at 31
December 2019:
Number Number
of shares of options
held as held as
Business Name (Share of 31 December of 31 December Ownership
Directors Class) 2019 2019 Interest(1)
Ms Daphne Zohar(2) Gelesis (Common) 59,443 939,086 4.30%
Dame Marjorie Scardino - - -%
Dr Bennett Shapiro Akili (Series A-2 Preferred)(3) - 33,088 0.20%
Gelesis (Common) 24,009 10,840 0.01%
Gelesis (Series A-1
Preferred) 23,418 - 0.20%
Vedanta Biosciences
(Common) - 25,000 0.22%
Vedanta Biosciences
(Series B Preferred) 11,202 - 0.10%
Dr Robert Langer Entrega (Common) - 332,500 4.09%
Alivio (Common) - 1,575,000 6.06%
Dr Raju Kucherlapati Enlight (Class B Common) - 30,000 3.00%
Gelesis (Common)(5) - 20,000 0.10%
Dr John LaMattina(4) Akili (Series A-2 Preferred) - 37,372 0.20%
Gelesis (Common)(4) - 117,169 0.50%
Gelesis (Common)(5) 20,000 0.10%
Gelesis (Series A-1
Preferred)(4) - 49,524 0.20%
Vedanta Biosciences
(Common) - 25,000 0.22%
Mr Christopher Viehbacher - - - -%
Mr Stephen Muniz Gelesis (Common)(5) - 20,000 0.10%
Senior Managers:
Dr Eric Elenko - - - -%
Dr Joep Muijrers - - - -%
Dr Bharatt Chowrira Karuna (Common)5 10,000 - 0.04%
Dr Joseph Bolen Vor (Common) - 125,000 0.12%
========================== ================================ =============== =============== ======== ===
1. Ownership interests as of 31 December 2019 are calculated on
a diluted basis, including issued and outstanding shares, warrants
and options (and written commitments to issue options) but
excluding unallocated shares authorised to be issued pursuant to
equity incentive plans and any shares issuable upon conversion of
outstanding convertible promissory notes.
2. Common shares and options held by Yishai Zohar, who is 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 Shapiro and Ms Fredericka F.
Shapiro, Joint Tenants with Right of Survivorship.
4. Dr John and Ms Mary LaMattina hold 49,523 shares of common
shares and 49,524 shares of Series A-1 preferred shares in Gelesis.
Individually, Dr LaMattina holds 12,642 shares of Gelesis and
convertible notes issued by Appeering in the aggregate principal
amount of $50,000.
5. Options to purchase the listed shares were granted in
connection with the service on such founded entity's Board of
Directors and any value realised therefrom shall be assigned to
PureTech Health, LLC.
Directors and senior managers hold 29,939,913 ordinary shares
and 10.5 per cent voting rights of the Company as of 31 December
2019. This amount excludes options to purchase 2,909,344 ordinary
shares. This amount also excludes 8,374,351 shares, which are
issuable contingent to the terms of performance based RSU awards
granted to certain senior managers covering the financial years
2019, 2018 and 2017. Such shares will be issued to such senior
managers in future periods provided that performance conditions are
met and certain of the shares will be withheld for payment of
customary withholding taxes.
25. Taxation
Tax on the profit or loss for the year comprises current and
deferred income tax. Tax is recognised in the Consolidated
Statements or Comprehensive Income/(Loss) except to the extent that
it relates to items recognised directly in equity.
For the years ended 31 December 2019 and 2018, the Group filed a
consolidated US federal income tax return which included all
subsidiaries in which the Company owned greater than 80% of the
vote and value. For the years ended 31 December 2019 and 2018, the
Group filed certain consolidated state income tax returns which
included all subsidiaries in which the Company owned greater than
50% of the vote and value. The remaining subsidiaries file separate
US tax returns.
Current income tax is the expected tax payable or receivable on
the taxable income or loss for the year, using tax rates enacted or
substantially enacted at the reporting date, and any adjustment to
tax payable in respect of previous years.
Deferred tax is recognised due to temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax assets are recognised for unused tax losses, unused
tax credits and deductible temporary differences to the extent that
it is probable that future taxable profits will be available
against which they can be used. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
Deferred taxes are recognised in Consolidated Statements of
Comprehensive Income/(Loss) except to the extent that they relate
to items recognised directly in equity or in other comprehensive
income.
Amounts recognised in Consolidated Statements of Comprehensive
Income/(Loss):
2019 2018
As of 31 December $000s $000s
Income/(loss) for the year 366,065 (70,659)
Income tax expense/(benefit) 112,409 2,221
Income/(loss) before taxes 478,474 (68,438)
============================= ======= ========
Recognised income tax expense/(benefit):
2019 2018
As of 31 December $000s $000s
Federal - 2
Foreign - -
State - 496
Total current income tax expense/(benefit) - 498
Federal 83,776 2,034
Foreign - (311)
State 28,633 -
Total deferred income tax expense/(benefit) 112,409 1,723
Total income tax expense/(benefit), recognised 112,409 2,221
=============================================== ======= =====
The tax expense of $112.4 million and $2.2 million in 2019 and
2018, respectively, is primarily the result of the establishment of
a deferred tax liability for unrealised gains pertaining to our
investments in Karuna, Vor, AZ Therapies, and Gelesis, and the
remeasurement of existing deferred tax liabilities for unrealised
gains pertaining to our investments in resTORbio and Akili.
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the US A
reconciliation of the US federal statutory tax rate to the
effective tax rate is as follows:
2019 2018
As of 31 December $000s % $000s %
Weighted-average statutory rate 97,183 21.00 (14,372) 21.00
Effects of state tax rate in US 22,111 4.78 (3,267) 4.77
R&D and orphan drug tax credits (6,321) (1.37) (3,268) 4.78
Share-based payment measurement 433 0.09 3,429 (5.01)
Mark-to-market adjustments 3,725 0.80 (3,745) 5.47
Accretion on preferred shares - - 22 (0.03)
Deconsolidation adjustments (13,658) (2.95) 9,688 (14.16)
Mark-to-market investment in subsidiary - - (55) 0.08
Income of partnerships not subject
to tax - - (78) 0.11
Recognition of deferred tax assets
not previously recognized (6,251) (1.35) - 0.00
Current year losses for which
no deferred tax asset is recognised 14,514 3.14 13,012 (19.01)
Other 674 0.15 854 (1.25)
112,410 24.29 2,220 (3.25)
======================================== ======== ====== ======== =======
The Group is also subject to taxation in the UK and exposed to
state taxation in certain jurisdictions within the US. Changes in
corporate tax rates can change both the current tax expense
(benefit) as well as the deferred tax expense (benefit).
Deferred Tax Assets and Liabilities
Deferred taxes have been recognised in the US jurisdiction in
respect of the following items:
2019 2018
As of 31 December $000s $000s
Operating tax losses 68,690 69,170
Capital loss carryovers 2,292 -
Research credits 9,931 8,056
Investment in subsidiaries - 589
Share-based payments 9,711 13,003
Deferred revenue 1,125 -
Lease Liability 10,339 -
Other 2,117 2,184
Deferred tax assets 104,205 93,002
Investment in Subsidiaries (173,069) -
ROU asset (6,115) -
Other temporary differences (3,225) (33,412)
Deferred tax liabilities (182,409) (33,412)
Deferred tax liabilities, net, recognised 115,445 6,428
Deferred tax assets, net, recognised (142) (449)
Deferred tax assets, net, not recognised 37,099 65,569
========================================== ========= ========
We have recognised deferred tax assets related to entities in
the US Federal and Massachusetts consolidated return groups due to
future reversals of existing taxable temporary differences that
will be sufficient to recover the net deferred tax assets. Our
remaining deferred tax assets have not been recognised because it
is not probable that future taxable profits will be available to
support their realisability.
There was movement in deferred tax recognised which impacted
income tax expense of approximately $112.4 million, primarily
related to the unrealised gains pertaining to our investments in
resTORbio, Akili, Karuna, Vor, AZ Therapies, and Gelesis. The
deferred tax liability related to the unrealised gains on these
investments exceeds our available US federal and state deferred tax
assets.
The Company had US federal net operating losses carry forwards
("NOLs") of approximately $243.0 million and $238.1 million for the
years ended 31 December 2019 and 2018, respectively, which are
available to offset future taxable income. These NOLs expire
through 2037 with the exception of $126.6 million which is not
subject to expiration. The Company had US Federal research and
development tax credits of approximately $7.4 million and $6.7
million for the years ended 31 December 2019 and 2018,
respectively, which are available to offset future taxes that
expire at various dates through 2039. The Company also had Federal
Orphan Drug credits of approximately $3.7 million and $0.0 million
for the years ended 31 December 2019 and 2018, respectively, which
are available to offset future taxes that expire at various dates
through 2039. These NOLs and credits are subject to review and
possible adjustment by the Internal Revenue Service.
The Company had Massachusetts net operating losses carry
forwards ("NOLs") of approximately $273.0 million and $179.5
million for the years ended 31 December 2019 and 2018,
respectively, which are available to offset future taxable income.
These NOLs expire at various dates beginning in 2024. The Company
had Massachusetts research and development tax credits of
approximately $1.6 million and $1.3 million for the years ended 31
December 2019 and 2018, respectively, which are available to offset
future taxes and expire at various dates through 2034. These NOLs
and credits are subject to review and possible adjustment by the
Massachusetts Department of Revenue.
Utilisation of the NOLs and research and development credit
carryforwards may be subject to a substantial annual limitation
under Section 382 of the Internal Revenue Code of 1986 due to
ownership change limitations that have occurred previously or that
could occur in the future. These ownership changes may limit the
amount of NOL and research and development credit carryforwards
that can be utilised annually to offset future taxable income and
tax, respectively. The Company notes that a 382 analysis was
performed through 31 December 2019. The results of this analysis
concluded that certain net operating losses were subject to
limitation under Section 382 of the Internal Revenue Code. None of
the Company's tax attributes which are subject to a restrictive
Section 382 limitation have been recognised in the financial
statements.
Uncertain Tax Positions
The changes to uncertain tax positions from 1 January 2018
through 31 December 2019 are as follows:
US Foreign Total
$000s $000s $000s
Gross tax liabilities as of 1 January 2018 - 15 15
Additions based on tax provisions related - - -
to the current year
Additions to tax positions of prior years - - -
Reductions due to settlements with tax authorities - - -
Reductions for positions of prior years - (12) (12)
Gross tax liabilities as of 31 December 2018 - 3 3
Additions based on tax provisions related - - -
to the current year
Additions to tax positions of prior years - - -
Reductions due to settlements with tax authorities - - -
Reductions for positions of prior years - (3) (3)
Gross tax liabilities as of 31 December 2019 - - -
=================================================== ====== ======= ======
US corporations are routinely subject to audit by federal and
state tax authorities in the normal course of business. During
2019, the IRS completed an audit of Vedanta for the financial year
ended 31 December 2016 with no impact to the Group's financial
condition, results of operations, or cash flows.
26. 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 Consolidated Statements Comprehensive Income/ (Loss)
for the year ended 31 December 2018.
Additionally, as part of the derecognition, the Company and
certain preferred shareholders received a cash distribution of
approximately $3.3 million during the year ended 31 December 2018.
During the year ended 31 December 2019, certain preferred
shareholders received further cash distributions of $0.1 million.
As of 31 December 2019, no remaining third party obligations
remained.
27. Tal Merger Agreement
During the year ended 31 December 2018, Tal Medical, Inc.
("Tal") a subsidiary of the Group entered into an option agreement
with a third party, through which the third party was given the
option to acquire substantially all of Tal's assets. The option was
contingent on the third party raising gross proceeds of $15 million
prior to 1 January 2019 (the option expiration date). Upon the
expiration of the option all external investors, not including
PureTech, would be entitled to a distribution equal to the cash on
hand on the date of expiration, and Tal's operations would wind
down. As of 31 December 2018, the minimum gross proceeds were not
raised, resulting in the option expiring. As a result, the
preferred shares were adjusted to the cash distribution the
external investors were entitled to, which totalled $0.1 million,
resulting in gain of $11 million being recognised in Finance costs
- subsidiary preferred shares line of the Consolidated Statements
of Comprehensive Income/(Loss). In 2019 a merger was executed
between PureTech and Tal wherein PureTech became the sole
shareholder of Tal following the liquidation of all assets. In
2019, certain preferred shareholders received distributions of $0.1
million in connection with the merger. As of 31 December 2019 Tal
was an inactive entity in the Group's Parent segment.
28. Subsequent Events
The Company has evaluated subsequent events after 31 December
2019, the date of issuance of the Consolidated Financial
Statements, and has not identified any recordable or disclosable
events not otherwise reported in these consolidated financial
statements or notes thereto, except for the following:
On 6 January 2020, Sonde effected the second tranche closing of
its Series A-2 preferred share financing which initially closed on
4 April 2019. The Company received an aggregate of $4.8 million in
gross proceeds in the second tranche closing.
On 22 January 2020, PureTech Health sold 2,100,000 common shares
of Karuna for aggregate proceeds of $200.9 million. As of 13 March
2020, PureTech Health held 5,295,397 common shares, or 20.3 per
cent, of Karuna.
On 5 February 2020, PureTech Health participated in the second
closing of Vor's Series A-2 preferred share financing which
initially closed on 12 February 2019. PureTech's participation
totalled $0.7 million. Proceeds for the second closing totalled
$17.8 million.
In March 2020, the World Health Organization declared the
outbreak of a new Coronavirus, now known as COVID-19, a pandemic.
The outbreak of the virus has caused material disruptions to the
global economy, including its health care system. Since the future
course and duration of the COVID-19 outbreak are unknown, the
Company is currently unable to determine whether the outbreak will
have a negative effect on the Company's results in 2020. To date,
the Company has seen limited impact on its research and development
activities and the operation of the Company more generally. If the
pandemic continues to extended for a period of time such as six
months, the Company would potentially have milestones delayed;
however the Company has sufficient capital to absorb any potential
delays and continue operations in line with its going concern
statement set forth in Note 1.
On 1 April 2020, PureTech Health participated in the second
closing of Gelesis' Series 3 Growth preferred share financing which
initially closed on 5 December 2019. PureTech's participation
totalled $10.0 million. Proceeds for the second closing totalled
$14.1 million.
PureTech Health plc Statement of Financial Position
For the years ended 31 December
Note 2019 2018
$000s $000s
Assets
Non-current assets
Investment in subsidiary 2 141,348 141,348
Total non-current assets 141,348 141,348
Current assets
Intercompany receivables 3 296,531 286,886
Other Receivables 3 - -
Total current assets 296,531 286,886
Total assets 437,879 428,234
Equity and liabilities
Equity
Share capital 4 5,408 5,375
Share premium 4 287,962 278,349
Merger reserve 4 138,506 138,506
Other reserve 4 991 991
Accumulated deficit 4 (7,882) (5,192)
Total equity 424,985 418,029
Trade and other payables 1,235 -
Intercompany payables 5 11,658 10,204
Total current liabilities 12,893 10,204
Total equity and liabilities 437,878 428,234
============================= ==== ======= =======
The accompanying Notes are an integral part of these financial
statements.
Please refer to the accompanying Notes to the PureTech Health
plc financial information. Registered number: 09582467.
The PureTech Health plc financial statements were approved by
the Board of Directors and authorised for issuance on 8 April 2020
and signed on its behalf by:
Daphne Zohar
Chief Executive Officer
8 April 2020
PureTech Health plc Statements of Changes in Equity
For the years ended 31 December
Shares Amount Share Merger Other Accumulated Total
$000s Premium Reserve Reserve deficit equity
$000s $000s $000s $000s $000s
Balance 1 January 2018 237,429,696 4,679 181,588 138,506 855 (4,483) 321,145
Total comprehensive
loss for the period
Issuance of placing
shares 45,000,000 696 96,761 - - - 97,457
Offering costs - - - - - (86) (86)
Exercise of share-based
awards 64,171 - - - 136 - 136
Net loss - - - - - (623) (623)
Balance 31 December
2018 282,493,867 5,375 278,349 138,506 991 (5,192) 418,029
Total comprehensive
loss for the period
Issue of shares to Ariya
founders 2,126,338 28 9,078 - - - 9,106
Issuance of restricted
stock units 513,324 - - - - - 0
Exercise of share-based
awards 237,090 5 535 - - - 540
Net loss - - - - - (2,689) (2,689)
Balance 31 December
2019 285,370,619 5,408 287,962 138,506 991 (7,881) 424,986
------------------------- ----------- ------ -------- -------- -------- ----------- -------
The accompanying Notes are an integral part of these financial
statements.
PureTech Health plc Statements of Cash Flows
For the years ended 31 December
2019 2018
$000s $000s
Cash flows from operating activities
Income/(loss) for the year (2,689) (623)
Adjustments to reconcile net operating loss to net cash used in operating
activities:
Non-cash items:
Intercompany receivable (539) (97,493)
Intercompany payable 1,453 1,323
Accounts payable and accrued expenses 1,235 (715)
Net cash (used in) operating activities (540) (97,372)
Cash flows from investing activities:
Net cash provided by (used in) investing activities - -
Cash flows from financing activities:
Equity settled share-based payment expense 540 136
Issuance of placing shares - 97,493
Offering costs - (121)
Net cash provided by (used in) financing activities 540 97,372
Effect of exchange rates on cash and cash equivalents - -
Net decrease in cash and cash equivalents - -
Cash and cash equivalents at beginning of year - -
Cash and cash equivalents at end of year - -
Supplemental disclosure of non-cash investment
and financing activities:
Vesting of incentive awards 33 70
Issuance of shares against intercompany receivable 9,106 0
---------------------------------------------------------- -------- ----------
The accompanying Notes are an integral part of these financial
statements.
Notes to the Financial Statements
1. Accounting policies
Basis of Preparation and Measurement
The financial statements of PureTech Health plc (the "Parent")
have been prepared under the historical cost convention, in
accordance with the International Financial Reporting Standards,
International Accounting Standards, and Interpretations
(collectively "IFRS") issued by the International Accounting
Standards Board ("IASB") as adopted by the European Union ("adopted
IFRSs"). A summary of the significant accounting policies that have
been applied consistently throughout the year are set out
below.
Functional and Presentation Currency
The functional currency of the Parent is United States ("US")
Dollars and the financial statements are presented in US
Dollars.
Investments
Investments are stated at historic cost less any provision for
impairment in value and are held for long-term investment purposes.
Provisions are based upon an assessment of events or changes in
circumstances that indicate that an impairment has occurred such as
the performance and/or prospects (including the financial
prospects) of the investee company being significantly below the
expectations on which the investment was based, a significant
adverse change in the markets in which the investee company
operates or a deterioration in general market conditions.
Impairment
If there is an indication that an asset might be impaired, the
Parent would perform an impairment review. An asset is impaired if
the recoverable amount, being the higher of net realisable value
and value in use, is less than its carrying amount. Value in use is
measured based on future discounted cash flows attributable to the
asset. In such cases, the carrying value of the asset is reduced to
recoverable amount with a corresponding charge recognised in the
profit and loss account.
Financial Instruments
Currently the Parent does not enter into derivative financial
instruments. Financial assets and financial liabilities are
recognised and cease to be recognised on the basis of when the
related titles pass to or from the Parent Company.
2. Investment in subsidiary
$000s
Balance at 8 May 2015 -
Additions 141,348
Balance at 31 December 2019 and 2018 141,348
===================================== =======
PureTech consists of the Parent and its subsidiaries (together,
the "Group"). Investment in subsidiary represents the Parent's
investment in PureTech LLC as a result of the reverse acquisition
of the Group's financial statements immediately prior to the
Parent's initial public offering ("IPO") on the London Stock
Exchange in June 2015. PureTech LLC operates in the US as a
US-focused scientifically driven research and development company
that conceptualises, sources, validates and commercialises
unexpected and potentially disruptive approaches to advance the
needs of human health. For a summary of the Parent's indirect
subsidiaries please refer to Note 1 of the Consolidated Financial
Statements of PureTech Health plc.
3. Intercompany receivables
The Parent has an accounts receivable balance from its operating
subsidiary PureTech LLC of $296.5 million due to cash received from
the IPO.
4. Share capital and reserves
PureTech plc was incorporated with the Companies House under the
Companies Act 2006 as a public company on 8 May 2015.
On 12 March 2018, the Company raised approximately $100.0
million, before issuance costs and other expenses, by way of a
Placing of 45,000,000 placing shares.
On 24 June 2015, the Company authorised 227,248,008 of ordinary
share capital at one pence apiece. These ordinary shares were
admitted to the premium listing segment of the United Kingdom's
Listing Authority and traded on the Main Market of the London Stock
Exchange for listed securities. In conjunction with the
authorisation of the ordinary shares, the Parent completed an IPO
on the London Stock Exchange, in which it issued 67,599,621
ordinary shares at a public offering price of 160 pence per
ordinary share, in consideration for$159.3 million, net of issuance
costs of $11.8 million.
Additionally, the IPO included an over-allotment option
equivalent to 15 per cent of the total number of new ordinary
shares. The stabilisation manager provided notice to exercise in
full its over-allotment option on 2 July 2015. As a result, the
Parent issued 10,139,943 ordinary shares at the offer price of 160
pence per ordinary share, which resulted in net proceeds of $24.2
million, net of issuance costs of $0.8 million.
5. Intercompany payables
The Parent has a balance due to its operating subsidiary
PureTech LLC of $11.7 million, which is related to IPO costs and
operating expenses. These intercompany payables do not bear any
interest and are repayable upon demand.
6. Profit and loss account
As permitted by Section 408 of the Companies Act 2006, the
Parent's profit and loss account has not been included in these
financial statements. The Parent's loss for the year was $2.7
million.
7. Directors' remuneration, employee information and share-based payments
The remuneration of the executive directors of the Parent
Company is disclosed in Note 24, Related Parties Transactions, of
the accompanying Consolidated Financial Statements. Full details
for directors' remuneration can be found in the Directors'
Remuneration Report. Full detail of the share-based payment charge
and the related disclosures can be found in Note 8, Share-based
Payments, of the accompanying Consolidated Financial
Statements.
The Parent had no employees during 2019 or 2018.
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
FR KKFBNDBKBFQK
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