Alpha Compute Corp 6-K, filed Feb 28, 2024
Alpha Compute Corp (ALP)
About this 6-K
Alpha Compute Corp filed this 6-K on February 28, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of February 2024
Commission File Number:
(Translation of registrant’s name into English)
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
INCORPORATION BY REFERENCE
This report on Form 6-K (including the exhibits attached hereto) shall be deemed to be incorporated by reference into the registration statements on Form F-3 (File No. 333-253468) and Form S-8 (File No. 333-275842) of Portage Biotech Inc. (including any prospectuses forming a part of such registration statements) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
EXHIBITS
| Exhibit No. | Exhibit | |
| 99.1 | Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended December 31, 2023. Unaudited - Prepared by Management as of February 28, 2024. | |
| 99.2 | Management’s Discussion and Analysis for the three and nine months ended December 31, 2023. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: February 28, 2024 |
PORTAGE BIOTECH INC.
| By: | /s/ Allan Shaw | |
| Allan Shaw | ||
| Chief Financial Officer |
Exhibit 99.1
Condensed Consolidated Interim Financial Statements
For the Three and Nine Months Ended
(Unaudited – Prepared by Management as of February 28, 2024)
(U.S. Dollars)
Portage Biotech Inc.
Condensed Consolidated Interim Financial Statements
NOTICE TO READER OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The condensed consolidated interim financial statements of Portage Biotech Inc. are comprised of the condensed consolidated interim statement of financial position as of December 31, 2023 and the consolidated statement of financial position as of March 31, 2023, the condensed consolidated interim statements of operations and other comprehensive income (loss) for the three and nine months ended December 31, 2023 and 2022 and the condensed consolidated interim statements of changes in shareholders’ equity and the condensed consolidated interim statements of cash flows for each of the nine months ended December 31, 2023 and 2022 and are the responsibility of Portage Biotech Inc.’s management.
The condensed consolidated interim financial statements of Portage Biotech Inc. have been prepared by Portage Biotech Inc.’s management and include the selection of appropriate accounting principles, judgments and estimates necessary to prepare these condensed consolidated interim financial statements in accordance with International Financial Reporting Standards.
| /s/ Allan Shaw | /s/ Ian Walters |
| Allan Shaw, Chief Financial Officer | Ian Walters, MD, Chairman of the Board and Chief Executive Officer |
| DATE: February 28, 2024 |
| F-1 |
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Financial Position
(U.S. Dollars in thousands)
(Unaudited – see Notice to Reader dated February 28, 2024)
| Notes | December 31, 2023 | March 31, 2023 | ||||||||
| (Audited) | ||||||||||
| Assets | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | $ | ||||||||
| Prepaid expenses and other receivables | 5 | |||||||||
| Convertible note receivable | 6 | |||||||||
| Total current assets | ||||||||||
| Non-current assets | ||||||||||
| Investment in associate | 6 | |||||||||
| Investment in public company | 7 | |||||||||
| In-process research and development | 9,10 | |||||||||
| Deferred commitment fee, net of amortization of $ | 15 | |||||||||
| Right to use asset | 8 | |||||||||
| Other assets, including equipment, net | ||||||||||
| Total non-current assets | ||||||||||
| Total assets | $ | $ | ||||||||
| Liabilities and Equity | ||||||||||
| Current liabilities | ||||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||||
| Lease liability - current, including interest | 8 | |||||||||
| Total current liabilities | ||||||||||
| Non-current liabilities | ||||||||||
| Lease liability - non-current | 8 | |||||||||
| Warrant liabilities | 11 | |||||||||
| Deferred tax liability | 10,12 | |||||||||
| Deferred purchase price payable - Tarus | 9,18 | |||||||||
| Deferred obligation - iOx milestone | 17,18 | |||||||||
| Total non-current liabilities | ||||||||||
| Total liabilities | ||||||||||
| Shareholders’ Equity | ||||||||||
| Capital stock | 13 | |||||||||
| Stock option reserve | 14 | |||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Total equity attributable to owners of the Company | ||||||||||
| Non-controlling interest | 20 | ( | ) | ( | ) | |||||
| Total equity | ||||||||||
| Total liabilities and equity | $ | $ | ||||||||
| Commitments and Contingent Liabilities (Note 16) | ||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| F-2 |
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Operations and Other Comprehensive Income (Loss)
(U.S. Dollars in thousands, except per share amounts)
(Unaudited – see Notice to Reader dated February 28, 2024)
| Note | Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| Expenses | ||||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||||
| General and administrative expenses | ||||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of deferred purchase price payable - Tarus and deferred obligation - iOx milestone | 9, 17, 18 | ( | ) | ( | ) | |||||||||||||
| Loss on Registered Direct Offering | 11 | ( | ) | ( | ) | |||||||||||||
| Offering costs | 11 | ( | ) | ( | ) | |||||||||||||
| Change in fair value of warrant liability | 11 | |||||||||||||||||
| Impairment loss - iOx IPR&D | 10 | ( | ) | ( | ) | |||||||||||||
| Impairment loss - Stimunity | 6 | ( | ) | ( | ) | |||||||||||||
| Commitment fee under Committed Purchase Agreement | ( | ) | ( | ) | ||||||||||||||
| Share of loss in associate accounted for using equity method | 6 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Depreciation expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign exchange transaction gain (loss) | 12 | ( | ) | |||||||||||||||
| Interest income | ||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||||
| Loss before benefit (expense) for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit (expense) | 12 | ( | ) | |||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||
| Net unrealized gain (loss) on investments | 6, 7 | ( | ) | ( | ) | |||||||||||||
| Total comprehensive loss for period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net loss attributable to: | ||||||||||||||||||
| Owners of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Non-controlling interest | 20 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Comprehensive loss attributable to: | ||||||||||||||||||
| Owners of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Non-controlling interest | 20 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| Total comprehensive loss for period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Loss per share | 15 | |||||||||||||||||
| Basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||||
| Weighted average shares outstanding | 15 | |||||||||||||||||
| Basic and diluted | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| F-3 |
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity
For the Nine Months Ended December 31, 2023 and 2022
(Unaudited – see Notice to Reader dated February 28, 2024)
| Accumulated | Equity | |||||||||||||||||||||||||||||||
| Number | Stock | Other | Attributable | Non- | ||||||||||||||||||||||||||||
| of | Capital | Option | Comprehensive | (Accumulated | to Owners | Controlling | Total | |||||||||||||||||||||||||
| Shares | Stock | Reserve | (Loss) Income | Deficit) | of Company | Interest | Equity | |||||||||||||||||||||||||
| In ‘000’ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | |||||||||||||||||||||||||
| Balance, April 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Share-based compensation expense | – | |||||||||||||||||||||||||||||||
| Shares issued under Registered Direct Offering | ||||||||||||||||||||||||||||||||
| Shares issued under ATM | ||||||||||||||||||||||||||||||||
| Share issuance costs under ATM | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||||||||||||||||||
| Net unrealized gain on investments | – | |||||||||||||||||||||||||||||||
| Net loss for period | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Balance, April 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Share-based compensation expense | – | |||||||||||||||||||||||||||||||
| Shares issued in Tarus acquisition | ||||||||||||||||||||||||||||||||
| Shares issued in iOx exchange | ( | ) | ||||||||||||||||||||||||||||||
| Deferred obligation - iOx milestone | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Excess of non-controlling interest acquired over consideration - iOx | – | ( | ) | |||||||||||||||||||||||||||||
| Shares issued to Lincoln for commitment fee under Committed Purchase Agreement | ||||||||||||||||||||||||||||||||
| Shares issued under ATM | ||||||||||||||||||||||||||||||||
| Purchase of shares issued under Committed Purchase Agreement | ||||||||||||||||||||||||||||||||
| Share issuance costs | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||||||||||||||||||
| Net unrealized loss on investments | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Net loss for period | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| F-4 |
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Cash Flows
For the Nine Months Ended December 31, 2023 and 2022
(U.S. Dollars in thousands)
(Unaudited – see Notice to Reader dated February 28, 2024)
| Nine Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments for non-cash items: | ||||||||
| Share-based compensation expense | ||||||||
| Change in fair value of deferred purchase price payable – Tarus and deferred obligation – iOx milestone | ( | ) | ||||||
| Impairment loss - iOx IPR&D | ||||||||
| Impairment loss - Stimunity | ||||||||
| Loss on Registered Direct Offering | ||||||||
| Offering costs | ||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Commitment fee under Committed Purchase Agreement | ||||||||
| Decrease in deferred tax liability | ( | ) | ( | ) | ||||
| Share of loss in associate | ||||||||
| Fair value of shares issued for services | ||||||||
| Depreciation | ||||||||
| Foreign exchange transaction loss | ( | ) | ||||||
| Changes in operating working capital: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other receivables | ( | ) | ||||||
| Other assets | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Other | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of convertible note receivable | ( | ) | ||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from Registered Direct Offering | ||||||||
| Proceeds from shares issued under ATM and Committed Purchase Agreement | ||||||||
| Share issuance costs | ( | ) | ( | ) | ||||
| Repayment of lease liability | ( | ) | ||||||
| Repayment of notes payable assumed in Tarus acquisition | ( | ) | ||||||
| Repayment of milestone obligation assumed in Tarus acquisition | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Decrease in cash and cash equivalents during period | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Exchange of Stimunity Convertible Note for Stimunity shares at fair value | $ | $ | ||||||
| Right to use asset acquired | $ | $ | ||||||
| Lease liability incurred | $ | $ | ||||||
| Fair value of shares issued for Tarus | $ | $ | ||||||
| Fair value of shares issued for non-controlling interest purchase of iOx | $ | $ | ||||||
| Fair value of deferred purchase price payable – Tarus | $ | $ | ||||||
| Fair value of deferred obligation – iOx milestone | $ | $ | ||||||
| Liabilities assumed in Tarus acquisition | $ | $ | ||||||
| Fair value of shares issued for commitment fees – Committed Purchase Agreement | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
| F-5 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 1. NATURE OF OPERATIONS
Portage Biotech Inc. (the “Company” or “Portage”) is incorporated in the British Virgin Islands (“BVI”) with its registered office located at Clarence Thomas Building, P.O. Box 4649, Road Town, Tortola, BVI. Its USA agent, Portage Development Services Inc. (“PDS”), is located at 61 Wilton Road, Westport, CT, 06880, USA.
The Company is a foreign private issuer under the Securities and Exchange Commission (the “SEC”) rules. It is also a reporting issuer under the securities legislation of the provinces of Ontario and British Columbia. Its ordinary shares were listed on the Canadian Securities Exchange (“CSE”) under the symbol “PBT.U”. On February 25, 2021, the ordinary shares of the Company began trading on the Nasdaq Capital Market (“Nasdaq”) under the symbol “PRTG”. As the principal market for the Company’s ordinary shares is Nasdaq, the Company voluntarily delisted from the CSE on April 23, 2021.
Portage is a clinical-stage immuno-oncology company advancing treatments the Company believes will be first-in class therapies that target known checkpoint resistance pathways to improve long-term treatment response and quality of life in patients with invasive cancers. Portage’s access to next-generation technologies coupled with a deep understanding of biological mechanisms enables the identification of clinical therapies and product development strategies that accelerate these medicines through the translational pipeline. After a review of the Company’s funding requirements and related program prioritization, the Company has shifted its focus to advancing its adenosine platform in the ADPORT-601 trial and the Company’s Board of Directors (the “Board”) has made the decision to pause further drug development in the PORT-2 invariant natural killer T-cell (“iNKT”) program. As a result, the Company will evaluate a range of potential strategic options, which may include among other things, finding a partner for its iNKT program or other corporate transactions.
On August 13, 2018, the Company reached a definitive agreement to acquire
In September 2021, the Company, through SalvaRx, exchanged certain notes,
accrued interest, warrants and receivables in exchange for shares of iOx representing % of the outstanding shares of iOx. As a result
of this exchange, the Company, through SalvaRx, increased its ownership of iOx from
NOTE 2. GOING CONCERN
As of December 31, 2023, the Company had cash and cash equivalents of
approximately $
| F-6 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 2. GOING CONCERN (Cont’d)
The Company’s cash and cash equivalents balance is decreasing, and the Company will not generate positive cash flows from operations for the fiscal year ending March 31, 2024.
The Company may have to delay, scale-back, or eliminate certain of its
activities and other aspects of its operations until such time as the Company is successful in securing additional funding. The Company
is exploring various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business
development and other sources. The future success of the Company is dependent upon its ability to obtain additional funding. There can
be no assurance, however, that the Company will be successful in obtaining such funding in sufficient amounts, on terms acceptable to
the Company, or at all. As of the date of this filing, the Company currently anticipates that current cash and cash equivalents, excluding
any potential proceeds from its “at-the-market” (“ATM”) offering program and Committed Purchase Agreement (as
defined below) with Lincoln Park Capital Fund, LLC (“Lincoln”), will be sufficient to meet its anticipated cash requirements
through the end of September 2024. Access to the Committed Purchase Agreement with Lincoln is generally limited based on, among other things,
the Company’s Nasdaq trading volume. Furthermore, under General Instruction I.B.5 to Form F-3 (the “Baby Shelf Rule”),
the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration
statement on Form F-3 is limited to one-third of the aggregate market value of the ordinary shares held by the Company’s non-affiliates,
which limitation may change over time based on the Company’s stock price, number of ordinary shares outstanding and the percentage
of ordinary shares held by non-affiliates. The Company is therefore limited by the Baby Shelf Rule as of the filing of this Form 6-K,
until such time as its non-affiliate public float exceeds $
The Company has incurred significant operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. The losses result primarily from its conduct of research and development activities.
The Company historically has funded its operations principally from proceeds from issuances of equity and debt securities. The Company will require significant additional capital to make the investments it needs to execute its longer-term business plan, beyond the potential proceeds that could be reasonably generated from its ATM program and Committed Purchase Agreement with Lincoln given the Company’s current trading volume on Nasdaq. The Company’s ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, future equity issuances would result in dilution to existing stockholders and any future debt securities may contain covenants that limit the Company's operations or ability to enter into certain transactions. See Note 13, “Capital Stock,” for a discussion of the issuance of additional shares in October 2023.
NOTE 3. BASIS OF PRESENTATION
Statement of Compliance and Basis of Presentation
These condensed consolidated interim financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”), International Accounting Standards (“IAS”) 34 Interim Financial Reporting and interpretations of the International Financial Reporting Interpretations Committee. These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended March 31, 2023.
| F-7 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 3. BASIS OF PRESENTATION (Cont’d)
These condensed consolidated interim financial statements have been prepared on an historical cost basis except for items disclosed herein at fair value (see Note 18, “Financial Instruments and Risk Management”). In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
The Company has only one reportable operating segment.
These condensed consolidated interim financial statements were approved and authorized for issuance by the Audit Committee (the “Audit Committee”) of the Board on February 28, 2024.
Consolidation
The condensed consolidated interim financial statements include the accounts of the Company and:
| (a) | SalvaRx, a wholly-owned subsidiary, incorporated on May 6, 2015 in the British Virgin Islands; |
| (b) | iOx, a wholly-owned subsidiary incorporated in the U.K. on February 10, 2015. In September 2021, the Company, through SalvaRx, exchanged
certain notes, accrued interest, warrants and receivables in exchange for shares of iOx representing % of the outstanding shares
of iOx. As a result of this exchange, the Company, through SalvaRx, increased its ownership of iOx from |
| (c) | Saugatuck, a |
| (d) | PDS, a |
| (e) | SalvaRx LLC, a wholly-owned subsidiary through SalvaRx; |
| (f) | Saugatuck Rx LLC, a wholly-owned subsidiary of Saugatuck; and |
| (g) | Tarus Therapeutics, LLC (“Tarus”), a wholly-owned subsidiary of Portage. |
All inter-company balances and transactions have been eliminated in consolidation.
Non-controlling interest in the equity of a subsidiary
is accounted for and reported as a component of stockholders’ equity. As of December 31, 2023, non-controlling interest represents
the
Functional and Presentation Currency
The Company’s functional and presentation currency is the U.S. Dollar.
| F-8 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 3. BASIS OF PRESENTATION (Cont’d)
Use of Estimates and Judgments
The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Significant areas where estimates are made include valuation of financial instruments (including the Stimunity Convertible Note) (as defined below), deferred tax assets and liabilities, warrant liabilities, research and development costs, fair value used for acquisition of intangible assets, contingent consideration assumed and measurement of share-based compensation. Significant areas where critical judgments are applied include assessment of impairment of investments, in-process research and development, warrant liabilities and the determination of the accounting acquirer and acquiree in the business combination accounting.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies are set out in Note 4 to the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2023 (“Fiscal 2023”). These policies have been applied consistently to all periods presented in these condensed consolidated interim financial statements.
Warrant Liabilities
On September 29, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional and accredited investor in connection with a registered direct offering (the “Registered Direct Offering”) and a concurrent private placement (the “Private Placement,” and together with the Registered Direct Offering, the “Offerings”). The Offerings closed on October 3, 2023.
Pursuant to the Purchase Agreement, in the Registered Direct Offering,
the Company sold
In the Private Placement, the Company issued to such institutional and
accredited investor unregistered warrants to purchase up to ordinary shares (the “Series A Warrants”), unregistered
warrants to purchase up to ordinary shares (the “Series B Warrants”), and unregistered warrants to purchase up to
ordinary shares (the “Series C Warrants,” together with the Series A Warrants and the Series B Warrants, the “Private
Warrants”), together exercisable for an aggregate of up to ordinary shares (the “Private Warrant Shares”).
Pursuant to the terms of the Purchase Agreement, for each ordinary share and Pre-Funded Warrant issued in the Registered Direct Offering,
an accompanying Series A Warrant, Series B Warrant and Series C Warrant were issued to such institutional and accredited investor. Each
Series A Warrant is exercisable for one Private Warrant Share at an exercise price of $
The Company filed the Resale Registration Statement (as defined below) to register for the resale of the Private Warrant Shares and the ordinary shares issuable upon the exercise of the Placement Agent Warrants, which was declared effective by the SEC on November 7, 2023. Pursuant to the terms of the Purchase Agreement, the Company is obligated to use its commercially reasonable efforts to keep the Resale Registration Statement effective at all times until such institutional and accredited investor (and its successors and assigns) no longer owns any Private Warrants or ordinary shares issuable upon exercise thereof.
| F-9 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
The Company accounts for the Series B Warrants, the Series C Warrants and the Placement Agent Warrants (defined below) under IAS 9, “Financial Instruments” and IAS 32, “Financial Instruments: Presentation”. IAS 32 states a financial liability is any liability that is:
| (a) | a contractual obligation: |
| (i) | to deliver cash or another financial asset to another entity; or |
| (ii) | to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or |
| (b) | a contract that will or may be settled in the entity’s own equity instruments and is: |
| (i) | a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or |
| (ii) | a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose, rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. Also, for these purposes the entity’s own equity instruments do not include puttable financial instruments that are classified as equity instruments in accordance with paragraphs 16A and 16B, instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation and are classified as equity instruments in accordance with paragraphs 16C and 16D, or instruments that are contracts for the future receipt or delivery of the entity’s own equity instruments. |
As an exception, an instrument that meets the definition of a financial liability is classified as an equity instrument if it has all the features and meets the conditions in paragraphs 16A and 16B or paragraphs 16C and 16D.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
The Series B Warrants, the Series C Warrants and the Placement Agent Warrants (defined below) include the obligation, in the event of a Fundamental Transaction, as defined in such warrants, for the Company or the successor entity to purchase the warrants from the holder at the discretion of the holder and at the Black-Scholes value, as defined in the warrant agreements. As a result, management concluded that such warrants met the criteria of paragraphs 16A and 16B of IAS 32 and should be reflected as a liability on the condensed consolidated interim statement of financial position with the changes in fair value recognized in the current and future condensed consolidated interim statement of operations and other comprehensive income (loss).
Series A Warrants and Pre-Funded Warrants
The Series A Warrants and the Pre-Funded Warrants are classified as a component of equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the ordinary shares with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase such warrants, and permit the holders to receive a fixed number of ordinary shares upon exercise. In addition, the Series A Warrants and the Pre-Funded Warrants do not provide any guarantee of value or return. See Note 13, “Capital Stock,” for a further discussion.
| F-10 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Recent Accounting Pronouncements
IFRS Pronouncements Issued
Impact of Adoption of Significant New IFRS Standards in Fiscal 2023
| (a) | Annual Improvements to IFRS Standards 2018-2020 |
The annual improvements process addresses issues in the 2018-2020 reporting cycles including changes to IFRS 9, “Financial Instruments,” IFRS 1, “First Time Adoption of IFRS,” IFRS 16, “Leases,” and IAS 41, “Biological Assets”.
| i) | The amendment to IFRS 9 addresses which fees should be included in the 10% test for derecognition of financial liabilities. |
| ii) | The amendment to IFRS 1 allows a subsidiary adopting IFRS at a later date than its parent to also measure cumulative translation differences using the amounts reported by the parent based on the parent’s date of transition to IFRS. |
| iii) | The amendment to IFRS 16’s illustrative example 13 removes the illustration of payments from the lessor related to leasehold improvements. |
These amendments were effective for annual periods beginning on or after January 1, 2022. The adoption of these amendments did not have a material effect on the Company’s annual consolidated financial statements or the condensed consolidated interim financial statements for the three and nine months ended December 31, 2023.
New Accounting Standards, Interpretations and Amendments
Standards issued but not yet effective up to the date of issuance of the Company’s condensed consolidated interim financial statements are listed below. This listing is of standards and interpretations issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they become effective.
| (a) | IAS 1: Presentation of Financial Statements |
The amendment to IAS 1 clarifies how to classify debt and other liabilities as either current or non-current. The amendment is effective for annual periods beginning on or after January 1, 2024. The Company is currently evaluating the new guidance and impacts on its consolidated financial statements.
| (b) | Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and Its Associate or Joint Venture |
The amendment addresses the conflict between IFRS 10, “Consolidated Financial Statements,” and IAS 28, “Investments in Associates and Joint Ventures,” in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, “Business Combinations,” between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Company is evaluating whether the adoption of the above amendment will have a material impact on its consolidated financial statements.
| F-11 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 5. PREPAID EXPENSES AND OTHER RECEIVABLES
| Schedule of prepaid expense and other receivables | ||||||||
| (In thousands) | As of December 31, 2023 | As of March 31, 2023 | ||||||
| Prepaid clinical research costs | $ | $ | ||||||
| Tax deposits | ||||||||
| Prepaid insurance | ||||||||
| Other receivables | ||||||||
| Other prepaid expenses | ||||||||
| Research & development tax credits | ||||||||
| Total prepaid expenses and other receivables | $ | $ | ||||||
NOTE 6. INVESTMENT IN ASSOCIATE AND CONVERTIBLE NOTE RECEIVABLE
Details of the Company’s associate, Stimunity S.A. (“Stimunity”), as of December 31, 2023 and March 31, 2023 are as follows:
| Schedule of investment associate | |||||||||
| Name | Principal Activity |
Place of Incorporation and Principal Place of Business |
Voting Rights Held as of December 31, 2023 |
Voting Rights Held as of March 31, 2023 |
|||||
The following table is a roll-forward of the Company’s investment in Stimunity as of and for the nine months ended December 31, 2023 and 2022:
| Schedule of investment in stimunity | ||||||||
| As of and for the Nine Months Ended December 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Share of loss | ( | ) | ( | ) | ||||
| Conversion of Stimunity Convertible Note | ||||||||
| Impairment loss | ( | ) | ||||||
| Balance, end of period | $ | $ | ||||||
The Company accounts for its investment in Stimunity under the equity
method and, accordingly, records its share of Stimunity’s earnings or loss based on its ownership percentage. The Company recorded
loss in equity in Stimunity of $
Under the Shareholders’ Agreement entered into on June 1, 2020, Portage has (i) a preferential subscription right to maintain its equity interest in Stimunity in the event of a capital increase from the issuance of new securities by Stimunity, except for issuances of new securities for stock options, under a merger plan or for an acquisition, and (ii) the right to vote against any (a) issuances of additional securities that would call for Portage to waive its preferential subscription right, or (b) any dilutive issuance.
| F-12 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 6. INVESTMENT IN ASSOCIATE AND CONVERTIBLE NOTE RECEIVABLE (Cont’d)
On September 12, 2022,
As of December 31, 2023, the Company determined that there was an indication
of impairment of the investment in Stimunity based upon the inability of Stimunity to obtain financing. The Company recorded a provision
of impairment of $
NOTE 7. INVESTMENT IN PUBLIC COMPANY
The following is a discussion of the Company’s investment in Intensity Therapeutics, Inc. (“Intensity”) as of December 31, 2023 and March 31, 2023.
Intensity Therapeutics, Inc.
In connection with the SalvaRx Acquisition in fiscal 2019, the Company
acquired a $
On July 11, 2019, the Company entered into an agreement with Fast Forward
Innovations Limited (“Fast Forward”) to purchase Intensity Holdings Limited (“IHL”), a wholly-owned subsidiary
of Fast Forward. The Company paid $
On October 28, 2021, Intensity filed a Form S-1 Registration Statement with the SEC to register shares for an IPO, which was declared effective by the SEC, but subsequently withdrawn prior to closing.
Subsequently, Intensity amended its Form S-1 Registration Statement and
continued to complete its IPO. As of both December 31, 2022 and March 31, 2023, the Company undertook an IAS 36 fair value analysis based
on the continued existence of external indications of impairment, which resulted in an aggregate $
In April 2023, Intensity completed a 1:2 reverse stock split, which reduced the Company’s holdings to shares.
| F-13 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 7. INVESTMENT IN PUBLIC COMPANY (Cont’d)
On July 5, 2023, Intensity completed an IPO of its common stock
selling
shares at a price of $
per share generating net proceeds of approximately $
The Company’s lock-up with respect to Intensity shares expired on January 2, 2024. The Board authorized and, in January 2024, began selling its shares in Intensity on Nasdaq. Accordingly, the Company will classify the investment as investment in marketable equity securities in future periods, if necessary.
NOTE 8. LEASE
The Company entered into a lease of office space, which commenced on May
1, 2023. The lease provides for an original term of two years with an option to renew the lease for an additional term of three years.
The Company has included the extension option in the lease analysis under IFRS 16, based upon management’s intentions. The Company
calculated the lease liability using its incremental borrowing rate of 13%. The Company provided a $
| Schedule of lease liability | ||||
| Twelve Months Ended December 31, | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | ||||
| Less: interest | ( | ) | ||
| Total lease liability | ||||
| Lease liability - current | ||||
| Lease liability - non-current | $ | |||
| F-14 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 9. ACQUISITION OF TARUS
On July 1, 2022, the Company, its wholly-owned subsidiary, Portage Merger Sub I, Inc., its wholly-owned subsidiary, Portage Merger Sub II, LLC and Tarus Therapeutics, Inc., a Delaware corporation advancing adenosine receptor antagonists for the treatment of solid tumors, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Per the Merger Agreement, Tarus Therapeutics, Inc. was ultimately merged into Portage Merger Sub II, LLC, with the surviving entity renamed “Tarus Therapeutics, LLC”. The Tarus merger entitles the Company to the rights, know-how and/or ownership related to the assets developed by Tarus (the “Adenosine Compounds”), including:
| 1. | All rights and obligations related to the License Agreement between Tarus and Impetis Biosciences Limited, dated October 29, 2019 (“Tarus License Agreement”), and the call option under the Tarus License Agreement, which was exercised on November 5, 2020; |
| 2. | All intellectual property and related documents owned or controlled by Tarus, including issued or pending patents, patent applications and trade secrets. Additionally, any draft submissions and/or correspondence with patent authorities; |
| 3. | All documents and supplies related to Adenosine Compounds (as defined in the Tarus License Agreement) including inventory, reagents, data, assays, reports, vendor agreements and other information related to the preclinical development; |
| 4. | All clinical supplies, manufacturing know-how, batch records, regulatory documents pertaining to the Adenosine Compounds, certain reservations for manufacturing campaigns and any related agreements; |
| 5. | All regulatory documents and correspondence pertaining to the Adenosine Compounds; |
| 6. | All contract research organization (“CRO”) agreements and protocol related documents for Adenosine Compounds; |
| 7. | All current documents related to market research, forecasting, budgets and competitive intelligence; and |
| 8. | Rights to the use of Tarus Therapeutics’ name for regulatory purposes. |
| F-15 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 9. ACQUISITION OF TARUS (Cont’d)
As consideration for Tarus, the Company issued to former Tarus shareholders an aggregate of ordinary shares of Portage, calculated on the basis of $ million divided by the 60-day volume weighted average price per share of ordinary shares of Portage. Such ordinary shares have not been registered with the SEC and were subject to lock-up agreements for terms ranging from six to twelve months, which expired on February 1, 2023 and July 1, 2023, respectively. Additionally, the ordinary shares that were subject to a twelve-month lock-up period, are also subject to a three-month dribble-out period, which commenced July 1, 2023. During the dribble out period, each holder may not sell more than 10% of the average trading volume of the Company’s ordinary shares for the rolling three-month period prior to the date on which the holder executes a trade of the Company’s ordinary shares without its prior written consent (which the Company is permitted to withhold at its sole discretion). Additionally, milestone payments of up to $ million in cash or Portage ordinary shares (at the discretion of the Company) would be triggered upon achievement of future development and sales milestones, as described below. As a result of the transaction:
| · | The Company also assumed $ |
| · | Upon enrolling the first patient in a Phase 2 clinical trial utilizing Tarus’s adenosine receptor antagonists,
the Company will pay an additional one-time milestone payment of $ |
In connection with the acquisition of Tarus, the Company performed a fair
value analysis of the assets acquired and liabilities assumed. The Company based the analysis on its clinical plan and timing of development
events, and the probabilities of success determined primarily based upon empirical third-party data and Company experience as well as
the relevant cost of capital. In its fair value analysis, the Company used the Multi-Period Excess Earnings Method for PORT-6 and PORT-7
and the Replacement Cost Method for PORT-8 and PORT-9, determined based upon the maturity of the assets and the availability of sufficient
data to measure fair value. The Company recorded the ordinary shares issued at $ million, which represented the aggregate market value
of the ordinary shares issued on July 1, 2022. The Company followed the guidance of IAS 3 and IAS 32 and recorded a deferred purchase
price payable - Tarus of $
The following table summarizes the original purchase price allocation to the fair value of assets acquired and liabilities assumed for Tarus:
| Schedule of fair value of assets acquired and liabilities assumed | ||||
| Assets: | (In thousands) | |||
| Identifiable intangible assets | $ | |||
| Goodwill | ||||
| Total assets | $ | |||
| Consideration: | ||||
| Fair value of shares issued | $ | |||
| Liabilities assumed | ||||
| Deferred purchase consideration at fair value | ||||
| Total liabilities | $ | |||
| F-16 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 9. ACQUISITION OF TARUS (Cont’d)
Pro forma Information
Summary unaudited pro forma condensed results of operations for the nine months ended December 31, 2022, assuming the Tarus acquisition had occurred at the beginning of the earliest period presented, are as follows:
| Schedule of pro forma information | ||||
| (In thousands) | Nine Months Ended December 31, 2022 | |||
| Loss from operations | $ | ( | ) | |
| Loss before provision for income taxes | $ | ( | ) | |
| Net loss | $ | ( | ) | |
| Total comprehensive loss for period | $ | ( | ) | |
| Loss per share | $ | ( | ) | |
There are
These pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the period presented, and they may not be indicative of results expected in the future.
NOTE 10. IN-PROCESS RESEARCH AND DEVELOPMENT AND DEFERRED TAX LIABILITY
In-process research and development (“IPR&D”) consists of the following projects (in thousands):
| Schedule of in-process research and development | ||||||||||
| Value as of | ||||||||||
| Project # | Description | December 31, 2023 | March 31, 2023 | |||||||
| iOx: | ||||||||||
| PORT-2 (IMM60) | Melanoma & Lung Cancers | $ | $ | |||||||
| PORT-3 (IMM65) | Ovarian/Prostate Cancers | |||||||||
| Oncomer/Saugatuck | DNA Aptamers | |||||||||
| Tarus: | ||||||||||
| PORT-6 & PORT-7 | Adenosine Receptors | |||||||||
| PORT-8 | Adenosine Receptors | |||||||||
| PORT-9 | Adenosine Receptors | |||||||||
| In-process research and development | $ | $ | ||||||||
| Deferred tax liability | $ | $ | ||||||||
| F-17 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 10. IN-PROCESS RESEARCH AND DEVELOPMENT AND DEFERRED TAX LIABILITY (Cont’d)
At the end of each reporting period, the Company is required to assess
whether there is any indication that an asset may be impaired. Based upon the Company’s decision to pause iNKT development (PORT-2 and PORT-3), representing the iOx IPR&D, the Company performed an IAS 36 analysis at December 31, 2023. The
Company evaluated the then-current capital markets, the increasing costs of capital, and the delays in the timing of asset
development and the likelihood of finding a partner and concluded that a $
NOTE 11. WARRANT LIABILITY
The following table summarizes the changes in the warrant liability during the nine months ended December 31, 2023:
| Schedule of warrant liability | ||||||||||||
| Exercise Price | Warrants | Fair Value Balance | ||||||||||
| In 000’$ | ||||||||||||
| Warrant liability as of April 1, 2023 | $ | $ | ||||||||||
| Fair value of warrants at issuance on October 3, 2023: | ||||||||||||
| Class B Warrants | $ | |||||||||||
| Class C Warrants | $ | |||||||||||
| Placement Agent Warrants | $ | |||||||||||
| Change in fair value of warrant liability | ( | ) | ||||||||||
| Warrant liability as of December 31, 2023 | $ | |||||||||||
On September 29, 2023, the Company entered into the Purchase Agreement with an institutional and accredited investor in connection with the Registered Direct Offering and the Private Placement. The Offerings closed on October 3, 2023.
Pursuant to the Purchase Agreement, in the Registered Direct Offering,
the Company sold (i)
| F-18 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 11. WARRANT LIABILITY (Cont’d)
In the Private Placement, the Company issued to such institutional and
accredited investor Series A Warrants to purchase up to ordinary shares, Series B Warrants to purchase up to ordinary
shares, and Series C Warrants to purchase up to ordinary shares, together exercisable for an aggregate of up to ordinary
shares. Pursuant to the terms of the Purchase Agreement, for each ordinary share and Pre-Funded Warrant issued in the Registered Direct
Offering, an accompanying Series A Warrant, Series B Warrant and Series C Warrant were issued to such institutional and accredited investor.
Each Series A Warrant is exercisable for one Private Warrant Share at an exercise price of $
Pursuant to an engagement letter, dated as of August 26, 2023, between the Company and H.C. Wainwright & Co., LLC (the “Placement Agent”), the Company paid the Placement Agent a total cash fee equal to % of the aggregate gross proceeds received in the Offerings, or $ million. The Company also paid the Placement Agent in connection with the Offerings a management fee equal to % of the aggregate gross proceeds raised in the Offerings ($ million), $ for non-accountable expenses and $ for clearing fees. In addition, the Company issued to the Placement Agent, or its designees, warrants to purchase up to ordinary shares (the “Placement Agent Warrants,” and together with the Pre-Funded Warrants and the Private Warrants, the “Warrants”), which represented % of the aggregate number of ordinary shares and Pre-Funded Warrants sold in the Registered Direct Offering. The Placement Agent Warrants have substantially the same terms as the Series B Warrants and the Series C Warrants, except that the Placement Agent Warrants have an exercise price equal to $, or 125% of the offering price per ordinary share sold in the Registered Direct Offering and will be exercisable for five years from the commencement of the sales pursuant to the Offerings. The Private Warrants, Private Warrant Shares, Placement Agent Warrants and ordinary shares underlying the Placement Agent Warrants were registered for resale under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to a registration statement on Form F-1 that was declared effective by the SEC on November 7, 2023 (the “Resale Registration Statement”).
The Series B Warrants, the Series C Warrants and the Placement Agent Warrants
include the obligation, in the event of a Fundamental Transaction, as defined in the Series B Warrants, the Series C Warrants and the
Placement Agent Warrants, for the Company or the successor entity to purchase the warrants from the holder at the discretion of the holder
and at the Black-Scholes value, as defined in the warrant agreements. As a result, management concluded that, in line with IAS 9, “Financial
Instruments” and IAS 32, “Financial Instruments: Presentation,” such warrants will be accounted for as financial liabilities
on the condensed consolidated interim statement of financial position with the changes in fair value recognized in the current and future
condensed consolidated interim statement of operations and other comprehensive income (loss). The Company allocated the net proceeds of
$
The Company filed the Resale Registration Statement to register for the resale of the Private Warrant Shares and the ordinary shares issuable upon the exercise of the Placement Agent Warrants, which was declared effective by the SEC on November 7, 2023. Pursuant to the terms of the Purchase Agreement, the Company is obligated to use its commercially reasonable efforts to keep the Resale Registration Statement effective at all times until such institutional and accredited investor (and its sucessors and assigns) no longer owns any Private Warrants or ordinary shares issuable upon exercise thereof.
The accounting for the Series A Warrants and the Pre-Funded Warrants is detailed below in Note 13, “Capital Stock.”
| F-19 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 11. WARRANT LIABILITY (Cont’d)
Series B Warrants
A fair value of $ per each Series B Warrant was identified at the issue date of October 3, 2023. A fair value of $ per each warrant has been identified as of December 31, 2023.
The inputs associated with calculating the fair value are reflected below.
| Schedule of fair value | ||||
| October 3, 2023 | December 31, 2023 | |||
| Exercise price | $ | $ | ||
| Share price | $ | $ | ||
| Expected life | years | years | ||
| Expected volatility | % | % | ||
| Risk-free interest rate | % | % | ||
| Dividend yield |
Series C Warrants
A fair value of $ per each Series C Warrant was identified at the issue date of October 3, 2023. A fair value of $ per each warrant has been identified as of December 31, 2023.
The inputs associated with calculating the fair value are reflected below.
| Schedule of fair value | ||||
| October 3, 2023 | December 31, 2023 | |||
| Exercise price | $ | $ | ||
| Share price | $ | $ | ||
| Expected life | years | years | ||
| Expected volatility | % | % | ||
| Risk-free interest rate | % | % | ||
| Dividend yield |
Placement Agent Warrants
A fair value of $ per each Placement Agent Warrant was identified at the issue date of October 3, 2023. A fair value of $ per each warrant has been identified as of December 31, 2023.
The inputs associated with calculating the fair value are reflected below.
| Schedule of fair value | ||||
| October 3, 2023 | December 31, 2023 | |||
| Exercise price | $ | $ | ||
| Share price | $ | $ | ||
| Expected life | years | years | ||
| Expected volatility | % | % | ||
| Risk-free interest rate | % | % | ||
| Dividend yield |
| F-20 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 12. INCOME TAXES
The Company is a BVI business company. The BVI government does not, under existing legislation, impose any income or corporate tax on corporations.
PDS is a U.S. corporation and is subject to U.S. federal, state and local income taxes, as applicable.
iOx is subject to U.K. taxes.
The (expense) benefit from income taxes consists of the following for the nine months ended December 31, 2023 and 2022 (U.S. Dollars in thousands):
| Schedule of income tax benefit | ||||||||
| Nine Months Ended December 31, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Current: | ||||||||
| Federal | $ | ( | ) | $ | ( | ) | ||
| State and local | ( | ) | ||||||
| Foreign | ||||||||
| Total current | ( | ) | ( | ) | ||||
| Deferred: | ||||||||
| Federal | ||||||||
| State and local | ||||||||
| Foreign | ||||||||
| Total deferred | ||||||||
| Benefit from income taxes | $ | $ | ||||||
The following is a reconciliation of the U.S. taxes to the effective income tax rates for the nine months ended December 31, 2023 and 2022 (U.S. Dollars in thousands):
| Schedule of reconciliation income tax rates | ||||||||
| Nine Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Loss on ordinary activities before tax | $ | ( | ) | $ | ( | ) | ||
| Statutory U.S. income tax rate | % | % | ||||||
| Income tax benefit at statutory income tax rate | ||||||||
| Share-based compensation expense recognized for financial statement purposes | ( | ) | ||||||
| Other losses (unrecognized) | ( | ) | ( | ) | ||||
| Utilization of losses not previously benefitted | ||||||||
| Income tax (expense) | $ | ( | ) | $ | ( | ) | ||
| F-21 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 12. INCOME TAXES (Cont’d)
As of December 31, 2023, the Company had $
The following is a reconciliation of the U.K. taxes to the effective income tax rates for the nine months ended December 31, 2023 and 2022 (U.S. Dollars in thousands):
| Schedule of effective income tax rates | ||||||||
| Nine Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Loss on ordinary activities before tax | $ | ( | ) | $ | ( | ) | ||
| Statutory U.K. income tax rate | % | % | ||||||
| Loss at statutory income tax rate | ||||||||
| Change from increase in deferred income tax rate | ||||||||
| Derecognition of deferred tax assets | ( | ) | ||||||
| Foreign currency effect | ||||||||
| Income tax benefit | $ | $ | ||||||
Research and development credit
receivables of $
The following is a reconciliation of financial statement income (loss) to tax basis income (loss) (in thousands):
| Schedule of reconciliation of financial statement income (loss) | ||||||||||||||||||||||||||||||||
| Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||
| United
States | BVI | United
Kingdom | Total | United
States | BVI | United
Kingdom | Total | |||||||||||||||||||||||||
| Pre-tax loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Share-based compensation expense for financial statement purposes for which no benefit was taken | ||||||||||||||||||||||||||||||||
| Loss for which no benefit was taken | ||||||||||||||||||||||||||||||||
| Losses not subject to tax | ||||||||||||||||||||||||||||||||
| Utilization of losses not previously benefitted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Taxable income (loss) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| F-22 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 12. INCOME TAXES (Cont’d)
As of December 31, 2023 and March 31, 2023, the Company’s deferred tax assets and liabilities in the U.K. consisted of the effects of temporary differences attributable to the following (U.S. Dollars in thousands):
| Schedule of deferred tax assets and liabilities | ||||||||
| As of December 31, | As of March 31, | |||||||
| 2023 | 2023 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss | $ | ( | ) | $ | ( | ) | ||
| Deferred tax asset (unrecognized) | ||||||||
| Deferred tax asset | ( | ) | ( | ) | ||||
| Deferred tax liabilities: | ||||||||
| In-process research and development | ||||||||
| Deferred tax liability | ||||||||
| Net deferred tax liability | $ | $ | ||||||
iOx generated no research and development cash credits recorded for the nine months ended December 31, 2023 and 2022.
As of December 31, 2023 and March 31, 2023, iOx had a net deferred tax
liability of nil
There is no expiration date for accumulated tax losses in the U.K. entities.
| F-23 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 13. CAPITAL STOCK
| (a) | Authorized ordinary shares: Unlimited number of Portage ordinary shares without par value. |
| (b) | The following is a roll-forward of Portage’s ordinary shares for the nine months ended December 31, 2023 and 2022: |
| Schedule of unlimited number of common shares without par value | ||||||||||||||||
| Nine Months Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Ordinary Shares | Amount | Ordinary Shares | Amount | |||||||||||||
| In 000’ | In 000’$ | In 000’ | In 000’$ | |||||||||||||
| Balance, beginning of period | $ | $ | ||||||||||||||
| Shares issued under Registered Direct Offering, net of issue costs | ||||||||||||||||
| Shares issued under ATM, net of issue costs | ||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||
| Shares issued in Tarus acquisition | ||||||||||||||||
| Shares issued in iOx exchange | ||||||||||||||||
| Excess of non-controlling interest acquired over consideration – iOx | ||||||||||||||||
| Shares issued to Lincoln for commitment fee under Committed Purchase Agreement | ||||||||||||||||
| Purchase of shares issued under Committed Purchase Agreement, net of issue costs | ||||||||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
Portage filed a shelf registration statement with the SEC under which it may sell ordinary shares, debt securities, warrants and units in one or more offerings from time to time, which became effective on March 8, 2021 (“Registration Statement”). In connection with the Registration Statement, Portage has filed with the SEC:
| · | a base prospectus, which covers the offering, issuance and sale by Portage of up to $200 million in the aggregate of the securities identified above from time to time in one or more offerings; |
| · | a prospectus supplement, which covers the offer, issuance and sale by Portage in its ATM offering of up to a maximum aggregate offering
price of $ |
| · | a prospectus supplement dated June 24, 2021, for the offer, issuance and sale by Portage of ordinary shares for gross proceeds
of approximately $ |
| · | a prospectus supplement dated August 19, 2022, for the resale of up to $ million in ordinary shares that Portage may sell from time to time to Lincoln and an additional shares that were issued to Lincoln; and |
| · | a prospectus supplement dated September 29, 2023 for the offer, issuance and sale by Portage in a registered direct public offering
through H.C. Wainwright & Co., the placement agent, of (i) ordinary shares at a purchase price of $ |
| F-24 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 13. CAPITAL STOCK (Cont’d)
During Fiscal 2022, the Company sold
The Company has issued ordinary shares in connection with the acquisition of Tarus Therapeutics, Inc. and in connection with the Tarus Therapeutics, Inc.’s acquisition it may issue additional ordinary shares. See Note 9, “Acquisition of Tarus,” for a further discussion.
On July 18, 2022, the Company entered into the iOx Share Exchange Agreement
under which it exchanged ordinary shares of the Company for the remaining minority interest of
On July 6, 2022, the Company entered into a Purchase Agreement (the “Committed Purchase Agreement”) with Lincoln, under which it may require Lincoln to purchase ordinary shares of the Company having an aggregate value of up to $30 million (the “Purchase Shares”) over a period of 36 months. Upon execution of the Committed Purchase Agreement, the Company issued to Lincoln ordinary shares, representing a 3% commitment fee. Pursuant to the Committed Purchase Agreement, Lincoln will be obligated to purchase the Purchase Shares in three different scenarios that are based on various market criteria and share amounts. The Company has the right to terminate the Committed Purchase Agreement for any reason, effective upon one business day prior written notice to Lincoln. Lincoln has no right to terminate the Committed Purchase Agreement. The requirement that Lincoln must make a purchase will be suspended based on various criteria such as there not being an effective registration statement for Lincoln to be able to resell the ordinary shares it is committed to purchase and market criteria such as the Company continuing to be Depository Trust Company eligible, among other things. The Committed Purchase Agreement does not impose any financial or business covenants on the Company, and there are no limitations on the use of proceeds. The Company may raise capital from other sources in its sole discretion; provided, however, that the Company shall not enter into any similar agreement for the issuance of variable priced equity-like securities until the three-year anniversary of the date of the Committed Purchase Agreement, excluding, however, an ATM transaction with a registered broker-dealer, which includes any sales under the Sales Agreement with Cantor Fitzgerald.
As discussed in Note 2, “Going Concern,” the Company’s access to the ATM program and the Committed Purchase Agreement is generally limited based on the Company’s trading volume on Nasdaq. See Note 16, “Commitments and Contingent Liabilities – Committed Purchase Agreement,” for a further discussion.
| F-25 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 13. CAPITAL STOCK (Cont’d)
From April 1, 2023 through December 31, 2023, the Company sold
ordinary shares under the ATM program, generating net proceeds of approximately $
In Fiscal 2023, the Company sold ordinary shares under the ATM
program, generating net proceeds of approximately $
On September 29, 2023, the Company entered into the Purchase Agreement with an institutional and accredited investor in connection with the Registered Direct Offering and the Private Placement. The Offerings closed on October 3, 2023.
Pursuant to the Purchase Agreement, in the Registered Direct Offering,
the Company sold
In the Private Placement, the Company issued to such institutional and
accredited investor Series A Warrants to purchase up to ordinary shares, Series B Warrants to purchase up to ordinary
shares, and Series C Warrants to purchase up to ordinary shares, together exercisable for an aggregate of up to ordinary
shares. Pursuant to the terms of the Purchase Agreement, for each ordinary share and Pre-Funded Warrant issued in the Registered Direct
Offering, an accompanying Series A Warrant, Series B Warrant and Series C Warrant were issued to such institutional and accredited investor.
Each Series A Warrant is exercisable for one Private Warrant Share at an exercise price of $
Pursuant to an engagement letter, dated as of August 26, 2023, between
the Company and the “Placement Agent, the Company paid the Placement Agent a total cash fee equal to
| F-26 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 13. CAPITAL STOCK (Cont’d)
The Company filed the Resale Registration Statement to register for resale the Private Warrant Shares and the ordinary shares issuable upon the exercise of Placement Agent Warrants, which was declared effective by the SEC on November 7, 2023. Pursuant to the terms of the Purchase Agreement, the Company is obligated to use its commercially reasonable efforts to keep the Resale Registration Statement effective at all times until such institutional and accredited investor (and its successors and assigns) no longer owns any Private Warrants or ordinary shares issuable upon exercise thereof.
Pursuant to the terms of the Purchase Agreement, the Company is prohibited from issuing or entering into any agreement to issue ordinary shares or Ordinary Share Equivalents (as defined in the Purchase Agreement) involving a Variable Rate Transaction (as defined in the Purchase Agreement), which includes an equity line of credit or an at-the-market facility, for a period commencing on September 29, 2023 and expiring six months from the closing date of the Offerings.
If a Fundamental Transaction (as defined in the Warrants) occurs, then the successor entity will succeed to, and be substituted for the Company, and may exercise every right and power that the Company may exercise and will assume all of the Company’s obligations under the Warrants with the same effect as if such successor entity had been named in the Warrants themselves. If holders of ordinary shares are given a choice as to the securities, cash or property to be received in such a Fundamental Transaction, then the holders of the Warrants shall be given the same choice as to the consideration they would receive upon any exercise of the Warrants following such a Fundamental Transaction. Additionally, as more fully described in the Series B Warrants, Series C Warrants and Placement Agent Warrants, in the event of certain Fundamental Transactions, the holders of the Series B Warrants, Series C Warrants and Placement Agent Warrants will be entitled to receive cash consideration in an amount equal to the Black-Scholes value of the Series B Warrants, Series C Warrants and Placement Agent Warrants, as the case may be, upon the consummation of such Fundamental Transaction.
Series A Warrants and Pre-Funded Warrants
The Series A Warrants and the Pre-Funded Warrants are classified as a component of equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the ordinary shares with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of ordinary shares upon exercise. In addition, the Series A Warrants and the Pre-Funded Warrants do not provide any guarantee of value or return.
On the October 3, 2023 issue date, the calculated fair value of the Series
A Warrants and the Pre-Funded Warrants as of December 31, 2023 was $
Series A Warrants
The inputs associated with calculating the fair value are reflected below.
| Schedule of associated fair value | ||
| October 3, 2023 | ||
| Exercise price | $ | |
| Share price | $ | |
| Expected life | years | |
| Expected volatility | % | |
| Risk-free interest rate | % | |
| Dividend yield |
| F-27 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
| (a) | The following table provides the activity for the Company’s stock option reserve for the nine months ended December 31, 2023 and 2022: |
| Schedule of stock option reserve | ||||||||||||||||
| Nine Months Ended December 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| (In thousands) | Non-Controlling Interest | Stock Option Reserve | Non-Controlling Interest | Stock Option Reserve | ||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Share-based compensation expense | ||||||||||||||||
| Settled in iOx exchange | ( | ) | ||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
Stock Options and Restricted Stock Units
On June 25, 2020, at the annual meeting of shareholders, the Company’s incentive stock option plan (the “2020 Stock Option Plan”) was approved, which authorized the Company’s directors to fix the option exercise price and to issue stock options under the plan as appropriate. The Company’s 2020 Stock Option Plan was a 10% rolling stock option plan under which the Company’s directors were authorized to grant up to a maximum of 10% of the issued and outstanding ordinary shares on the date of grant.
Effective January 13, 2021, the Company amended and restated its 2020 Stock Option Plan to permit the grant of additional types of equity compensation securities, including restricted stock units (“RSUs”) and dividend equivalent rights (the “2021 Equity Incentive Plan”).
| F-28 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 14. STOCK OPTION RESERVE (Cont’d)
Amended and Restated 2021 Equity Incentive Plan and Grants of Stock Options and Restricted Stock Units
On January 19, 2022, the Board unanimously approved the Amended and Restated 2021 Equity Incentive Plan (the “Amended and Restated 2021 Equity Incentive Plan”). The Amended and Restated 2021 Equity Incentive Plan provides for:
| (1) | An increase of aggregate number of ordinary shares available for awards to 2,001,812, which is equal to 15% of the issued and outstanding ordinary shares of the Company as of January 19, 2022 subject to discretionary annual increases (on a cumulative basis) as may be approved by the Board in future years by a number of ordinary shares not to exceed an additional 5% of the aggregate number of shares then outstanding; |
| (2) | The authorization of incentive stock options under the Amended and Restated 2021 Equity Incentive Plan; and |
| (3) | The provision of dividend equivalent rights to be issued when authorized. |
On June 8, 2022, the Company granted
On July 27, 2022, the Company granted
On March 30, 2023, the Board unanimously approved to increase the maximum number of ordinary shares reserved for issuance under the Amended and Restated 2021 Equity Incentive Plan. The aggregate number of shares reserved for awards under the Amended and Restated 2021 Equity Incentive Plan was increased by shares, which represented % of ordinary shares outstanding on March 29, 2023, to . As of December 31, 2023, of the reserved shares under the Amended and Restated 2021 Equity Incentive Plan, shares were reserved for awards previously granted and shares remained available for future awards under such plan.
| F-29 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 14. STOCK OPTION RESERVE (Cont’d)
On March 30, 2023, the Company granted an aggregate of stock options exercisable at a price of $ per share, representing the average price of the shares on the grant date, which expire on March 30, 2033, to various directors, officers and a consultant of the Company. options to purchase ordinary shares, totaling , were granted to each non-executive member of the Board and vest on the first anniversary of the grant date. A total of stock options were granted to employees (including Mr. Walters, who is Chairman of the Board of Directors), and a consultant, and such stock options vest ratably on each of the first four annual anniversaries of the grant date. The balance of stock options were also granted to a consultant, which was fully vested as of the grant date.
| (b) | The changes in the number of options issued for the nine months ended December 31, 2023 and 2022 were: |
| Schedule of changes in the number of options issued | ||||||||||||||||
| Nine Months Ended December 31, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| PBI Amended and Restated 2021 Equity Incentive Plan | iOx Option Plan (Subsidiary Plan) | |||||||||||||||
| Balance, beginning of period | ||||||||||||||||
| Granted | ||||||||||||||||
| Expired or forfeited | ( | ) | ||||||||||||||
| Balance, end of period | ||||||||||||||||
| Exercisable, end of period | ||||||||||||||||
| (c) | The following is the weighted average exercise price and the remaining contractual life for outstanding options by plan as of December 31, 2023 and 2022: |
| Schedule of weighted average exercise price | ||||||||||||||||
| As of December 31, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| PBI Amended and Restated 2021 Equity Incentive Plan | iOx Option Plan (Subsidiary Plan) | |||||||||||||||
| Weighted average exercise price | $ | $ | $ | |||||||||||||
| Weighted average remaining contractual life (in years) | – | – | ||||||||||||||
The vested options can be exercised at any time in accordance with the applicable option agreement. The exercise price was greater than the market price for all options outstanding as of December 31, 2023 and March 31, 2023, except for vested options and unvested options as of March 31, 2023.
The Company recorded approximately $ million and $ million of share-based compensation expense with respect to the Amended and Restated 2021 Equity Incentive Plan in the three months ended December 31, 2023 and 2022, respectively. The Company recorded approximately $ million and $million of share-based compensation expense with respect to the Amended and Restated 2021 Equity Incentive Plan in the nine months ended December 31, 2023 and 2022, respectively. The Company expects to record additional share-based compensation expense of approximately $ million through March 2027 with respect to the Amended and Restated 2021 Equity Incentive Plan.
As of September 30, 2022, the Company’s iOx stock option plan was fully vested. The iOx stock option plan expired on May 5, 2022 and all outstanding stock option awards issued under the iOx stock option plan expired.
| F-30 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
Basic earnings per share (“EPS”) is calculated by dividing the net income (loss) attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is calculated by dividing the net income (loss) attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
The calculation of Basic and Diluted EPS reflect the Pre Funded Warrants as outstanding shares.
The following table reflects the loss and share data used in the basic and diluted EPS calculations (U.S. Dollars in thousands, except per share amounts):
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Numerator (in 000’$) | ||||||||||||||||
| Net loss attributable to owners of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator (in 000’) | ||||||||||||||||
| Weighted average number of shares – Basic and Diluted | ||||||||||||||||
| Basic and diluted (loss) per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
The inclusion of the Company’s share purchase warrants, stock options and RSUs in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and are therefore excluded from the computation. Consequently, there is no difference between basic loss per share and diluted loss per share for the three and nine months ended December 31, 2023 and 2022. The following table reflects the Company’s outstanding securities by year that would have an anti-dilutive effect on loss per share and, accordingly, were excluded from the calculation.
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Warrants | ||||||||
| Stock options | ||||||||
| Restricted stock units | ||||||||
| F-31 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 16. COMMITMENTS AND CONTINGENT LIABILITIES
Effective March 15, 2022, iOx entered into a Master Services Agreement (the “MSA”) with Parexel International (IRE) Limited (“Parexel”) under which Parexel agreed to act as clinical service provider (CRO) pursuant to a work order (“Work Order”) effective June 1, 2022. Pursuant to such Work Order, Parexel will operate a Phase 2 trial of IMM60 and pembrolizumab in advanced melanoma and non-small lung cancer. The MSA provides for a five-year term, and the Work Order provides for a term to be ended upon the completion of the services required. The budget provides for service fees and pass-through expenses and clinical sites totaling $11.5 million. During Fiscal 2023, the Company executed two change orders resulting in a $0.6 million increase in the overall estimated budgeted costs. As a result of the Company’s decision to pause the development with respect to this program, the Company provided a notice of termination under the MSA. The Company is in negotiations to settle any obligations with respect to the MSA.
On March 1, 2023, Tarus entered into a clinical service agreement with
Fortrea Inc. (formerly Labcorp Drug Development Inc.), a third-party CRO. The term of the agreement is through the earlier of August 14,
2025 or the completion of provision of services and the payment of contractual obligations. The budgeted costs for the services to be
provided is approximately $
Stimunity Convertible Note
On September 12, 2022, the Company funded €
| F-32 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 16. COMMITMENTS AND CONTINGENT LIABILITIES (Cont’d)
Committed Purchase Agreement
On July 6, 2022 (the “Signing Date”), the Company entered
into the Committed Purchase Agreement with Lincoln, pursuant to which the Company may require Lincoln to purchase ordinary shares having
an aggregate value of up to $
Upon execution of the Committed Purchase Agreement, the Company issued
to Lincoln 94,508 ordinary shares, representing a 3% commitment fee valued at $
The Committed Purchase Agreement does not impose any financial or business covenants on the Company and there are no limitations on the use of proceeds received by the Company from Lincoln. The Company may raise capital from other sources in its sole discretion; provided, however, that the Company shall not enter into any similar agreement for the issuance of variable priced equity-like securities until the three-year anniversary of the Signing Date, excluding, however, an at-the-market transaction with a registered broker-dealer.
In connection with the Committed Purchase Agreement, the Company and Lincoln entered into a Registration Rights Agreement, dated July 6, 2022 (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to file with the SEC the prospectus supplement to the Company’s shelf registration statement pursuant to Rule 424(b) for the purpose of registering for resale the ordinary shares to be issued to Lincoln under the Committed Purchase Agreement. The prospectus supplement was filed on August 19, 2022.
Access to the Committed Purchase Agreement with Lincoln is generally limited based on, among other things, the Company’s Nasdaq trading volume. Furthermore, under the Baby Shelf Rule, the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form F-3 is limited to one-third of the aggregate market value of the ordinary shares held by the Company’s non-affiliates, which limitation may change over time based on the Company’s stock price, number of ordinary shares outstanding and the percentage of ordinary shares held by non-affiliates. The Company is therefore limited by the Baby Shelf Rule as of the filing of this Form 6-K, until such time as its non-affiliate public float exceeds $75 million.
The Company is obligated under the Merger Agreement and the iOx Share Exchange Agreement to pay certain third-party earnouts based on the achievement of certain milestones. See Note 9, “Acquisition of Tarus,” and Note 17, “Related Party Transactions – Share Exchange Agreement – iOx,” respectively, for further discussions.
| F-33 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 17. RELATED PARTY TRANSACTIONS
SalvaRx Acquisition
Two of the Company’s directors are also directors of SalvaRx Group plc, a company which owns approximately 4.1% of the Company’s issued and outstanding ordinary shares as of December 31, 2023.
Investments
The Company has entered into related party transactions and certain services agreements with its investees. Key management personnel of the Company have also entered into related party transactions with investees. Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the Company, including directors and senior management of the Company.
The following subsidiaries and associates are considered related parties:
| (a) | Stimunity. The Chief Executive Officer (“CEO”) of Portage is one of three members of the board of directors of Stimunity (see Note 6, “Investment in Associate and Convertible Note Receivable,” and Note 16, “Commitments and Contingent Liabilities – Stimunity Convertible Note”). |
| (b) | iOx. Upon execution of the iOx Share Exchange on July 18, 2022, the non-Portage director resigned from the iOx board leaving two Portage insiders as directors. The CEO of Portage is also the CEO of iOx, and the management team of Portage comprises the management team of iOx. See below for a discussion of the Company’s purchase of the non-controlling interest in iOx through its wholly-owned subsidiary SalvaRx. |
| (c) | Saugatuck. One of the three directorships on the board of directors of Saugatuck is controlled by Portage. Additionally, the CEO of Portage is also the CEO of Saugatuck, and the management team of Portage comprises the management team of Saugatuck. |
| (d) | Intensity. The CEO of Portage previously served as a part-time officer of Intensity until becoming a consultant in 2023. Additionally, Intensity provided services (primarily rent) to Portage through April 2023. |
| (e) | Portage Development Services Inc. PDS provides human resources and other services to each operating subsidiary of Portage through shared services agreements. |
The following are related party balances and transactions other than those disclosed elsewhere in the condensed consolidated interim financial statements:
Transactions between the parent company and its subsidiaries, which are related parties, have been eliminated in consolidation and are not disclosed in this note.
On September 8, 2021,
| F-34 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 17. RELATED PARTY TRANSACTIONS (Cont’d)
Share Exchange Agreement – iOx
On July 18, 2022, the Company and SalvaRx entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with each of the minority shareholders of iOx (the “Sellers”) resulting in the acquisition of the outstanding non-controlling ownership interest (approximately 22%) of iOx, which is developing the iNKT engager platform. The Company followed IFRS 3, “Business Combinations,” and IAS 27, “Separate Financial Statements,” (which substantially replaced IAS 3) to account for this transaction. The Company achieved control of iOx, as defined, on January 8, 2019 upon the completion of the SalvaRx Acquisition. Further transactions whereby the parent entity acquires further equity interests from non-controlling interests, or disposes of equity interests but without losing control, are accounted for as equity transactions (i.e., transactions with owners in their capacity as owners). As such:
| · | the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary; |
| · | any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the parent; and |
| · | there is no consequential adjustment to the carrying amount of goodwill, and no gain or loss is recognized in profit or loss. |
The Company now owns the worldwide rights to its small molecule iNKT engagers, including lead programs PORT-2 and PORT-3. Under the terms of the Share Exchange Agreement, each Seller sold to the Company, and the Company acquired from each Seller, legal and beneficial ownership of the number of iOx shares held by each Seller, free and clear of any share encumbrances, in exchange for the issuance in an aggregate of Portage ordinary shares to be allocated among the Sellers based upon their relative ownership. As a result of the Share Exchange Agreement, the Company owns 100% of the issued and outstanding shares of iOx through its wholly-owned subsidiary, SalvaRx.
As additional consideration for the sale of the iOx shares to the Company under the Share Exchange Agreement, the Sellers shall have the contingent right to receive additional shares (“Earnout Shares”) from the Company having an aggregate value equal to $25 million calculated at the Per Share Earnout Price (as defined in the Share Exchange Agreement) upon the achievement of certain milestones defined as the dosing of the first patient in a Phase 3 clinical trial for either PORT-2 (IMM60 iNKT cell activator/engager) or PORT-3 (PLGA-nanoparticle formulation of IMM60 combined with a NY-ESO-1 peptide vaccine). The Company shall have the option, in its sole and absolute discretion, to settle the Earnout Shares in cash. The Company followed IFRS 3 and IAS 32, “Financial Instruments: Presentation,” to account for the fair value of the Earnout Shares. The principal assumptions for determining the fair value include the timing of development events, the probabilities of success and the discount rate used. The fundamental principle of IAS 32 is that a financial instrument should be classified as either a financial liability or an equity instrument according to the substance of the contract, not its legal form, and the definitions of financial liability and equity instrument. A financial instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met:
| (a) | the instrument includes no contractual obligation to deliver cash or another financial asset to another entity, and |
| (b) | if the instrument will or may be settled in the Company’s own equity instruments, it is either: |
| (i) | a non-derivative that includes no contractual obligation for the Company to deliver a variable number of its own equity instruments; or |
| (ii) | a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. |
| F-35 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 17. RELATED PARTY TRANSACTIONS (Cont’d)
When a derivative financial instrument gives one party a choice over how it is settled (for instance, the Company or the holder can choose settlement net in cash or by exchanging shares for cash), it is a financial asset or a financial liability unless all of the settlement alternatives would result in it being an equity instrument. The financial instrument includes the exclusive right of the Company to settle the obligation with cash or equity and, accordingly, accounted for the fair value of the Earnout Shares as a non-current liability.
The Company recorded $5.478 million as the fair value estimate of the
Earnout Shares, which is reflected as deferred obligation - iOx milestone on the condensed consolidated interim statements of financial
position included herein. The Company will determine the fair value of the Earnout Shares at each balance sheet date. Any change to the
fair value will be recorded in the Company’s statements of operations and other comprehensive income (loss). The Company recorded
a gain from the change (decrease) in the fair value of the liability of $
Employment Agreements
PDS entered into a Services Agreement with the Company’s CEO effective
December 15, 2021 (the “CEO Services Agreement”). The CEO Services Agreement originally provided for a base salary of $
The CEO Services Agreement with PDS may be terminated by the CEO at any time for Good Reason (as defined in the CEO Services Agreement). PDS may terminate the CEO’s employment immediately upon his death, upon a period of disability or without Just Cause (as defined in the CEO Services Agreement). In the event that the CEO’s employment is terminated due to his death or Disability (as defined in the CEO Services Agreement), for Good Reason or without Just Cause, he will be entitled to accrued obligations (accrued unpaid portion of base salary, accrued unused vacation time and any unpaid expenses). Additionally, he may be entitled to Severance Benefits (as defined in the CEO Services Agreement), which include his then current base salary and the average of his annual bonus for the prior two completed performance years, paid over 12 monthly installments. The CEO will be entitled to life insurance benefits and medical and dental benefits for a period of 12 months at the same rate the CEO and PDS shared such costs during his period of employment.
Finally, all stock options (and any other unvested equity incentive award) held by the CEO relating to shares of the Company will be deemed fully vested and exercisable on the Termination Date (as defined in the CEO Services Agreement), and the exercise period for such stock options will be increased by a period of two years from the Termination Date.
| F-36 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 17. RELATED PARTY TRANSACTIONS (Cont’d)
If the CEO’s employment by PDS is terminated by PDS or any successor entity without Just Cause (not including termination by virtue of the CEO’s death or Disability) or by the CEO for Good Reason within 12 months following the effective date of a Change in Control (as defined in the CEO Services Agreement), then, in addition to paying or providing the CEO with the Accrued Obligations (as defined in the CEO Services Agreement), the Company will provide the following Change in Control Severance Benefits (as defined in the CEO Services Agreement):
| (1) | PDS will pay the base salary continuation benefit for 18 months; |
| (2) | PDS will pay the life insurance benefit for 18 months; |
| (3) | PDS will pay an additional amount equivalent to the CEO’s target annual bonus calculated using the bonus percentage for the performance year in which the CEO’s termination occurs. This bonus will be paid in 12 equal installments commencing on the first payroll date that is more than 60 days following the date of termination of the CEO’s employment, with the remaining installments occurring on the first day of the month for the 11 months thereafter; |
| (4) | PDS will provide the CEO with continued medical and dental benefits, as described above, for 18 months; and |
| (5) | All stock options (and any other unvested equity incentive award) held by the CEO relating to shares of the Company will be deemed fully vested and exercisable on the Termination Date, as defined, and the exercise period for such stock options will be increased by a period of two years from the Termination Date. |
PDS entered into services agreements (individually, an “Executive
Service Agreement,” and collectively, the “Executive Service Agreements”) with each of the Company’s five other
members of senior management (individually, “Executive” and collectively, “Executives”), three of which are dated
as of December 1, 2021, one of which is dated December 15, 2021 and one of which is dated June 1, 2022. Each of the Executive Services
Agreements provides for an initial term of two years that is automatically renewed for one-year periods (except two of the Executive Services
Agreement, which provides for an initial term of one year and that is automatically renewed for one-year periods). The Executive Services
Agreements initially provided for annual base salaries ranging from $
On December 19, 2022, the Compensation Committee approved executive compensation
(other than for the CEO) for Fiscal Year 2024 for annual base salaries ranging from $
The Executive Services Agreements can be terminated by PDS without Just Cause, by death or Disability, or by the Executive (except one) for Good Reason (each as defined in the respective Executive Services Agreements). In such instances, the Executive Services Agreements provide for the payment of accrued obligations (accrued unpaid portion of base salary, accrued unused vacation time and any unpaid expenses). Additionally, the Executives (except two) are entitled to 50% of base salary plus 50% of average annual bonus earned over the prior two performance years, as well as prevailing life insurance benefits for a period of six months and medical and dental benefits for a period of six months at the prevailing rate PDS and the Executive were sharing such expenses.
Additionally, all stock options (and any other unvested equity incentive award) held by the Executives relating to shares of the Company will be deemed fully vested and exercisable on the Termination Date (as defined in the respective Executive Services Agreements), and the exercise period for such stock options will be increased by a period of two years from the Termination Date.
| F-37 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 17. RELATED PARTY TRANSACTIONS (Cont’d)
If an Executive’s employment by PDS is terminated by the Company or any successor entity without Just Cause (not including termination by virtue of the Executive’s death or Disability) or by the Executive (except one) for Good Reason within 12 months following the effective date of a Change in Control (as defined in the respective Executive Services Agreements), then, in addition to paying or providing the Executive with the Accrued Obligations (as defined in the respective Executive Services Agreements), the Company will provide the following Change in Control Severance Benefits (as defined in the respective Executive Services Agreements), except in two cases in which the Executive is entitled to Item (5) and 50% of Items (1) and (3) below:
| (1) | PDS will pay the base salary continuation benefit for 12 months; |
| (2) | PDS will pay the life insurance benefit for 12 months; |
| (3) | The Company will pay an additional amount equivalent to the Executive’s target annual bonus calculated using the bonus percentage for the performance year in which the Executive’s termination occurs. This bonus will be payable in 12 equal installments commencing on the first payroll date that is more than 60 days following the date of termination of the Executive’s employment, with the remaining installments occurring on the first day of the month for the 11 months thereafter; |
| (4) | PDS will provide the Executive with continued medical and dental benefits, as described above, for 12 months; and |
| (5) | All stock options (and any other unvested equity incentive award) held by the Executive relating to shares of PDS or the Company will be deemed fully vested and exercisable on the Termination Date and the exercise period for such stock options will be increased by a period of two years from the Termination Date. |
The Executive Services Agreements also include customary confidentiality, as well as provisions relating to assignment of inventions. The Executive Services Agreements also includes non-competition and non-solicitation of employees and customers provision that run during the Executive’s employment with PDS and for a period of one year after termination of employment.
Bonuses & Board Compensation Arrangements
In December 2022, the Board approved
executive performance bonuses, as recommended by the Compensation Committee, totaling $
Effective January 1, 2022, each non-employee Board member is entitled
to receive cash Board fees of $40,000 per annum, payable quarterly in arrears. Additionally, each non-employee Board member is entitled
to an annual grant of 6,900 options to purchase Portage ordinary shares, which would vest the first annual anniversary of the grant date.
The Company incurred Board fees totaling $
| F-38 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 17. RELATED PARTY TRANSACTIONS (Cont’d)
Non-employee Board chairpersons are entitled to an annual cash fee of
$30,000, payable quarterly in arrears. In lieu of a non-executive chairperson, the lead director is entitled to an annual cash fee of
$20,000 per annum paid quarterly in arrears.
NOTE 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company’s financial instruments recognized in the Company’s condensed consolidated interim statements of financial position consist of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment; and therefore, these estimates cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
The following table summarizes the Company’s financial instruments as of December 31, 2023 and March 31, 2023:
| Schedule of financial instrument | ||||||||||||||||||||||||
| As of December 31, 2023 | As of March 31, 2023 | |||||||||||||||||||||||
| Amortized Cost | FVTOCI | FVTPL | Amortized Cost | FVTOCI | FVTPL | |||||||||||||||||||
| Financial assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Prepaid expenses and other receivables | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Convertible note receivable, including accrued interest, net of impairment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Investment in associate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Investment in public company | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| As of December 31, 2023 | As of March 31, 2023 | |||||||||||||||
| Amortized Cost | FVTPL | Amortized Cost | FVTPL | |||||||||||||
| Financial liabilities | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | ||||||||||||
| Lease liability - current | $ | $ | $ | $ | ||||||||||||
| Lease liability - non-current | $ | $ | $ | $ | ||||||||||||
| Warrant liability | $ | $ | $ | $ | ||||||||||||
| Deferred purchase price payable - Tarus | $ | $ | $ | $ | ||||||||||||
| Deferred obligation - iOx milestone | $ | $ | $ | $ | ||||||||||||
A summary of the Company’s risk exposures as it relates to financial instruments are reflected below.
| F-39 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont’d)
Fair value of Financial Instruments
The Company’s financial assets and liabilities are comprised of cash and cash equivalents, receivables and investments in equities and public entities, accounts payable and accrued liabilities, lease liability, warrant liability, deferred purchase price payable and deferred obligation.
The Company classifies the fair value of these transactions according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:
| · | Level 1 – Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date. |
| · | Level 2 – Values are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or indirectly observable as of the reporting date. |
| · | Level 3 – Values are based on prices or valuation techniques that are not based on observable market data. Investments are classified as Level 3 financial instrument. |
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.
Management has assessed that the fair values of cash and cash equivalents, other receivables and accounts payable approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate their fair values:
Investment in Associate: The fair value of the Stimunity investment
was determined based on an IAS 36 fair value analysis evaluating the likelihood of various scenarios given the then-current market conditions,
the increasing cost of capital and development delays associated with Stimunity’s lack of liquidity (Level 3). The Company recorded
a provision of impairment of $
| F-40 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont’d)
Convertible Note Receivable: The fair value of the Stimunity Convertible
Note receivable denominated in euros at initial recognition is the transaction price for the instrument adjusted for the effect of the
currency translation rate on the reporting date (Level 3) (see Note 16, “Commitments and Contingent Liabilities – Stimunity
Convertible Note”). The Stimunity Convertible Note was initially recorded at $
The Stimunity Convertible Note matured on September 1, 2023 and was not settled. In December 2023, the Company completed a transfer of the investment in Stimunity and the Stimunity Convertible Note to iOx. Simultaneously, the Convertible Note was converted into Class A shares of Stimunity, which increased the Company’s interest in Stimunity to %.
Investment in Public Company: Upon Intensity’s IPO effective June 30, 2023, the fair value of the investment is determined by the quoted market price (Level 1).
Warrant Liability: The fair value is estimated using a Black-Scholes model and in certain cases, a Monte Carlo simulation (Level 3) (see Note 11, “Warrant Liability”).
Lease Liability - Current: The lease liability - current represents the present value of the lease payments due over the next twelve months discounted at the Company’s incremental borrowing rate (Level 2).
Lease Liability - Non-Current: The lease liability - non-current represents the present value of the lease payments due under the lease less the current portion of such payments discounted at the Company’s incremental borrowing rate (Level 2).
| F-41 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont’d)
Deferred Purchase Price Payable - Tarus: The fair value is the
estimated value of a future contingent obligation based upon a fair value analysis performed in accordance with IFRS 3 at acquisition
date, adjusted at each reporting date for any change in fair value (Level 3) (see Note 9, “Acquisition of Tarus”). The fair
value was determined using the Income Approach and was based upon the analysis on the Tarus clinical plan, the timing of development events
and the probabilities of success determined primarily based upon empirical third-party data and Company experience, as well as the relevant
cost of capital. The Company recorded a gain from the change (decrease) in the fair value of the liability of $
Deferred Obligation - iOx Milestone: The fair value is the estimated
value of a future contingent obligation based upon a fair value analysis performed in accordance with IFRS 3 as of July 18, 2022, the
date of the Share Exchange Agreement, adjusted at each reporting date for any change in fair value (Level 3) (see Note 17, “Related
Party Transactions – Share Exchange Agreement – iOx”). The fair value was determined using the Income Approach and based
on factors including the clinical plan, the timing of development events and the probabilities of success determined primarily based upon
empirical third-party data and Company experience, as well as the relevant cost of capital. In connection with the decision by the Company
to pause its PORT-2 and PORT-3 platforms, the Company performed an impairment analysis which resulted in an impairment loss of $
Fair Value Hierarchy
The investment in public company (Intensity) was transferred from Level 3 to Level 1 of the fair value hierarchy for the nine months ended December 31, 2023 as the result of Intensity’s IPO. For Fiscal 2023, the fair value of the investment was determined based on an IAS 36 impairment analysis after determining there were external indications of impairment (Level 3). See Note 7, “Investment in Public Company,” for a further discussion.
The Company’s financial instruments are exposed to certain financial risks: Credit Risk, Liquidity Risk and Foreign Currency Risk.
| F-42 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont’d)
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The credit risk is attributable to various financial instruments, as noted below. The credit risk is limited to the carrying value as reflected in the Company’s condensed consolidated interim statements of financial position.
Cash and cash equivalents: Cash and cash equivalents comprise cash on hand and amounts invested in underlying treasury and money market funds that are readily convertible to a known amount of cash with three months or less from date of acquisition and are subject to an insignificant risk of change in value. As of December 31, 2023 and March 31, 2023, cash equivalents was comprised of a money market account with maturities less than 90 days from the date of purchase. Cash and cash equivalents are held with major international financial institutions and therefore the risk of loss is minimal.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due.
The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company’s reputation. The Company holds sufficient cash and cash equivalents to satisfy current obligations under accounts payable and accruals.
The Company monitors its liquidity position regularly to assess whether it has the funds necessary to meet its operating needs and needs for investing in new projects.
As a biotech company at an early stage of development and without significant internally generated cash flows, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company, or that actual drug development expenditures may exceed those planned. The current uncertainty in global markets could have an impact on the Company’s future ability to access capital on terms that are acceptable to the Company. There can be no assurance that required financing will be available to the Company. See Note 2, “Going Concern,” and Note 13, “Capital Stock,” for a discussion of the Company’s share offering and Note 16, “Commitments and Contingent Liabilities – Committed Purchase Agreement,” for a further discussion.
Foreign Currency Risk
While the Company operates in various jurisdictions, substantially all of the Company’s transactions are denominated in the U.S. Dollar, except the deferred tax liability in the U.K. settleable in British pound sterling and the Stimunity Convertible Note receivable settleable in euros.
| F-43 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 19. CAPITAL DISCLOSURES
The Company considers the items included in shareholders’ equity
as capital. The Company had accounts payable and accrued liabilities of approximately $
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.
As of December 31, 2023, shareholders’ equity attributable to the owners of the company was approximately $.0 million (approximately $.0 million as of March 31, 2023).
The Company is not subject to any externally imposed capital requirements and does not presently utilize any quantitative measures to monitor its capital. There have been no changes to the Company’s approach to capital management during the nine months ended December 31, 2023 and 2022.
NOTE 20. NON-CONTROLLING INTEREST
| Schedule of non controlling interest | ||||||||||||
| (In thousands) | iOx | Saugatuck and subsidiary | Total | |||||||||
| Non-controlling interest as of April 1, 2023 | $ | $ | ( | ) | $ | ( | ) | |||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||
| Non-controlling interest as of December 31, 2023 | $ | $ | ( | ) | $ | ( | ) | |||||
| (In thousands) | iOx | Saugatuck and subsidiary | Total | |||||||||
| Non-controlling interest as of April 1, 2022 | $ | $ | ( | ) | $ | |||||||
| Net income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||
| Purchase of non-controlling interest pursuant to Share Exchange Agreement | ( | ) | ( | ) | ||||||||
| Non-controlling interest as of December 31, 2022 | $ | $ | ( | ) | $ | ( | ) | |||||
On September 8, 2021, the Company, through SalvaRx, completed a settlement of loans (including interest) to and receivables from iOx for services rendered in exchange for 23,772 ordinary shares of iOx at a price of £162. On July 18, 2022, the Company completed the acquisition of the remaining non-controlling interest in iOx, by issuing 1,070,000 shares of its ordinary shares and assuming certain milestone obligations. See Note 17, “Related Party Transactions – Share Exchange Agreement – iOx,” for a discussion of the Company’s purchase of the balance of the non-controlling interest in iOx.
Saugatuck and subsidiary includes Saugatuck and its wholly-owned subsidiary, Saugatuck Rx LLC.
| F-44 |
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated February 28, 2024)
NOTE 21. EVENTS AFTER THE BALANCE SHEET DATE
In January 2024, the Company commenced selling its shares in Intensity on Nasdaq. Through February 26, 2024, the Company had sold an aggregate shares for proceeds, net of related expenses, of $ million.
F-45
Exhibit 99.2
PORTAGE BIOTECH INC.
THREE AND NINE MONTHS ENDED DECEMBER 31, 2023
MANAGEMENT’S DISCUSSION AND ANALYSIS
Prepared as of February 28, 2024
TABLE OF CONTENTS
| 2 |
Management Discussion and Analysis
The following discussion and analysis by management of the financial condition and financial results for Portage Biotech Inc. for the three and nine months ended December 31, 2023, should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three and nine months ended December 31, 2023, together with the related Management’s Discussion and Analysis and audited consolidated financial statements for the year ended March 31, 2023, and the annual report on Form 20-F (our “Annual Report”) for the year ended March 31, 2023.
This document includes “forward-looking statements.” All statements, other than statements of historical facts, included herein or incorporated by reference herein, including without limitation, statements regarding our business strategy, plans and objectives of management for future operations and those statements preceded by, followed by or that otherwise include the words “believe,” “expects,” “anticipates,” “intends,” “estimates,” “will,” “may,” “should,” “could,” “targets,” “projects,” “predicts,” “plans,” “potential,” or “continue,” or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that such forward-looking statements will prove to be correct.
Each forward-looking statement reflects our current view of future events and is subject to risks, uncertainties and other factors that could cause actual results to differ materially from any results expressed or implied by our forward-looking statements.
Risks and uncertainties include, but are not limited to:
| · | our need for financing and our estimates regarding our capital requirements and future revenues and profitability; |
| · | our plans and ability to develop and commercialize product candidates and the timing of these development programs; |
| · | clinical development of our product candidates, including the timing for availability and release of results of current and future clinical trials; |
| · | our expectations regarding regulatory communications, submissions or approvals; |
| · | the potential functionality, capabilities, benefits and risks of our product candidates as compared to others; |
| · | our maintenance and establishment of intellectual property rights in our product candidates; |
| · | our estimates of the size of the potential markets for our product candidates; and |
| · | our selection and licensing of product candidates. |
Our business focus is that of being primarily a pharmaceutical development business subject to all of the risks of a pharmaceutical development business. We do not anticipate directly engaging in the commercialization of the product candidates we develop.
These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments based on the focus of our business activities on biotechnology, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties, which could cause actual results to differ materially from our expectations, including the risks set forth in “Item 3 - Key Information - Risk Factors” in our Annual Report.
| 3 |
Consequently, all of the forward-looking statements made in this Management’s Discussion and Analysis are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.
Unless the context indicates otherwise the terms “Portage Biotech Inc.,” “the Company,” “our Company,” “Portage,” “we,” “us” or “our” are used interchangeably in this Management’s Discussion and Analysis and mean Portage Biotech Inc. and its subsidiaries. Capitalized terms used but not defined herein have the meaning ascribed to such terms in our unaudited condensed consolidated interim financial statements for the three and nine months ended December 31, 2023.
Nature of Operations and Overview
We are a clinical stage immune-oncology company advancing treatments we believe will be first-in-class therapies that target known checkpoint resistance pathways to improve long-term treatment response and quality of life in patients with invasive cancers.
Our access to next-generation technologies coupled with a deep understanding of biological mechanisms enables the identification of clinical therapies and product development strategies that accelerate these medicines through the translational pipeline. After a review of our funding requirements and related program prioritization, we have shifted our focus to advancing our adenosine platform in the ADPORT-601 trial and our Board of Directors (our “Board”) has made the decision to pause further drug development in the PORT-2 invariant natural killer T-cell (“iNKT”) program. As a result, we will evaluate a range of potential strategic options, which may include among other things, finding a partner for our iNKT program or other corporate transactions.
We source, nurture and develop the creation of early- to mid-stage treatments that we believe will be first-in-class therapies for a variety of cancers, by funding, implementing viable, cost-effective product development strategies, clinical counsel/trial design, shared services, financial and project management to enable efficient, turnkey execution of commercially informed development plans. Our drug development pipeline portfolio encompasses product candidates or technologies based on biology addressing known resistance pathways/mechanisms of current checkpoint inhibitors with established scientific rationales.
The Portage Approach
Our mission is to advance and grow a portfolio of innovative, early-stage oncology assets based on the latest scientific breakthroughs focused on overcoming immune resistance and expanding the addressable patient population. Given these foundations, we manage capital allocation and risk as much as we oversee drug development. By focusing our efforts on translational medicine and pipeline diversification, we seek to mitigate overall exposure to many of the inherent risks of drug development.
Our approach is guided by the following core elements:
| · | Portfolio diversification to mitigate risk and maximize optionality; |
| · | Capital allocation based on risk-adjusted potential, including staged funding to pre-specified scientific and clinical results; |
| · | Virtual infrastructure and key external relationships to maintain a lean operating base; |
| · | Internal development capabilities complemented by external business development; |
| · | Rigorous asset selection for broad targets with disciplined ongoing evaluation; |
| 4 |
| · | Focus on translational medicine and therapeutic candidates with single agent activity; |
| · | Conduct randomized trials early and test non-overlapping mechanisms of action; and |
| · | Improve potential outcomes for patients with invasive cancers. |
Our execution is achieved, in part, through our internal core team and our large network of experts, contract labs and academic partners.
Our Science Strategy
Our goal is to develop immuno-oncology therapeutics that will dramatically improve the standard-of-care for patients with cancer. The key elements of our scientific strategy are to:
| · | Build a pipeline of differentiated oncology therapeutic candidates that are diversified by mechanism, broad targets, therapeutic approach, modality, stage of development, leading to a variety of deal types that can be executed with partners; |
| · | Expand our pipeline through research collaborations, business development and internally designed programs; |
| · | Continue to advance and evolve our pipeline; and |
| · | Evaluate strategic opportunities to accelerate development timelines and maximize the value of our portfolio. |
Our Pipeline
We have built a pipeline of immuno-oncology therapeutic candidates and programs that are diversified by mechanism, therapeutic approach, modality and stage of development. On an ongoing basis, we rigorously assess each of our programs using internally defined success criteria to justify continued investment and determine proper capital allocation. When certain programs do not meet our de-risking criteria for advancement, we look to monetize or terminate those programs and preserve our capital and resources to invest in programs with greater potential. As a result, our pipeline will continue to be dynamic.
The charts below set forth, as of February 28, 2024, the current state of our immuno-oncology therapeutic product candidates and programs. The chart contains forward-looking information and projections based on management’s current estimates. The chart information is based on and subject to many assumptions, as determined by management and not verified by any independent third party, which may change or may not occur as modeled. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Before you make an investment decision regarding us, you should make your own analysis of forward-looking statements and our projections about candidate and program development and results. PORT-3 is being evaluated as part of an investigator sponsored study without funding from us. Additionally, PORT-7 is in Phase 1a from an IND perspective, though we have not commenced dosing patients, which we expect to commence in the first half of calendar year 2024, based upon available liquidity.
| 5 |
Our PORT-2 program has been paused.
| 6 |
Our Business Model
We are a development organization that is structured to facilitate flexibility in financing and ease of partnering, licensing, and merger/acquisition of individual assets and or technology platforms. The intellectual property (“IP”) for each platform is held in separate private entities. Our employees and consultants work across the pipeline of assets and we believe that this can (i) enhance operational efficiency, (ii) maintain an optimal cost structure, (iii) attract leading collaborators, and (iv) promote asset flexibility, as further described below.
| · | Enhance operational efficiency: We allocate resources while empowering managers to make program-level decisions in order to increase productivity and speed. We believe this model enables a flexible organizational structure that can achieve scale through the addition of programs without increasing burdensome bureaucracy or redundant infrastructure. |
| · | Maintain an optimal cost structure: We have a relatively small number of employees and have partnered with a number of service providers to leverage their infrastructure and expertise as needed instead of embarking on capital-intensive lab, manufacturing, and equipment expenditures. By reducing overhead costs, we believe we can increase the likelihood that we can generate a return on invested capital. |
| · | Attract leading collaborators and licensors: Our pipeline is comprised of therapies we believe will be first-in-class therapies for a variety of cancers sourced via our extensive industry contacts and relationships (including academia and pharmaceutical industry executives). On preclinical programs/technology, we initially established development structures enabling us to keep licensors economically incentivized at the program level. We believe that our experienced drug development leadership team and approach to resource allocation differentiate us from other potential licensees. |
| · | Leverage the commoditized checkpoint marketplace and explore the potential to further enhance long-term clinical benefits for patients with cancer and also expand the eligible population to include those who do not currently receive anti-PD-1 therapy: Presently there are multiple approved checkpoint therapeutics that lack differentiation, resulting in a competitive market dynamic, which will favor combination therapy. There is substantial opportunity for potential expansion in the PD-1 market with our adenosine antagonists. Studies show that 70-80% of patients do not respond or have a limited response to existing monotherapies, such as PD-1 checkpoint inhibitors. We see potential for our unique approach of using adenosine antagonists to initiate an immune response in tumors that have become refractory to checkpoint therapy or to increase the number of front-line patients achieving more durable responses. Combinations can improve this but often come at the cost of significant additional toxicity. The market is saturated with at least 14 approved PD-1 antibodies, and every major pharmaceutical company competes in this space. Extending the use of PD-1 antibodies represents a significant potential upside for one of these companies competing for market share, should they choose to partner with Portage. |
| · | Promote asset flexibility: Our structure is designed to maximize flexibility and cost efficiency. This allows us to efficiently pursue various subsidiary-level transactions, such as stock or asset sales, licensing transactions, strategic partnerships and/or co-development arrangements. It also provides us with the flexibility to terminate programs with minimal costs if results do not meet our de-risking criteria for advancement. |
We are a BVI business company incorporated under the BVI Business Companies Act (Revised Edition 2020, as amended) with our registered office located at Clarence Thomas Building, P.O. Box 4649, Road Town, Tortola, British Virgin Islands, VG1110. Our U.S. agent, Portage Development Services Inc. (“PDS”), is located at 61 Wilton Road, Westport, CT 06880.
We currently are a foreign private issuer under the United States Securities and Exchange Commission (“SEC”) rules. We are also a reporting issuer under the securities legislation of the provinces of Ontario and British Columbia. Our ordinary shares were listed on the Canadian Securities Exchange (“CSE”) under the symbol “PBT.U”. On February 25, 2021, our ordinary shares began trading on the Nasdaq Capital Market under the symbol “PRTG”. As the principal market for our ordinary shares is Nasdaq, we voluntarily delisted from the CSE on April 23, 2021.
| 7 |
The following table summarizes financial information for the quarter ended December 31, 2023, and the preceding eight quarters (all amounts in 000’US$ except net loss per share, which are actual amounts).
| Dec. 31, | Sept. 30, | June 30, | Mar. 31, | Dec. 31, | Sept. 30 | June 30, | Mar. 31, | Dec. 31, | ||||||||||||||||||||||||||||
| Quarter ended | 2023 | 2023 | 2023 | 2023 | 2022 | 2022 | 2022 | 2022 | 2021 | |||||||||||||||||||||||||||
| Net loss attributable to owners of the Company | (39,373 | ) | (5,158 | ) | (5,919 | ) | (94,448 | ) | (7,485 | ) | (949 | ) | (1,729 | ) | (7,317 | ) | (3,512 | ) | ||||||||||||||||||
| Comprehensive loss attributable to the owners of the Company | (36,398 | ) | (6,458 | ) | (4,150 | ) | (95,714 | ) | (11,502 | ) | (949 | ) | (1,729 | ) | (7,317 | ) | (3,512 | ) | ||||||||||||||||||
| Working capital (1) to (4) | 4,808 | 3,131 | 8,254 | 11,811 | 13,110 | 15,737 | 21,138 | 24,049 | 25,639 | |||||||||||||||||||||||||||
| Equity attributable to owners of the Company | 31,999 | 67,661 | 73,307 | 76,045 | 168,945 | 178,434 | 120,682 | 121,205 | 125,789 | |||||||||||||||||||||||||||
| Net loss per share - Basic | (1.88 | ) | (0.29 | ) | (0.33 | ) | (5.45 | ) | (0.44 | ) | (0.06 | ) | (0.13 | ) | (0.55 | ) | (0.26 | ) | ||||||||||||||||||
| Net loss per share - Diluted | (1.88 | ) | (0.29 | ) | (0.33 | ) | (5.45 | ) | (0.44 | ) | (0.06 | ) | (0.13 | ) | (0.55 | ) | (0.26 | ) | ||||||||||||||||||
| (1) | September 30, 2022 working capital is net of warrant liability of $8 settleable on a non-cash basis. |
| (2) | June 30, 2022 working capital is net of warrant liability of $32 settleable on a non-cash basis. |
| (3) | March 31, 2022 working capital is net of warrant liability of $33 settleable on a non-cash basis. |
| (4) | December 31, 2021 working capital is net of warrant liability of $159 settleable on a non-cash basis. |
The following table summarizes the number of our ordinary shares issued and outstanding as of December 31, 2023 and February 28, 2024:
| As of, | December 31, 2023 | February 28, 2024 | ||||||
| Shares issued and outstanding (a) (b) | 19,778,225 | 19,784,390 | ||||||
| (a) | This amount excludes an aggregate of 243,000 restricted stock units granted to our executive chairman and an employee on January 13, 2021, which vested immediately on the date of grant and are subject to certain restrictions for the settlement and delivery of the ordinary shares underlying the restricted stock units and 135,740 restricted stock units granted to employees (one of whom is executive chairman) on January 19, 2022, which vested immediately on the date of grant and are subject to certain restrictions for the settlement and delivery of the ordinary shares underlying the restricted stock units, of which 126,340 were outstanding at February 28, 2024. 9,400 were exercised by an employee upon his resignation on a cashless basis, with 6,165 shares issued and 3,235 shares purchased into treasury to pay related payroll taxes. |
| (b) | The February 28, 2024 amount excludes 1,187,895 Pre-Funded Warrants (as defined below) to purchase up to 1,187,895 ordinary shares. |
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Business Environment – Risk Factors
Please refer to the Annual Report for the fiscal year ended March 31, 2023 (“Fiscal 2023”) for detailed information as the economic and industry factors that are substantially unchanged as of the date hereof.
Our Programs and Technology – Recent Developments
Our ADPORT-601 adaptive Phase 1a/1b trial continues to advance, reflecting progress in PORT-6 clinical enrollment, which has completed the first two dose escalation cohorts and, following the investigator’s recommendation, we have begun enrolling patients in the next dose cohort. Based upon a decision to conserve and manage our cash resources, both of our iNKT programs, PORT-2 (IMM60) and PORT-3 (IMM65), have been paused. Below is a discussion of the status of those programs.
Adenosine Receptor Antagonist Platform
A critical mechanism of cancer immune evasion is the generation of high levels of immunosuppressive adenosine within the tumor microenvironment (“TME”). Research suggests that the TME has significantly elevated concentrations of extracellular adenosine. Engagement with adenosine receptors type 2A (“A2A”) and type 2B (“A2B”) triggers a dampening effect on the immune response, suppressing effector cell function and stabilizing immunosuppressive regulatory cells. Over-expression of the A2A and A2B receptors leads to a poor prognosis in multiple cancers, including prostate cancer, colorectal cancer and lung adenocarcinoma, driven by a reduced ability to generate an immune response against the tumor.
These findings have made A2A and A2B high-priority targets for immunotherapeutic intervention. We are advancing four adenosine antagonists that we believe to be first-in-class, which together represent a broad suite of adenosine-targeting approaches and are expected to enable a comprehensive exploration of how targeting the adenosine pathway could potentially improve response in multiple cancer and non-cancer indications. By modulating the adenosine pathway in four different ways, we expect to determine the optimal approach to maximize the impact of the mechanism of action on different tumors.
We have designed the ADPORT-601 clinical trial to evaluate the activity and safety of PORT-6 and PORT-7 alone and in combination. This trial will adapt over time and also include safety cohorts for these two agents with other immune activating agents including others from our internal pipeline. Depending on the data, it can be expanded to evaluate either agent as monotherapy or a randomized comparison of either agent plus standard of care versus standard of care alone.
PORT-6 (TT-10)
PORT-6 is an A2A antagonist being studied for the treatment of A2A expressing solid tumors. We believe PORT-6 is more potent, more durable and more selective than other clinical stage A2A agents.
The ADPORT-601 Phase 1a trial for PORT-6 dosed its first patient in June 2023. We have fully enrolled and completed the first two dose escalation cohorts and we are enrolling in the third dose escalation cohort. In the third cohort, one patient experienced a serious adverse event (blurry vision and stroke) that the investigator determined could possibly be related to PORT-6. To date, we have activated eight sites in the U.S. to complete the Phase 1 including: MD Anderson Cancer Center, UC San Francisco, University of Southern California, Washington University, Thomas Jefferson University, Virginia Cancer Specialists, Norton Cancer Institute and Sarah Canon Research Institute.
PORT-7 (TT-4)
PORT-7 is an A2B antagonist that we expect to study for the treatment of solid tumors. PORT-7 has a very selective profile that focuses on A2B. PORT-7 is in Phase 1a from an IND perspective, though we have not commenced dosing patients, which we expect to commence in mid-calendar 2024, based upon available liquidity.
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PORT-8 (TT-53)
PORT-8 is a dual inhibitor of adenosine receptors 2A and 2B (A2A/A2B) to address solid tumors.
PORT-9 (TT-3)
PORT-9 is an A2B antagonist designed to treat colorectal and gastrointestinal cancers. The PORT-9 program is a pre-clinical stage program.
In connection with the adenosine programs, we will focus on solid tumor types with high adenosine expression of receptors A2A and A2B and enrich for patients that have high adenosine expression and therefore have potential to benefit most from treatment.
Other Pipeline and Investee Programs
We are focused on delivering clinical data with the adenosine programs and prioritizing the allocation of financial resources to this program. Developmental work continues on some of the other developmental assets, through collaborations such as that with the U.S. National Cancer Institute (“NCI”) and other academic groups, as further described below. These developmental assets may be re-evaluated at a future point depending on market conditions, ongoing data, funding priorities and status.
Invariant Natural Killer T-cells (iNKT cells) Platform
iNKT cells play an important role in anti-tumor immune responses and are a distinct class of T lymphocyte displaying a limited diversity of T-cell receptors. They recognize lipid antigens on the surface of tumor cells and produce large amounts of cytokines within hours of stimulation without the need for clonal expansion. Furthermore, iNKT cells activate multiple immune system components, including dendritic cells (“DC”), T-cells and B-cells and stimulate an antigen-specific expansion of these cells. Our operating subsidiary, iOx Therapeutics Ltd. (“iOx”), holds an exclusive license (with the right to sub-license) from the Ludwig Institute for Cancer Research (the "Ludwig Institute") to use, research, develop and commercialize iNKT cell engagers, for the treatment of various forms of human disease, including cancer, under the Ludwig Institute’s intellectual property and know-how.
PORT-2 (IMM60)
PORT-2 is an iNKT cell engager formulated in a liposome with a six-member carbon head structure that has been shown to activate both human and murine iNKT cells, resulting in DC maturation and the priming of Ag-specific T and B cells.
In animal models, PORT-2 enhanced the frequency of tumor specific immune responses. iNKT cells are unique lymphocytes defined by their co-expression of surface markers associated with NK cells along with a T-cell antigen receptor. They recognize amphipathic ligands such as glycolipids or phospholipids presented in the context of the non-polymorphic, MHC class I-like molecule CD1d. Activated iNKT cells rapidly produce IFN-gamma and IL-4 and induce DC maturation and IL-12 production.
In August 2021, we dosed the first patient in the IMP-MEL PORT-2 clinical trial, a Phase 1/2 dose escalation and randomized expansion trial. The PORT-2 trial is expected to enroll up to 88 patients with melanoma or non-small cell lung carcinoma (“NSCLC”) in order to evaluate safety and efficacy. In November 2022, we announced that we had entered into a clinical trial collaboration with Merck to evaluate PORT-2 in combination with pembrolizumab for patients with NSCLC. Under the terms of the collaboration, Merck will supply pembrolizumab for our Phase 1/2 trial of PORT-2 in patients with NSCLC and melanoma.
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Preliminary Phase 1 data from the IMP-MEL PORT-2 clinical trial, presented at the Society for Immunotherapy of Cancer in November 2023, suggests PORT-2 was well tolerated when administered as a monotherapy, with no related severe or serious adverse events. All possibly related adverse events were mild to moderate and did not limit dosing. Given the very clean safety profile observed in the clinical trials to date, the clinical protocol for the IMP-MEL PORT-2 clinical trial was amended to include a higher Phase 1 dose level as our near-term focus is defining the recommended Phase 2 dose. The combination safety cohort with pembrolizumab is being conducted in parallel with the ongoing high dose monotherapy cohort. As of November 2023, two patients have received the combination with pembrolizumab, and no related severe or serious adverse events were reported. The adverse event profile was consistent with pembrolizumab. Previously reported biomarker data confirmed the mechanism of action (i.e., both activation of the innate and adaptive arms of the immune system). The following figure illustrates the different lesion responses. Although these are preliminary results, several lesions showed shrinkage, and the responses in liver metastases were encouraging.
We are encouraged by the growing patient data set that supports proof of concept for using an iNKT engager in cancer treatment. Preliminary Phase 1 data suggests that PORT-2 has a favorable safety and tolerability profile as a monotherapy at all doses tested to date (as noted above), has demonstrated evidence of single agent activity, and biomarkers confirm mechanistic potential of PORT-2 to activate both the adaptive and innate immune systems.
The clinical trial agreement has been transferred from the University of Oxford to us through our iOx subsidiary and the trial is being converted to a program sponsored by iOx as we bring on sites in the U.S.
Given the safety data shown at the highest planned doses, the trial protocol was being amended to escalate patient dosing to include one additional higher dose to identify the recommended Phase 2 dose but after a review of Portage’s funding requirements, the Board has made the decision to pause further drug development in the PORT-2 iNKT program. As a result, we will evaluate a range of potential strategic options which may include among other things, finding a partner for our iNKT program or other corporate transactions.
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PORT-3 (IMM65)
PORT-3 is a poly(lactide-co-glycolide) (“PLGA”)-nanoparticle formulation of PORT-2 (IMM60) combined with a NY-ESO-1 peptide vaccine. Biodegradable PLGA-nanoparticles function as a delivery platform for immunomodulators and tumor antigens to induce a specific anti-tumor immune response. PLGA has minimal (systemic) toxicity and is used in various drug-carrying platforms as an encapsulating agent. Furthermore, co-formulating an iNKT engager with a peptide vaccine in a particle has shown to be approximately five times more potent in killing cancer cells and generating an antigen-specific CD8 T-cell response than giving the two agents individually.
NY-ESO-1 is a cancer-testis antigen expressed during embryogenesis and in the testis, an immune privileged site. Furthermore, NY-ESO-1 expression is observed in several advanced cancers: Lung (2-32%), melanoma (40%), bladder (32-35%), prostate (38%), ovarian (30%), esophageal (24-33%), and gastric cancers (8-12%). Clinical trials have shown the safety and tolerability of Good Manufacturing Practices-grade NY-ESO-1 peptides in patients with cancer.
The first patient was dosed in 2021 and patients continue to enroll in the PRECIOUS Phase 1 trial of PORT-3 in patients with solid tumors. The Phase 1 portion of the trial is expected to enroll 15 patients. The trial was having difficulty identifying tumors that expressed NY-ESO-1, so the trial protocol was amended to include all solid tumors regardless of expression to facilitate assessment of safety. This platform is designed to demonstrate proof of concept. The combination of NY-ESO-1 and IMM-60 is being evaluated to determine its ability to prime and boost an anti-tumor immune response. Our patent position extends to other known tumor antigens, and we are prepared to rapidly launch other assets into the clinic if we see strong activity of this formulation. Preliminary safety data for repeat dosing of PORT-3 in the PRECIOUS Phase 1 trial shows a favorable safety profile. PORT-3 is being evaluated as part of an investigator sponsored study without funding from us. The investigators with who we work with have continued to explore next generation targeted nanoparticles.
PORT-4, Nanolipogel (“NLG”) co-formulation Platform
Scientists are interested in novel ways to deliver multiple signals to the immune system in order to better activate an anti-tumor response. We have been impressed with a platform from Yale University that allows different types of agents to be packaged together and will concentrate them in tumors. We have licensed the platform for delivery of DNA aptamers and certain aptamer-small molecule-based combination products. In order to have multiple proprietary agents with known mechanisms of action, we have licensed rights to create DNA aptamers for immune-oncology targets and the first one developed is a proprietary PD1 aptamer, which has been placed in the NLG formulation. Early testing has shown the formulation properly modulates PD1 signaling in vitro similar to a PD1 antibody I. In non-clinical, in vivo experiments, the NLG-PD1 performed favorably compared to a mouse PD1 antibody. The current level of funding is expected to support exploration of multiple PD1 based co-formulations with small molecules and other DNA aptamers. We have conducted further research with the technology licensed from Yale University to co-deliver a PD1 blocking signal with a small molecule vascular endothelial growth factor inhibitor.
As of December 31, 2023, we owned approximately 70% of the outstanding shares of Saugatuck Therapeutics, Ltd., the subsidiary on which the PORT-4 platform is managed.
PORT-5, STING Agonist Platform
Proprietary immune priming and boosting technology (using a STING agonist delivered in a virus-like particle) has shown proof of concept in animal models and Stimunity S.A. (“Stimunity”) is beginning to progress its lead asset towards the clinic. This platform offers multiple ways to target immune stimulation towards the cancer, as well as to co-deliver multiple signals in a single product. The PORT-5 STING platform provides distinct advantages over chemical intratumoral approaches by offering a potent immune priming and boosting pathway within a virus-like particle to enable convenient systemic administration and traffic to the correct targets. This technology preferentially targets dendritic cells, which is differentiated from other chemical STING approaches. Stimunity is progressing this project towards clinical trials as well as developing next generation compounds. To that end, Stimunity has received grant funding to study this technology with any COVID-19 vaccine to evaluate if it is possible to boost the immune response for immunocompromised or elderly patients. During April 2022, the American Association for Cancer Research showcased PORT-5 preclinical data at a late-breaking session that shows that one or more targeted immunotherapy agents could be packaged within a virus-like particle to increase potency, while enabling a selective immune activation. Advancing the program to an IND for PORT-5 is subject to Stimunity securing additional financing.
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In December 2023, we completed a transfer of our equity in Stimunity and the Stimunity Convertible Note to iOx. In connection with that transfer, the Stimunity Convertible Note was converted into 1,768 Class A shares of Stimunity.
As of December 31, 2023, we owned approximately 48.9% of the outstanding shares of Stimunity, the subsidiary on which the PORT-5 platform is managed.
Early-Stage Research and Development Collaborations
We continue to evaluate and test new antibody targets. Our interest here lies in the suppressive tumor microenvironment, and how we can down regulate or remove MDSC, TAMs, Tregs and other signals that impede the immune response from clearing cancer cells.
| · | We are collaborating with Dr. Robert Negrin and his team at Stanford University in an investigator sponsored trial (“IST”) study to evaluate the use of PORT-2 with iNKT cell therapies in animals. This work will evaluate if an engager co-administered with expanded or transformed iNKT cells can further activate the transplanted and endogenous cells inside the patient. The Stanford collaboration will also study the impact iNKT engagers have on driving an adaptive immune response and correcting the suppressive tumor microenvironment. There is also an IST study expected to start at the University of Birmingham, U.K. |
| · | We have entered into a Cooperative Research and Development Agreement (“CRADA”) with the NCI. We and NCI will advance preclinical and potential clinical development of STING agonists and anti-RAGE agents for cancer vaccines. We and NCI will develop agents to enhance the efficacy of proprietary cancer vaccines and mouse model cancer vaccines developed by NCI. After the acquisition of Tarus Therapeutics, LLC (“Tarus”), we amended the CRADA to include exploration of the different adenosine compounds. |
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Three Months Ended December 31, 2023 Compared to the Three Months Ended December 31, 2022
(All Amounts in 000’$)
The following details major expenses for the three months ended December 31, 2023, compared to the three months ended December 31, 2022:
| Three months ended December 31, | 2023 | 2022 | ||||||
| In 000’$ | In 000’$ | |||||||
| Operating expenses | $ | (4,025 | ) | $ | (4,759 | ) | ||
| Change in fair value of deferred purchase price payable - Tarus and deferred obligation - iOx milestone | 5,200 | (498 | ) | |||||
| Loss on Registered Direct Offering | (2,432 | ) | – | |||||
| Offering costs | (662 | ) | – | |||||
| Change in fair value of warrant liability | 989 | 8 | ||||||
| Impairment loss - iOx IPR&D | (46,922 | ) | – | |||||
| Impairment loss - Stimunity | (557 | ) | – | |||||
| Commitment Fee - Committed Purchase Agreement | (389 | ) | – | |||||
| Share of loss in associate accounted for using equity method | (136 | ) | (152 | ) | ||||
| Depreciation expense | (15 | ) | (1 | ) | ||||
| Foreign exchange transaction gain | 8 | 50 | ||||||
| Interest income, net | 66 | 50 | ||||||
| Loss before benefit (expense) for income taxes | (48,875 | ) | (5,302 | ) | ||||
| Income tax benefit (expense) | 9,497 | (2,199 | ) | |||||
| Net loss | (39,378 | ) | (7,501 | ) | ||||
| Other comprehensive income (loss) | ||||||||
| Net unrealized gain (loss) on investments | 2,975 | (4,017 | ) | |||||
| Total comprehensive loss for period | $ | (36,403 | ) | $ | (11,518 | ) | ||
| Comprehensive loss attributable to: | ||||||||
| Owners of the Company | $ | (36,398 | ) | $ | (11,502 | ) | ||
| Non-controlling interest | (5 | ) | (16 | ) | ||||
| Total comprehensive loss for period | $ | (36,403 | ) | $ | (11,518 | ) | ||
Results of Operations for the Three Months Ended December 31, 2023 Compared to the Three Months Ended December 31, 2022
We incurred a net loss of approximately $39.4 million during the three months ended December 31, 2023 (the “Fiscal 2024 Quarter”), which includes approximately $44.9 million of net non-cash expenses, compared to a net loss of approximately $7.5 million during the three months ended December 31, 2022 (the “Fiscal 2023 Quarter”), an increase in net loss of $31.9 million, between the two periods.
The components of the change in net loss and total comprehensive loss are:
| · | A non-cash gain totaling $5.2 million from the change (decrease) in the fair value of the (a) deferred obligation - iOx milestone of $4.6 million, and the (b) deferred purchase price payable to the former Tarus shareholders of $0.6 million. |
| · | A $2.4 million loss from our equity financing in October 2023 representing the excess of the fair value of certain warrants over the net proceeds, $0.7 million of offering costs and a $1.0 million gain from the change in the fair value of certain warrants accounted for as liabilities received in connection with such equity financing in October 2023. |
| 14 |
| · | A non-cash loss on impairment of $46.9 million with respect to the iOx in-process research and development (“IPR&D”) (PORT-2 and PORT-3 platforms), based on our International Accounting Standards (“IAS”) 36 fair value analysis triggered by our decision to pause those trials and our decision to seek a partner to financially support these platforms. |
| · | A non-cash impairment loss of $0.6 million with respect to our investment in Stimunity, based upon our IAS 36 analysis predicated on the inability of Stimunity to raise financing to continue its development plan. |
| · | A $0.4 million commitment fee expense related to elapsed period associated with the Committed Purchase (as defined below). |
| · | Operating expenses, which include R&D and general and administrative (“G&A”) expenses, were $4.0 million in the Fiscal 2024 Quarter, compared to $4.8 million in the Fiscal 2023 Quarter, a decrease of $0.8 million, which is discussed more fully below. |
| · | Additionally, we reflected a non-cash net deferred income tax benefit of $9.5 million in the Fiscal 2024 Quarter, compared to a non-cash net deferred income tax expense of $2.2 million in the Fiscal 2023 Quarter, a period over period change of $11.7 million reflecting the reduction of deferred tax liability associated with the impairment of the IPR&D for iOx, partially offset by the derecognition of losses previously recognized. The Fiscal 2023 Quarter reflected the recognition of current tax losses, offset by the change in exchange rates on the liability settleable in British pound sterling. |
Total comprehensive loss in the Fiscal 2024 Quarter was $36.4 million, compared to $11.5 million in the Fiscal 2023 Quarter, an increase in total comprehensive loss of $24.9 million. The difference between net loss and total comprehensive loss in each period was due to the effect of the unrealized non-cash gain or loss with respect to our investment in Intensity Therapeutics, Inc. (“Intensity”) in the respective periods. We recognized a non-cash unrealized gain of $3.0 million in the Fiscal 2024 Quarter, representing the change in the fair value of the investment in Intensity based on the Nasdaq listed price of the shares during the period, compared to an unrealized loss of $4.0 million in the Fiscal 2023 Quarter, based upon a fair value analysis completed at December 31, 2022.
Operating Expenses
Total operating expenses are comprised of the following:
| Three months ended December 31, | 2023 | 2022 | ||||||
| In 000’$ | In 000’$ | |||||||
| Research and development | $ | 2,771 | $ | 2,742 | ||||
| General and administrative expenses | 1,254 | 2,017 | ||||||
| Total operating expenses | $ | 4,025 | $ | 4,759 | ||||
Research and Development Costs
R&D costs are comprised of the following:
| Three months ended December 31, | 2023 | 2022 | ||||||
| In 000’$ | In 000’$ | |||||||
| Research and development - Clinical | $ | 1,121 | $ | 967 | ||||
| Payroll-related expenses | 413 | 449 | ||||||
| Share-based compensation expense | 394 | 627 | ||||||
| Research and development services | 348 | 94 | ||||||
| Consulting fees | 235 | 93 | ||||||
| Licensing fees | 152 | – | ||||||
| Manufacturing-related costs | 65 | 454 | ||||||
| Research and development – CRADA | 31 | 31 | ||||||
| Legal – Patents’ registration | 12 | 27 | ||||||
| Total research and development costs | $ | 2,771 | $ | 2,742 | ||||
| 15 |
Research and development (“R&D”) costs increased slightly by approximately $0.1 million, or approximately 1%, from approximately $2.7 million in the Fiscal 2023 Quarter, to approximately $2.8 million in the Fiscal 2024 Quarter. The increase was primarily attributable to overall increases in expenditures for our clinical costs of $0.2 million, research and development services of $0.2 million and aggregate consulting and licensing fees of $0.3 million in the Fiscal 2024 Quarter, compared to the Fiscal 2023 Quarter, substantially offset by decreases in share-based compensation expense of $0.2 million and manufacturing costs of $0.4 million. The increases in clinical costs, research and development services, and licensing and consulting fees were due to the increase in clinical activities in the Fiscal 2024 Quarter. The Fiscal 2023 Quarter included manufacturing-related costs related to the manufacturing of the drugs for the iNKT and adenosine clinical trials, which had been completed prior to the Fiscal 2024 Quarter. Non-cash share-based compensation expense decreased by $0.2 million in the Fiscal 2024 Quarter, compared to $0.6 million in the Fiscal 2023 Quarter. The decrease in non-cash stock-based compensation is due to the continued vesting of options granted in prior years, as well as recent grants having a lower grant date fair value. We incurred an increase in licensing and consulting fees aggregating $0.3 million to reflect the increase in activity period-over-period.
General and Administrative Expenses
Key components of G&A expenses are the following:
| Three months ended December 31, | 2023 | 2022 | ||||||
| In 000’$ | In 000’$ | |||||||
| Professional fees | $ | 420 | $ | 683 | ||||
| Share-based compensation expense | 342 | 587 | ||||||
| Payroll-related expenses | 204 | 257 | ||||||
| D&O insurance | 175 | 309 | ||||||
| Directors’ fees | 83 | 78 | ||||||
| Office and general expenses | 19 | 91 | ||||||
| Consulting fees | 11 | 12 | ||||||
| Total general and administrative expenses | $ | 1,254 | $ | 2,017 | ||||
G&A expenses decreased by approximately $0.7 million, or approximately 35%, from approximately $2.0 million in the Fiscal 2023 Quarter, to approximately $1.3 million in the Fiscal 2024 Quarter. Professional fees decreased by $0.3 million due principally to a decrease in legal fees related to IP management and costs associated with regulatory filings. Non-cash share-based compensation expense decreased by $0.2 million attributable to the vesting of certain stock options granted in prior years and lower fair value associated with more recent grants. Payroll-related expenses decreased by $0.1 million due to no bonus accrual in the Fiscal 2024 Quarter. Insurance expense decreased by $0.1 million due to the decrease in the D&O premium year-over-year resulting from changes in the insurance markets.
| 16 |
Nine Months Ended December 31, 2023 Compared to the Nine Months Ended December 31, 2022
(All Amounts in 000’$)
Results of Operations
The following details major expenses for the nine months ended December 31, 2023, compared to the nine months ended December 31, 2022:
| Nine months ended December 31, | 2023 | 2022 | ||||||
| In 000’$ | In 000’$ | |||||||
| Operating expenses | $ | (14,952 | ) | $ | (12,499 | ) | ||
| Change in fair value of deferred purchase price payable - Tarus and deferred obligation - iOx milestone | 3,976 | (428 | ) | |||||
| Loss on Registered Direct Offering | (2,432 | ) | – | |||||
| Offering costs | (662 | ) | – | |||||
| Change in fair value of warrant liability | 989 | 33 | ||||||
| Impairment loss - iOx IPR&D | (46,922 | ) | – | |||||
| Impairment loss - Stimunity | (557 | ) | – | |||||
| Commitment Fee - Committed Purchase Agreement | (389 | ) | – | |||||
| Share of loss in associate accounted for using equity method | (226 | ) | (268 | ) | ||||
| Depreciation expense | (41 | ) | (1 | ) | ||||
| Foreign exchange transaction gain (loss) | 9 | (60 | ) | |||||
| Interest income, net | 189 | 106 | ||||||
| Loss before benefit for income taxes | (61,018 | ) | (13,117 | ) | ||||
| Income tax benefit | 10,549 | 2,906 | ||||||
| Net loss | (50,469 | ) | (10,211 | ) | ||||
| Other comprehensive income (loss) | ||||||||
| Net unrealized gain (loss) on investments | 3,444 | (4,017 | ) | |||||
| Total comprehensive loss for period | $ | (47,025 | ) | $ | (14,228 | ) | ||
| Comprehensive loss attributable to: | ||||||||
| Owners of the Company | $ | (47,006 | ) | $ | (14,180 | ) | ||
| Non-controlling interest | (19 | ) | (48 | ) | ||||
| Total comprehensive loss for period | $ | (47,025 | ) | $ | (14,228 | ) | ||
Results of Operations for the Nine Months Ended December 31, 2023 Compared to the Nine Months Ended December 31, 2022
We incurred a net loss of approximately $50.5 million during the nine months ended December 31, 2023 (the “Fiscal 2024 Nine Months”), which includes approximately $46.3 million of net non-cash expenses, compared to a net loss of approximately $10.2 million for the nine months ended December 31, 2022 (the “Fiscal 2023 Nine Months”) an increase in net loss of $40.3 million period-over-period.
The components of the change in net loss and total comprehensive loss are:
| · | A non-cash gain totaling $4.0 million from the change (decrease) in the fair value of the deferred obligation - iOx milestone of $4.1 million, and a non-cash loss from the change (increase) in the fair value of the deferred purchase price payable to the former Tarus shareholders of $0.1 million. |
| · | A $2.4 million loss from our equity financing in October 2023 representing the excess of the fair value of certain warrants over the net proceeds, $0.7 million of offering costs and a $1.0 million gain from the change in the fair value of certain warrants accounted for as liabilities received in connection with such equity offering in October 2023. |
| 17 |
| · | A non-cash loss on impairment of $46.9 million with respect to the iOx IPR&D (PORT-2 and PORT-3 platforms), based on our IAS 36 fair value analysis triggered by our decision to pause those trials and our decision to seek a partner to financially support these platforms. |
| · | A non-cash impairment loss of $0.6 million with respect of our investment in Stimunity, based upon our IAS 36 analysis predicated on the inability of Stimunity to raise financing to continue its development plan. |
| · | A $0.4 million commitment fee expense related to elapsed period associated with the Committed Purchase (as defined below). |
| · | Operating expenses, which include R&D and G&A expenses, were $15.0 million in the Fiscal 2024 Nine Months, compared to $12.5 million in the Fiscal 2023 Nine Months, an increase of $2.5 million, which is discussed more fully below. |
| · | Additionally, we reflected a non-cash net deferred income tax benefit of $10.6 million in the Fiscal 2024 Nine Months, compared to a non-cash net deferred income tax benefit of $2.9 million in the Fiscal 2023 Nine Months, a period over period change of $7.7 million reflecting the reduction of deferred tax liability associated with the impairment of the IPR&D for iOx, partially offset by derecognition of losses previously recognized. The Fiscal 2023 Nine Months reflected the recognition of current tax losses, the change (benefit) in exchange rates on the liability settleable in British pound sterling and the change (benefit) on the change in deferred income tax rates in the U.K. |
Total comprehensive loss in the Fiscal 2024 Nine Months was $47.0 million, compared to $14.2 million in the Fiscal 2023 Nine Months, an increase in total comprehensive loss of $32.8 million. The difference between net loss and total comprehensive loss in each period was substantially due to the effect of the unrealized non-cash gain or loss with respect to our investment in Intensity in the respective periods. We recognized a non-cash unrealized gain of $3.4 million in the Fiscal 2024 Nine Months, representing the change in the fair value of the investment in Intensity based on the Nasdaq listed price of the shares during the period, compared to an unrealized loss of $4.0 million in the Fiscal 2023 Nine Months, based upon a fair value analysis completed at December 31, 2022.
Operating Expenses
Total operating expenses are comprised of the following:
| Nine months ended December 31, | 2023 | 2022 | ||||||
| In 000’$ | In 000’$ | |||||||
| Research and development | $ | 10,636 | $ | 6,207 | ||||
| General and administrative expenses | 4,316 | 6,292 | ||||||
| Total operating expenses | $ | 14,952 | $ | 12,499 | ||||
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Research and Development Costs
R&D costs are comprised of the following:
| Nine months ended December 31, | 2023 | 2022 | ||||||
| In 000’$ | In 000’$ | |||||||
| Research and development – Clinical | $ | 4,106 | $ | 1,759 | ||||
| Manufacturing-related costs | 1,780 | 480 | ||||||
| Payroll-related expenses | 1,260 | 1,378 | ||||||
| Share-based compensation expense | 1,211 | 1,838 | ||||||
| Consulting fees | 695 | 217 | ||||||
| Research and development services | 586 | 337 | ||||||
| Contractual milestone | 500 | – | ||||||
| Licensing fees | 384 | – | ||||||
| Research and development – CRADA | 94 | 131 | ||||||
| Legal - Patents’ registration | 20 | 67 | ||||||
| Total research and development costs | $ | 10,636 | $ | 6,207 | ||||
R&D costs increased by approximately $4.4 million, or approximately 71%, from approximately $6.2 million in the Fiscal 2023 Nine Months, to approximately $10.6 million in the Fiscal 2024 Nine Months. The increase was primarily attributable to clinical trial costs (principally CRO-related), which increased from $1.8 million in the Fiscal 2023 Nine Months to $4.1 million in the Fiscal 2024 Nine Months, or approximately $2.3 million as activities ramped up throughout the period. Manufacturing-related costs increased $1.3 million related to the development of the drugs for the iNKT and adenosine clinical trials. Payroll-related expenses decreased by $0.1 million; the increases in salaries effective January 2023 were more than offset by the fact that no bonus was incurred for in the Fiscal 2024 Nine Months. Non-cash share-based compensation expense aggregated $1.2 million in the Fiscal 2024 Nine Months, compared to approximately $1.8 million in the Fiscal 2023 Nine Months. The decrease in non-cash stock-based compensation expense was due to the continued vesting of options granted in prior years, as well as recent grants having a lower grant date fair value. Additionally, in the Fiscal 2024 Nine Months, we incurred a milestone payment of $0.5 million for dosing our first adenosine patients, an increase in consulting fees of approximately $0.5 million to reflect the increase in activity period over period and, finally, $0.4 million in licensing fees paid to the licensor of certain intellectual property utilized in the iNKT clinical trial, which commenced per agreement in the 2024 fiscal year.
General and Administrative Expenses
Key components of G&A expenses are the following:
| Nine months ended December 31, | 2023 | 2022 | ||||||
| In 000’$ | In 000’$ | |||||||
| Professional fees | $ | 1,652 | $ | 2,353 | ||||
| Share-based compensation expense | 1,037 | 1,776 | ||||||
| Payroll-related expenses | 651 | 740 | ||||||
| D&O insurance | 525 | 928 | ||||||
| Office and general expenses | 187 | 206 | ||||||
| Directors’ fees | 248 | 236 | ||||||
| Consulting fees | 16 | 53 | ||||||
| Total general and administrative expenses | $ | 4,316 | $ | 6,292 | ||||
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G&A expenses decreased by approximately $2.0 million, or approximately 32%, from approximately $6.3 million in the Fiscal 2023 Nine Months, to approximately $4.3 million in the Fiscal 2024 Nine Months. Professional fees decreased by $0.7 million, primarily attributable to legal fees associated with the Tarus acquisition and other regulatory filings in the prior year’s nine months. Additionally, non-cash share-based compensation expense decreased by $0.7 million attributable to the vesting of certain stock options granted in prior years and lower fair value associated with more recent grants. Insurance expense decreased by $0.4 million due to the decrease in the D&O premium year-over-year resulting from changes in the insurance markets. Finally, payroll-related expenses decreased by $0.1 million in the Fiscal 2024 Nine Months, compared to the Fiscal 2023 Nine Months; the increase in annual salaries effectuated in January 2023 was slightly more than offset by the fact that there was no bonus incurred in the Fiscal 2024 Nine Months.
Liquidity and Capital Resources
Capital Resources
We filed a registration statement with the SEC under which we may sell ordinary shares, debt securities, warrants and units in one or more offerings from time to time, which became effective on March 8, 2021. In connection with the registration statement, we have filed with the SEC:
| · | a base prospectus, which covers the offering, issuance and sale by us of up to $200 million in the aggregate of the securities identified above from time to time in one or more offerings; |
| · | a prospectus supplement, which covers the offer, issuance and sale by us in an “at-the-market” (“ATM”) offering program of up to a maximum aggregate offering price of $50 million of our ordinary shares that may be issued and sold from time to time under a Controlled Equity Offering Sales Agreement, dated February 24, 2021 (the “Sales Agreement”), with Cantor Fitzgerald & Co., the sales agent; |
| · | a prospectus supplement dated June 24, 2021, for the offer, issuance and sale by us of 1,150,000 ordinary shares for gross proceeds of approximately $26.5 million in a firm commitment underwritten public offering with Cantor Fitzgerald; |
| · | a prospectus supplement dated August 19, 2022, for the resale of up to $30 million in ordinary shares that we may sell from time to time to Lincoln and an additional 94,508 shares that were issued to Lincoln; and |
| · | a prospectus supplement dated September 29, 2023 for the offer, issuance and sale by us in a registered direct public offering through H.C. Wainwright & Co., the placement agent, of (i) 1,970,000 ordinary shares at a purchase price of $1.90 per share and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 1,187,895 ordinary shares, at a purchase price of $1.899 per Pre-Funded Warrant (the “Pre-Funded Warrant Shares”), for aggregate gross proceeds of approximately $6 million. Each Pre-Funded Warrant is exercisable for one ordinary share at an exercise price of $0.001 per share, is immediately exercisable, and will expire when exercised in full (the “2023 Equity Financing”). |
The Sales Agreement permits us to sell in an ATM program up to $50 million of ordinary shares from time to time, the amount of which is included in the $200 million of securities that may be offered, issued and sold by us under the base prospectus. The sales under the prospectus will be deemed to be made pursuant to an ATM program as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Upon termination of the Sales Agreement, any portion of the $50,000,000 included in the Sales Agreement prospectus that is not sold pursuant to the Sales Agreement will be available for sale in other offerings pursuant to the base prospectus.
On June 24, 2021, we completed the sale of 1,150,000 ordinary shares, including the underwriters’ option, at a price of $23.00 per share, which generated gross proceeds of approximately $26.5 million and net proceeds of approximately $25.0 million, and was settled June 28, 2021.
On July 6, 2022 (the “Signing Date”), we entered into a Purchase Agreement (the “Committed Purchase Agreement”) with Lincoln, pursuant to which we may require Lincoln to purchase our ordinary shares having an aggregate value of up to $30 million over a period of 36 months. Pursuant to the Committed Purchase Agreement, Lincoln will be obligated to purchase the ordinary shares in three different scenarios as described below.
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Regular Purchase – At any time after the Closing Date (as defined below) and provided that the closing sale price of the ordinary shares is not less than $0.25 per share, from time to time on any business day selected by us (the “Purchase Date”), we shall have the right, but not the obligation, to require Lincoln to purchase up to 30,000 ordinary shares at the Purchase Price (as defined below) per purchase notice (each such purchase, a “Regular Purchase”). Lincoln’s committed obligation under each Regular Purchase shall not exceed $1,500,000; provided, that the parties may mutually agree at any time to increase the dollar amount of any Regular Purchase on any Purchase Date above and beyond the forgoing amounts that Lincoln is committed to purchase. The purchase price for Regular Purchases (the “Purchase Price”) shall be equal to the lesser of: (i) the lowest sale price of the ordinary shares during the Purchase Date, and (ii) the average of the three (3) lowest closing sale prices of the ordinary shares during the ten (10) business days prior to the Purchase Date. We shall have the right to submit a Regular Purchase notice to Lincoln as often as every business day. “Closing Date” shall mean the date that customary conditions to closing have been satisfied, including that our shelf registration statement for the ordinary shares to be issued pursuant to the Committed Purchase Agreement is effective and available for use and any listing application and/or exchange approvals, to the extent applicable, have been approved.
| · | Accelerated Purchase – In addition to Regular Purchases and provided that we have directed a Regular Purchase in full, we in our sole discretion may require Lincoln on each Purchase Date to purchase on the following business day (“Accelerated Purchase Date”) up to the lesser of (i) three (3) times the number of ordinary shares purchased pursuant to such Regular Purchase, and (ii) 25% of the trading volume on the Accelerated Purchase Date at a purchase price equal to the lesser of 97% of (i) the closing sale price on the Accelerated Purchase Date, and (ii) the Accelerated Purchase Date’s volume weighted average price (the “Accelerated Purchase Price”). The parties may mutually agree to increase the number of ordinary shares sold to Lincoln on any Accelerated Purchase Date at the Accelerated Purchase Price. We shall have the right in our sole discretion to set a minimum price threshold for each Accelerated Purchase in the notice provided with respect to such Accelerated Purchase and we may direct multiple Accelerated Purchases in a day; provided, that delivery of ordinary shares has been completed with respect to any prior Regular Purchases and Accelerated Purchases Lincoln has purchased. |
| · | Tranche Purchase – In addition to Regular Purchases and Accelerated Purchases and provided that the closing price of the ordinary shares is not below $0.25, at any time beginning five (5) business days from the Closing Date, we shall have the option to require Lincoln to purchase up to $3,000,000 in separate purchases of up to $1,000,000 of ordinary shares for each purchase (the “Tranche Purchases”, and with Regular Purchases and Accelerated Purchases, the “Committed Purchases”). The purchase price for each Tranche Purchase shall be equal to 90% of the Purchase Price. We may deliver notice to Lincoln for a Tranche Purchase so long as at least twenty (20) business days have passed since any Tranche Purchase was completed. |
Upon execution of the Committed Purchase Agreement, we issued to Lincoln 94,508 ordinary shares, representing a 3% commitment fee. We have the right to terminate the Committed Purchase Agreement for any reason, effective upon one (1) business day prior written notice to Lincoln. Lincoln has no right to terminate the Committed Purchase Agreement.
Committed Purchases shall be suspended if any of the following occur: (i) the shelf registration statement is not available for the sale of all of the ordinary shares issued pursuant to the Committed Purchase Agreement for ten (10) consecutive trading days or for a total of thirty (30) trading days out of the preceding 365 days; (ii) the ordinary shares cease to be DTC authorized and participating in the D.W.A.C./F.A.S.T. systems; (iii) suspension of the ordinary shares from trading for one (1) trading day; (iv) any breach of the representations and warranties or covenants contained in any related agreements with Lincoln which has or which could have a material adverse effect on us, Lincoln or the value of the ordinary shares, subject to reasonable cure periods to be agreed upon for curable breaches of covenants; (v) if we are listed on a national exchange or market (excluding the OTC Markets, OTC Bulletin Board or comparable market), at any time prior to shareholder approval of the Committed Purchase Agreement more than 19.99% of our aggregate ordinary shares, determined as of the Signing Date, would be issuable to Lincoln in violation of the principal securities exchange or market rules; (vi) if the ordinary shares cease to be eligible for trading on the Nasdaq Capital Market, our principal market, and is not immediately thereafter trading on the Nasdaq Global Select Market, the Nasdaq Global Market, the NYSE, the NYSE American, or the OTC Markets; or (vii) our insolvency or our participation or threatened participation in insolvency or bankruptcy proceedings by or against us. The Committed Purchases may resume following the resolution of any of the forgoing events.
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The Committed Purchase Agreement does not impose any financial or business covenants on us and there are no limitations on the use of proceeds received by us from Lincoln. We may raise capital from other sources in our sole discretion; provided, however, that we shall not enter into any similar agreement for the issuance of variable priced equity-like securities until the three-year anniversary of the Signing Date, excluding, however, an ATM transaction with a registered broker-dealer, which includes any sales under the Sales Agreement with Cantor Fitzgerald.
In connection with the Committed Purchase Agreement, we and Lincoln entered into a Registration Rights Agreement (the “Registration Rights Agreement”), dated July 6, 2022. Pursuant to the Registration Rights Agreement, we agreed, within the time required under Rule 424(b) under the Securities Act, to file with the SEC an initial prospectus supplement to our shelf registration statement pursuant to Rule 424(b) for the purpose of registering for resale the ordinary shares to be issued to Lincoln under the Committed Purchase Agreement. All reasonable expenses of ours incurred through the registration of the ordinary shares under the Committed Purchase Agreement shall be paid by us.
From October 2022 through March 31, 2023, we sold 166,145 ordinary shares under the ATM program, generating net proceeds of approximately $0.9 million. Separately, between October 2022 and March 31, 2023, we sold 480,000 ordinary shares to Lincoln under the Committed Purchase Agreement for net proceeds totaling approximately $2.0 million. Finally, from April 1, 2023 through December 31, 2023, we sold 186,604 ordinary shares under the ATM program, generating net proceeds of approximately $0.7 million.
On March 1, 2023, Tarus entered into a clinical service agreement with a third-party service provider. The term of the agreement is through the earlier of August 14, 2025 or the completion of provision of services and the payment of contractual obligations. The agreement provides for budgeted costs totaling approximately $12.1 million.
In connection with the 2023 Equity Financing, on September 29, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional and accredited investor in connection with a registered direct offering, as described above, (the “Registered Direct Offering”) and a concurrent private placement (the “Private Placement,” and together with the Registered Direct Offering, the “Offerings”). The Offerings closed on October 3, 2023.
Pursuant to the Purchase Agreement, in the Registered Direct Offering, we sold (i) 1,970,000 ordinary shares, at a purchase price of $1.90 per share and (ii) Pre-Funded Warrants to purchase up to 1,187,895 Pre-Funded Warrant Shares. Each Pre-Funded Warrant is exercisable for one ordinary share at an exercise price of $0.001 per share, is immediately exercisable, and will expire when exercised in full.
In the Private Placement, we issued to such institutional and accredited investor unregistered warrants to purchase up to 3,157,895 ordinary shares (the “Series A Warrants”), unregistered warrants to purchase up to 3,157,895 ordinary shares (the “Series B Warrants”), and unregistered warrants to purchase up to 3,157,895 ordinary shares (the “Series C Warrants,” together with the Series A Warrants and the Series B Warrants, the “Private Warrants”), together exercisable for an aggregate of up to 9,473,685 ordinary shares (the “Private Warrant Shares”). Pursuant to the terms of the Purchase Agreement, for each ordinary share and Pre-Funded Warrant issued in the Registered Direct Offering, an accompanying Series A Warrant, Series B Warrant and Series C Warrant were issued to such institutional and accredited investor. Each Series A Warrant is exercisable for one Private Warrant Share at an exercise price of $1.90 per share, is immediately exercisable and will expire 18 months from the date of issuance. Each Series B Warrant is exercisable for one Private Warrant Share at an exercise price of $2.26 per share, is immediately exercisable and will expire three years from the date of issuance. Each Series C Warrant is exercisable for one Private Warrant Share at an exercise price of $2.26 per share, is immediately exercisable and will expire five years from the date of issuance. The net proceeds to us from the Offerings were approximately $5.3 million, after deducting placement agent’s fees and estimated offering expenses.
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Pursuant to an engagement letter, dated as of August 26, 2023, between us and H.C. Wainwright & Co., LLC (the “Placement Agent”), we paid the Placement Agent a total cash fee equal to 6.0% of the aggregate gross proceeds received in the Offerings, or $0.36 million. We also agreed to pay the Placement Agent in connection with the Offerings a management fee equal to 1.0% of the aggregate gross proceeds raised in the Offerings ($0.06 million), $75,000 for non-accountable expenses and $15,950 for clearing fees. In addition, we agreed to issue to the Placement Agent, or its designees, warrants to purchase up to 157,895 ordinary shares (the “Placement Agent Warrants,” and together with the Pre-Funded Warrants and the Private Warrants, the “Warrants”), which represents 5.0% of the aggregate number of ordinary shares and Pre-Funded Warrants sold in the Registered Direct Offering. The Placement Agent Warrants have substantially the same terms as the Private Warrants, except that the Placement Agent Warrants have an exercise price equal to $2.375, or 125% of the offering price per ordinary share sold in the Registered Direct Offering, and will be exercisable for five years from the commencement of the sales pursuant to the Offerings.
Access to the Committed Purchase Agreement with Lincoln is generally limited based on, among other things, our Nasdaq trading volume. Furthermore, under General Instruction I.B.5 to Form F-3 (the “Baby Shelf Rule”), the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form F-3 is limited to one-third of the aggregate market value of the ordinary shares held by our non-affiliates, which limitation may change over time based on our stock price, number of ordinary shares outstanding and the percentage of ordinary shares held by non-affiliates. We are therefore limited by the Baby Shelf Rule as of the filing of this Form 6-K, until such time as our non-affiliate public float exceeds $75 million.
We are prohibited from issuing or entering into any agreement to issue ordinary shares (or ordinary share equivalents) involving a variable rate transaction, including pursuant to the Committed Purchase Agreement with Lincoln, the Sales Agreement for the ATM program and any other equity line of credit or at-the-market facility, for a period commencing on September 29, 2023 and expiring on April 3, 2024.
Going Concern
The accompanying condensed consolidated interim financial statements for the three and nine months ended December 31, 2023 have been prepared on a basis that assumes that we will continue as a going concern and that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Accordingly, the accompanying condensed consolidated interim financial statements for the three and nine months ended December 31, 2023 do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty.
As of December 31, 2023, we had cash and cash equivalents of approximately $5.3 million and total current liabilities of approximately $2.7 million. For the nine months ended December 31, 2023, we are reporting a net loss of approximately $50.5 million, and cash used in operating activities of approximately $11.2 million. As of January 31, 2024, we had approximately $5.3 million of cash and cash equivalents on hand.
Our cash and cash equivalents balance is decreasing from operations and we will not generate positive cash flows from operations for the fiscal year ending March 31, 2024.
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We have and may continue to delay, scale-back, or eliminate certain of our activities and other aspects of our operations until such time as we are successful in securing additional funding. We are exploring various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business development and other sources. Our future success is dependent upon our ability to obtain additional funding. There can be no assurance, however, that we will be successful in obtaining such funding in sufficient amounts, on terms acceptable to us, or at all. Access to our Committed Purchase Agreement with Lincoln is generally limited based on, among other things, our trading volume. Furthermore, under the Baby Shelf Rule, the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form F-3 is limited to one-third of the aggregate market value of the ordinary shares held by our non-affiliates, which limitation may change over time based on our stock price, number of ordinary shares outstanding and the percentage of ordinary shares held by non-affiliates. We therefore are limited by the Baby Shelf Rule as of the filing of this Form 6-K, until such time as our non-affiliate public float exceeds $75 million. These factors raise significant doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.
We have incurred significant operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. The losses result primarily from our conduct of research and development activities. As previously discussed, we have paused the development of our iNKT PORT-2 program in order to preserve cash resources. Additionally in January 2024, we began selling our shares in Intensity on Nasdaq.
We historically have funded our operations principally from proceeds from issuances of equity and debt securities. We will require significant additional capital to make the investments we need to execute our longer-term business plan. Our ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, future equity issuances would result in dilution to existing stockholders and any future debt securities may contain covenants that limit our operations or ability to enter into certain transactions.
As of the date of this filing, we currently anticipate that current cash and cash equivalents, excluding any potential proceeds from our ATM program and Committed Purchase Agreement, will be sufficient to meet our anticipated cash requirements through the end of September 2024.
Cash Flows From Operating Activities
During the Fiscal 2024 Nine Months, we used cash of approximately $11.2 million to fund operating activities, compared to approximately $7.4 million used during the Fiscal 2023 Nine Months. Operations in both the Fiscal 2024 Nine Months and the Fiscal 2023 Nine Months were funded by cash raised from the ATM program, the public offering in June 2021, the ordinary shares issued to Lincoln under the Committed Purchase Agreement and the ordinary shares issued pursuant to the Registered Direct Offering, described above under “Capital Resources.”
Our continuing operations are dependent upon any one of:
| 1. | the development and identification of economically recoverable therapeutic solutions; |
| 2. | the ability of us to obtain the necessary financing to complete the research and development; or |
| 3. | the future profitable production, or proceeds, from the disposition of intellectual property. |
We have incurred significant operating losses since inception due to significant R&D spending and corporate overhead, and we expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2023, we had cash and cash equivalents of approximately $5.3 million, working capital of approximately $4.8 million (including prepaid expenses of $2.2 million) and an accumulated deficit of approximately $210.1 million. We have funded our operations primarily from proceeds from the sale of equity and debt securities. We will require significant additional capital to make the investments that we need to execute our longer-term business plan. Our ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, even if it were successful, future equity issuances would result in dilution to our existing stockholders and any future debt securities may contain covenants that limit our operations or ability to enter into certain transactions.
Cash Flows From Investing Activities
During the Fiscal 2024 Nine Months, there were no cash flows from investing activities. During the Fiscal 2023 Nine Months, we used cash of $0.6 million for investing activities.
Cash Flows From Financing Activities
During the Fiscal 2024 Nine Months, we generated proceeds of $6.0 million from the Registered Direct Offering ($5.3 million, net of related offering costs), which was accounted for as warrant liabilities. We also generated cash of $0.6 million from financing activities due to the ATM, net of related offering costs. During the Fiscal 2023 Nine Months, we used cash of $2.2 million to fund financing activities, $3.0 million related to the Tarus acquisition, offset by $0.8 million raised under the ATM program and Committed Purchase Agreement.
From April 1, 2023 through December 31, 2023, we sold 186,604 ordinary shares under the ATM program, generating net proceeds of approximately $0.7 million, none of which was sold in the three months ended December 31, 2023.
Additionally, the Fiscal 2024 Nine Months reflects the scheduled repayment of the lease liability.
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Details of contractual obligations, commitments and contingent liabilities are provided in Note 15, “Commitments and Contingent Liabilities,” to the unaudited condensed consolidated interim financial statements for the three and nine months ended December 31, 2023.
Acquisition of Tarus
On July 1, 2022, we, and our wholly-owned subsidiaries, Portage Merger Sub I, Inc. and Portage Merger Sub II, LLC, and Tarus Therapeutics, Inc., a Delaware corporation advancing adenosine receptor antagonists for the treatment of solid tumors, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Under the structure of the Merger Agreement, Tarus Therapeutics, Inc. was ultimately merged into Portage Merger Sub II, LLC with the surviving entity renamed Tarus Therapeutics, LLC.
As consideration for Tarus, we issued to the former Tarus shareholders an aggregate of 2,425,999 ordinary shares of Portage, calculated on the basis of $18 million divided by the 60-day volume weighted average price per share of ordinary shares of Portage. Such ordinary shares have not been registered with the SEC and were subject to lock-up agreements for terms ranging from nine to twelve months, which expired on February 1, 2023 and July 1, 2023, respectively. Additionally, the ordinary shares that were subject to a twelve-month lock-up period, are also subject to a three-month dribble-out period which commenced July 1, 2023. During the dribble out period, each holder may not sell more than 10% of the average trading volume of our ordinary shares for the rolling three-month period prior to the date on which the holder executes a trade of our ordinary shares without our prior written consent (which we are permitted to withhold at our sole discretion). Additionally, payments of up to $32 million in cash or our ordinary shares (at our discretion) would be triggered upon achievement of future development and sales milestones, as described below. As a result of the transaction:
| · | We also assumed $2 million in short-term debt held by Tarus and deferred license milestones obligations ($1 million plus interest), for an aggregate of $3 million in liabilities. We repaid the short-term debt in July 2022. |
| · | Upon enrolling the first patient in a Phase 2 clinical trial utilizing Tarus’s adenosine receptor antagonists, we will pay an additional one-time payment of $15 million to the former Tarus shareholders. Payment will be in the form of cash or our ordinary shares (at our discretion). The remaining $17 million milestone is based on target commercial sales. |
Additionally, in connection with the acquisition of Tarus, we initially recorded a deferred purchase price payable of $8.538 million, which reflected the estimated acquisition date fair value of contractual milestone obligations incurred.
We recognized a gain of $0.620 million and a loss of $0.150 million in the Fiscal 2024 Quarter and the Fiscal 2024 Nine Months, respectively, to reflect the estimated fair value of the obligation at December 31, 2023 and the carrying value of the liability of $7.329 million is reflected on the condensed consolidated interim statements of financial position as of December 31, 2023.
Stimunity Convertible Note
On September 12, 2022, we funded a €600,000 convertible note (the “Stimunity Convertible Note”) with a maturity date of September 1, 2023 (the “Maturity Date”). The Stimunity Convertible Note provided for simple interest at 7% per annum for automatic conversion into Series A shares of Stimunity upon Stimunity completing a Series A round for at least €20 million. Also, we were entitled, in certain circumstances, to convert the Stimunity Convertible Note into Series A shares of Stimunity at the subscription share price less 15%, or if Stimunity completed a financing with a new category of shares (other than Common Shares or Series A shares of Stimunity) for at least €5 million (the “Minimum Raise”), we had the right to convert the Stimunity Convertible Note and the historical Series A shares of Stimunity owned into the new category of shares of Stimunity. Stimunity did not close a financing prior to the Maturity Date. In December 2023, we completed a transfer of its equity in Stimunity and the Stimunity Convertible Note to iOx. In connection with that transfer, the Stimunity Convertible Note was converted into 1,768 Class A shares of Stimunity.
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iOx Share Exchange Agreement
On July 18, 2022, we and our wholly-owned subsidiary, SalvaRx Limited (“SalvaRx”), entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with each of the minority shareholders of iOx (the “Sellers”) resulting in the acquisition of the outstanding non-controlling ownership interest (approximately 22%) of iOx, which is developing the iNKT engager platform. We followed IFRS 3, “Business Combinations,” and IAS 27, “Separate Financial Statements,” (which substantially replaced IAS 3) to account for this transaction. We achieved control of iOx on January 8, 2019 upon the completion of our acquisition of SalvaRx. See our Annual Report on Form 20-F for the year ended March 31, 2023 for additional information. Further transactions whereby we acquire further equity interests from non-controlling interests, or disposes of equity interests but without losing control, are accounted for as equity transactions (i.e., transactions with owners in their capacity as owners). As such:
| · | the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary; |
| · | any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to us; and |
| · | there is no consequential adjustment to the carrying amount of goodwill, and no gain or loss is recognized in profit or loss. |
We now own the worldwide rights to iOx’s small molecule iNKT engagers, including lead programs PORT-2 and PORT-3. Under the terms of the Share Exchange Agreement, each Seller sold to us, and we acquired from each Seller, legal and beneficial ownership of the number of iOx shares held by each Seller, free and clear of any share encumbrances, in exchange for the issuance in an aggregate of 1,070,000 of our ordinary shares to be allocated among the Sellers based upon their relative ownership. As a result of the Share Exchange Agreement, we own 100% of the issued and outstanding shares of iOx through our wholly-owned subsidiary, SalvaRx.
As additional consideration for the sale of the iOx shares to us under the Share Exchange Agreement, the Sellers shall have the contingent right to receive additional shares (“Earnout Shares”) from us having an aggregate value equal to $25 million calculated at the Per Share Earnout Price (as defined in the Share Exchange Agreement) upon the achievement of certain milestones defined as the dosing of the first patient in a Phase 3 clinical trial for either PORT-2 (IMM60 iNKT cell activator/engager) or PORT-3 (PLGA-nanoparticle formulation of IMM60 combined with a NY-ESO-1 peptide vaccine). We shall have the option, in our sole and absolute discretion, to settle the Earnout Shares in cash.
We initially recorded $5.478 million as the fair value estimate of the Earnout Shares, which is reflected as deferred obligation - iOx milestone. We recognized a gain of $4.580 million and $4.126 million in the Fiscal 2024 Quarter and the Fiscal 2024 Nine Months, respectively, to reflect the change (decrease) in the fair value of the obligation as of December 31, 2023. This charge reflects our decision to pause the development plan and we no longer have this obligation in our condensed consolidated financial statements as of December 31, 2023.
Master Services Agreement
Effective March 15, 2022, through iOx, we entered into a Master Services Agreement (the “MSA”) with Parexel International (IRE) Limited (“Parexel”) under which Parexel agreed to act as clinical service provider (CRO) pursuant to a work order (“Work Order”) effective June 1, 2022. Pursuant to such Work Order, Parexel will operate a Phase 2 trial of IMM60 and pembrolizumab in advanced melanoma and NSCLC. The MSA provides for a five-year term, and the Work Order provides for a term to be ended upon the completion of the services required. The budget provides for service fees and pass-through expenses and clinical sites totaling $11.5 million. During Fiscal 2023, we executed two change orders resulting in a $0.6 million increase in the overall estimated budgeted costs. As a result of our decision to pause the development with respect to this program, we provided a notice of termination under the MSA. We are in negotiations to settle any obligations with respect to the MSA.
Clinical Service Agreement
On March 1, 2023, we, through Tarus, entered into a clinical service agreement with Fortrea Inc. (formerly Labcorp Drug Development Inc.), a third-party CRO. The term of the agreement is through the earlier of August 14, 2025, or the completion of provision of services and the payment of contractual obligations. The budgeted costs for the services to be provided is approximately $12.1 million.
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iOx (iNKT) License
On July 1, 2015, iOx entered into a licensing agreement with Ludwig Institute for Cancer Research Ltd. (“LICR”), which covers certain technology, intellectual property and know-how and development with respect to iNKT cell agonists to treat human diseases. Under the terms of the licensing agreement (“LICR License”), LICR granted to iOx an exclusive worldwide license, with the right to grant sublicenses, under the Licensed Patent and Licensed Technology, each as defined in the LICR License, in each case, to develop, make, have made, use, sell, offer for sale and import Licensed Products, as defined in the LICR License, subject to certain rights retained by LICR for academic and research purposes. The LICR License provides for a royalty term of ten years after the first commercial sale, on a Licensed Product by Licensed Product, country by country basis. Upon the expiration of the applicable royalty term, the license with respect to such Licensed Product in such country will convert to a non-exclusive, fully paid-up license.
LICR is entitled to 15,000 GBP as an annual license fee on each annual anniversary of the effective date of the LICR License until royalties become duly payable and 15,000 GBP as a patent reimbursement fee until LICR has been fully reimbursed for all patent costs incurred prior to the LICR License.
Additionally, LICR is entitled to milestone payments totaling up to 20.45 million GBP based upon the first Licensed Product achieving specific clinical, regulatory and sales-based milestones. LICR is also entitled to milestone payment totaling up to 10.25 million GBP based upon a second Licensed Product achieving specific clinical, regulatory and sales-based milestones.
Finally, LICR is entitled to a low-single digit royalty on net sales of Licensed Products that marginally escalates upon sales levels all determined by territory. LICR is also entitled to a percentage of any sublicensing income that gradually decreases based on the stage of development of the most advanced Licensed Product that is the subject of the applicable sublicense agreement.
Pursuant to the terms and conditions of the LICR License, LICR is responsible for managing the preparation, filing, prosecution and maintenance of all Licensed Patent Rights, as defined in the LICR License. iOx will reimburse LICR for all reasonable patent costs it incurs after the effective date of the LICR License. Further, the LICR License provides that both parties have the right to termination for material breach or default in the performance of obligations under the LICR License by the other party and in the event of insolvency of the other party.
Tarus (adenosine) License
On July 1, 2022, we acquired Tarus Therapeutics, Inc. Pursuant to the license agreement entered into by Tarus Therapeutics, Inc. and Impetis Biosciences Limited (“Impetis”) dated October 29, 2019 (“Impetis License”), Impetis granted to Tarus an exclusive sublicensable worldwide license to develop and commercialize the adenosine receptor antagonists for all indications and certain other assets which were granted upon exercise of a call option on November 5, 2020.
Under the terms of the Impetis License, Impetis is eligible to receive payments totaling up to $38 million on an Impetis Compound (as defined in the Impetis License) based upon achievement of certain clinical and commercial milestones. Milestone payments due in the amount of USD $1 million for achievement of certain regulatory milestones were paid in July 2022.
Additionally, commencing upon the First Commercial Sale (as defined in the Impetis License) of a Licensed Product (as defined in the Impetis License), Impetis is entitled to royalties on worldwide net sales that begin in the mid-single digits and escalate through multiple tiers, with net sales over $1 billion receiving low double digit royalties.
Pursuant to the terms and conditions of the Impetis License, Tarus has exclusive and full authority to manage all intellectual property (whether licensed or not) underlying the assets covered by the Impetis License and any other aspects related to exploitation, development and commercialization thereof at its own cost, and Impetis must provide Tarus reasonable assistance as requested at Tarus’ cost and expense. Further, the Impetis License provides that both parties have the right to termination for material breach by the other party and in the event that the other party undergoes certain events such as a voluntary winding-up, a liquidation or entry into receivership.
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Off-balance Sheet Arrangements
As of December 31, 2023 and March 31, 2023, we did not have any off-balance sheet arrangements, including any relationships with unconsolidated entities or financial partnership to enhance perceived liquidity.
Transactions with Related Parties
Significant related party transactions are detailed in Note 16, “Related Party Transactions,” to the unaudited condensed consolidated interim financial statements for the three and nine months ended December 31, 2023.
Financial and Derivative Instruments
Our financial instruments recognized in our condensed consolidated interim statements of financial position consist of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates are subject to and involve uncertainties and matters of significant judgment; and therefore, these estimates cannot be determined with precision. Changes in assumptions could significantly affect these estimates.
The following table summarizes our financial instruments as of December 31, 2023 and March 31, 2023:
| As of December 31, 2023 | As of March 31, 2023 | |||||||||||||||||||||||
| Amortized Cost | FVTOCI | FVTPL | Amortized Cost | FVTOCI | FVTPL | |||||||||||||||||||
| Financial assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 5,341 | $ | – | $ | – | $ | 10,545 | $ | – | $ | – | ||||||||||||
| Prepaid expenses and other receivables | $ | 2,175 | $ | – | $ | – | $ | 2,689 | $ | – | $ | – | ||||||||||||
| Convertible note receivable, including accrued interest, net of impairment | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 442 | ||||||||||||
| Investment in associate | $ | – | $ | – | $ | 452 | $ | – | $ | – | $ | 806 | ||||||||||||
| Investment in public company | $ | – | $ | 5,544 | $ | – | $ | – | $ | 2,087 | $ | – | ||||||||||||
| As of December 31, 2023 | As of March 31, 2023 | |||||||||||||||
| Amortized Cost | FVTPL | Amortized Cost | FVTPL | |||||||||||||
| Financial liabilities | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | 2,658 | $ | – | $ | 1,865 | $ | – | ||||||||
| Lease liability - current | $ | 50 | $ | – | $ | – | $ | – | ||||||||
| Lease liability - non-current | $ | 225 | $ | – | $ | – | $ | – | ||||||||
| Warrant liability | $ | – | $ | 7,443 | $ | – | $ | – | ||||||||
| Deferred purchase price payable - Tarus | $ | – | $ | 7,329 | $ | – | $ | 7,179 | ||||||||
| Deferred obligation - iOx milestone | $ | – | $ | – | $ | – | $ | 4,126 | ||||||||
A summary of our risk exposures as it relates to financial instruments are reflected below.
Fair value of Financial Instruments
Our financial assets and liabilities are comprised of cash and cash equivalents, receivables and investments in equities and public entities, accounts payable and accrued liabilities, lease liability, warrant liability, deferred purchase price payable and deferred obligation.
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We classify the fair value of these transactions according to the following fair value hierarchy based on the amount of observable inputs used to value the instrument:
| · | Level 1 – Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities as of the reporting date. |
| · | Level 2 – Values are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or indirectly observable as of the reporting date. |
| · | Level 3 – Values are based on prices or valuation techniques that are not based on observable market data. Investments are classified as Level 3 financial instrument. |
Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy.
Management has assessed that the fair values of cash and cash equivalents, other receivables and accounts payable approximate their carrying amounts largely due to the short-term maturities of these instruments.
The following methods and assumptions were used to estimate their fair values:
Investment in Associate: The fair value of the Stimunity investment was determined based on an IAS 36 fair value analysis evaluating the likelihood of various scenarios given the then-current market conditions, the increasing cost of capital and development delays associated with Stimunity’s lack of liquidity (Level 3). We recorded a provision of impairment of $0.607 million with respect to the investment in Stimunity decreasing the carrying value of the investment in Stimunity to $0.806 million as of March 31, 2023. There was no provision for impairment recorded in the three and nine months ended December 31, 2023. In connection with the IAS 36 analysis at December 31, 2023, we recorded an impairment loss of $0.557 million, reducing the carrying value of the investment in Stimunity to $0.452 million as of December 31, 2023.
Convertible Note Receivable: The fair value of the Stimunity Convertible Note receivable denominated in euros at initial recognition is the transaction price for the instrument adjusted for the effect of the currency translation rate on the reporting date (Level 3). The Stimunity Convertible Note was initially recorded at $0.614 million to record the translated value of the Stimunity Convertible Note on September 12, 2022. As of March 31, 2023, we determined that there were indications of impairment, based upon the inability of Stimunity to obtain financing and performed an IAS 36 fair value analysis. We recorded an impairment of $0.211 million resulting from the impairment analysis decreasing the carrying value of the Stimunity Convertible Note to $0.442 million as of March 31, 2023.
The Stimunity Convertible Note matured on September 1, 2023 and was not settled. In December 2023, we completed a transfer of its equity in Stimunity and the Stimunity Convertible Note to iOx. Simultaneously, the Stimunity Convertible Note was converted into 1,768 shares of Stimunity, which increased our interest in Stimunity to 48.9%.
Investment in Public Company: Upon Intensity’s IPO effective June 30, 2023, the fair value of the investment is determined by the quoted market price (Level 1).
Warrant Liability: The fair value is estimated using a Black-Scholes model and in certain cases, a Monte Carlo simulation (Level 3).
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Lease Liability - Current: The lease liability - current represents the present value of the lease payments due over the next twelve months discounted at our incremental borrowing rate (Level 2).
Lease Liability - Non-Current: The lease liability - non-current represents the present value of the lease payments due under the lease less the current portion of such payments discounted at our incremental borrowing rate (Level 2).
Deferred Purchase Price Payable - Tarus: The fair value is the estimated value of a future contingent obligation based upon a fair value analysis performed in accordance with IFRS 3 at acquisition date, adjusted at each reporting date for any change in fair value (Level 3). The fair value was determined using the Income Approach and was based upon the analysis on the Tarus clinical plan, the timing of development events and the probabilities of success determined primarily based upon empirical third-party data and our experience, as well as the relevant cost of capital. We recorded a gain from the change (decrease) in the fair value of the liability of $0.620 million for the three months ended December 31, 2023, and a (loss) from the change (increase) in the fair value of the liability of $0.150 million for the nine months ended December 31, 2023, and a (loss) from the change (increase) in the fair value of the liability of $0.354 million and $0.338 million for the three and nine months ended December 31, 2022, respectively. The deferred purchase price payable - Tarus balance was $7.329 million and $7.179 million as of December 31, 2023 and March 31, 2023, respectively.
Deferred Obligation - iOx Milestone: The fair value is the estimated value of a future contingent obligation based upon a fair value analysis performed in accordance with IFRS 3 as of July 18, 2022, the date of the Share Exchange Agreement, adjusted at each reporting date for any change in fair value (Level 3). The fair value was determined using the Income Approach and based on factors including the clinical plan, the timing of development events and the probabilities of success determined primarily based upon empirical third-party data and our experience, as well as the relevant cost of capital. In connection with the decision by us to pause our PORT-2 and PORT-3 platforms, we performed an impairment analysis, which resulted in an impairment loss of $46.9 million recognized at December 31, 2023. Additionally, based on the revised plan, the deferred consideration would not be realized. Accordingly, we recorded a gain from the change (decrease) in the fair value of the liability of $4.580 million and $4.126 million for the three and nine months ended December 31, 2023, respectively. We recorded a (loss) from the change (increase) in the fair value of the liability of $0.144 million and $0.090 million for the three and nine months ended December 31, 2022, respectively. We no longer have this obligation in our condensed consolidated financial statements as of December 31, 2023.
Fair Value Hierarchy
The investment in public company (Intensity) was transferred from Level 3 to Level 1 of the fair value hierarchy for the nine months ended December 31, 2023 as the result of Intensity’s IPO. For Fiscal 2023, the fair value of the investment was determined based on an IAS 36 impairment analysis after determining there were external indications of impairment (Level 3).
Our financial instruments are exposed to certain financial risks: Credit Risk, Liquidity Risk and Foreign Currency Risk.
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The credit risk is attributable to various financial instruments, as noted below. The credit risk is limited to the carrying value as reflected in our condensed consolidated interim statements of financial position.
Cash and cash equivalents: Cash and cash equivalents comprise cash on hand and amounts invested in underlying treasury and money market funds that are readily convertible to a known amount of cash with three months or less from date of acquisition and are subject to an insignificant risk of change in value. As of December 31, 2023 and March 31, 2023, cash equivalents was comprised of a money market account with maturities less than 90 days from the date of purchase. Cash and cash equivalents are held with major international financial institutions and therefore the risk of loss is minimal.
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Liquidity Risk
Liquidity risk is the risk that we will encounter difficulty in satisfying financial obligations as they become due.
Our approach to managing liquidity is to ensure, as far as possible, that we will have sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to our reputation. We hold sufficient cash and cash equivalents to satisfy current obligations under accounts payable and accruals.
We monitor our liquidity position regularly to assess whether we have the funds necessary to meet our operating needs and needs for investing in new projects.
As a biotech company at an early stage of development and without significant internally generated cash flows, there are inherent liquidity risks, including the possibility that additional financing may not be available to us, or that actual drug development expenditures may exceed those planned. The current uncertainty in global markets could have an impact on our future ability to access capital on terms that are acceptable to us. There can be no assurance that required financing will be available to us.
Foreign Currency Risk
While we operate in various jurisdictions, substantially all of our transactions are denominated in the U.S. Dollar, except the deferred tax liability in the U.K. settleable in British pound sterling and the Stimunity Convertible Note receivable settleable in euros.
Use of Estimates and Judgments
The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Significant areas where estimates are made include valuation of financial instruments (including the Stimunity Convertible Note), deferred tax assets and liabilities, warrant liabilities, R&D costs, fair value used for acquisition of intangible assets, contingent consideration assumed and measurement of share-based compensation. Significant areas where critical judgments are applied include assessment of impairment of investments, in-process research and development, warrant liabilities and the determination of the accounting acquirer and acquiree in the business combination accounting.
New Accounting Standards, Interpretations and Amendments
We are also unaware of any applicable but not-yet-adopted standards that are expected to materially affect our financial statements for future periods.
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Internal Control Over Financial Reporting
The management of the Company, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and the Company’s Board of Directors regarding the reliability of financial reporting and preparation and fair presentation of published financial statements for external purposes in accordance with IFRS. Internal control over financial reporting includes those policies and procedures that:
| 1. | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| 2. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and |
| 3. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, it used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under these criteria, management identified material weaknesses in the Company’s internal control over financial reporting and, as a result, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2023.
Management identified the following material weaknesses in our internal control over financial reporting.
| · | Management was unable to perform an effective risk assessment or monitor internal controls over financial reporting; |
| · | Management lacks the number of skilled persons that it requires given the complexity of the reporting requirements that it has to make, which more specifically include the staff and expertise to (i) properly segregate duties and perform oversight of work performed and to perform compensating controls over the finance and accounting functions, (ii) establish and perform fair value estimates or subsequently monitor fluctuations in fair value estimates, and (iii) apply complex accounting principles, including those relating to business combination accounting, financial instruments including warrant liabilities, income taxes and fair value estimates; and |
| · | There are insufficient written policies and procedures in place to ensure the correct application of accounting and financial reporting with respect to the current requirements of IFRS and SEC disclosure requirements, some of which specifically relate to investment accounting and fair value measures, assessment of in-process R&D assets, share-based payments, carrying amounts of goodwill and intangible assets and business combination accounting. |
Additional information, including our annual information in the Annual Report on Form 20-F, is filed with the Canadian Securities Administrators at www.sedar.com and with the SEC at www.edgar.com.
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