Alpha Compute Corp 6-K, filed Nov 29, 2022
Alpha Compute Corp (ALP)
About this 6-K
Alpha Compute Corp filed this 6-K on November 29, 2022.
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 November 2022
Commission File Number:
(Translation of registrant’s name into English)
N/A
(Translation of registrant’s name into English)
British Virgin Islands
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
c/o Portage Development Services Inc., Ian Walters, 203.221.7378
61 Wilton Road, Westport, Connecticut 06880
(Name, telephone, e-mail and/or facsimile number and Address of Company Contact Person)
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 ☐
EXHIBITS
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: November 29, 2022 |
PORTAGE BIOTECH INC.
| By: | /s/ Allan Shaw | |
| Allan Shaw | ||
| Chief Financial Officer |
Exhibit 99.1
Portage Biotech Inc.
Condensed Consolidated Interim Financial Statements
For the Three and Six Months Ended September 30, 2022
(Unaudited – Prepared by Management) as of November 29, 2022
(U.S. Dollars)
Portage Biotech Inc.
Condensed Consolidated Interim Financial Statements
| Index | Page | |
| Notice to Reader | F-1 | |
| Condensed Consolidated Interim Statements of Financial Position | ||
| As of September 30, 2022 (Unaudited) and March 31, 2022 | F-2 | |
| Condensed Consolidated Interim Statements of Operations and Other Comprehensive Income (Loss) (Unaudited) | ||
| Three and six months ended September 30, 2022 and 2021 | F-3 | |
| Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity (Unaudited) | ||
| Six months ended September 30, 2022 and 2021 | F-4 | |
| Condensed Consolidated Interim Statements of Cash Flows (Unaudited) | ||
| Six months ended September 30, 2022 and 2021 | F-5 | |
| Notes to Condensed Consolidated Interim Financial Statements | F-6 to F-34 |
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 statements of financial position as of September 30, 2022 and March 31, 2022, the condensed consolidated interim statements of operations and other comprehensive income (loss) for the three and six months ended September 30, 2022 and 2021 and the statements of equity and cash flows for each of the six months ended September 30, 2022 and 2021 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, CFO | Ian Walters, MD, Chairman of the Board and Chief Executive Officer |
| DATE: November 29, 2022 |
F-1
Portage Biotech Inc.
Condensed Consolidated Interim Statements of Financial Position
(U.S. Dollars in thousands)
(Unaudited – see Notice to Reader dated November 29, 2022)
| As of, | Note | September 30, 2022 | March 31, 2022 | |||||||||
| (Audited) | ||||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||
| Prepaid expenses and other receivables | 5 | |||||||||||
| Convertible note receivable, including accrued interest | 6 | |||||||||||
| Total current assets | ||||||||||||
| Long-term assets | ||||||||||||
| Investments in associates | 6 | |||||||||||
| Investments in private companies | 7 | |||||||||||
| Goodwill | 8, 9 | |||||||||||
| In-process research and development | 8, 10 | |||||||||||
| Deferred commitment fee | 17 | |||||||||||
| Other assets, including equipment, net | ||||||||||||
| Total assets | $ | $ | ||||||||||
| Liabilities and Equity | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||||||
| Warrant liability | 13 | |||||||||||
| Total current liabilities | ||||||||||||
| Non-current liabilities | ||||||||||||
| Deferred tax liability | 10, 12 | |||||||||||
| Deferred purchase price payable - Tarus | 8, 19 | |||||||||||
| Deferred obligation - iOx milestone | 18, 19 | |||||||||||
| Total non current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Shareholders’ Equity | ||||||||||||
| Capital stock | 14 | |||||||||||
| Stock option reserve | 15 | |||||||||||
| Accumulated other comprehensive income | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Total equity attributable to owners of the Company | ||||||||||||
| Non-controlling interest | 21 | ( | ) | |||||||||
| Total equity | ||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||
| Commitments and Contingent Liabilities (Note 16) | ||||||||||||
| On behalf of the Board | /s/ Allan Shaw |
Chief Financial Officer |
/s/ Ian Walters | Chairman of the Board and Chief Executive Officer |
| (signed) | (signed) |
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 November 29, 2022)
| Note | Three months ended September 30, | Six months ended September 30, | ||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| In 000’$ | In 000’$ | In 000’$ | In 000’$ | |||||||||||||||||
| 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 | 8, 18 | |||||||||||||||||||
| Share of loss in associate accounted for using equity method | 6 | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
| Change in fair value of warrant liability | 13 | |||||||||||||||||||
| Foreign exchange transaction loss | 10, 12 | ( | ) | ( | ) | |||||||||||||||
| Interest income | ||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Income tax benefit | ||||||||||||||||||||
| Net loss and other comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Net (loss) income attributable to: | ||||||||||||||||||||
| Owners of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Non-controlling interest | 21 | ( | ) | ( | ) | ( | ) | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Comprehensive (loss) income attributable to: | ||||||||||||||||||||
| Owners of the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Non-controlling interest | 21 | ( | ) | ( | ) | ( | ) | |||||||||||||
| Total comprehensive loss for period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Loss per share | 16 | |||||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Weighted average shares outstanding | 16 | |||||||||||||||||||
| 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 Six Months Ended September 30, 2022 and 2021
(U.S. Dollars)
(Unaudited – see Notice to Reader dated November 29, 2022)
| Number of Shares | Capital Stock | Stock Option Reserve | Accumulated Other Comprehensive Income | Retained Earnings (Accumulated Deficit) | Equity Attributable to Owners of Company | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||
| In ‘000’ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | In ‘000’$ | |||||||||||||||||||||||||
| Balance, April 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Share-based compensation | – | |||||||||||||||||||||||||||||||
| 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 Park’s Committed Purchase | ||||||||||||||||||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||||||||||||||||||
| Net loss for period | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance, April 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Share-based compensation expense | – | |||||||||||||||||||||||||||||||
| Shares issued under ATM | ||||||||||||||||||||||||||||||||
| Shares issued under offering | ||||||||||||||||||||||||||||||||
| Share issuance costs | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||||||||||||||
| Exchange of notes payable and accrued interest for iOx shares | – | |||||||||||||||||||||||||||||||
| Net loss for period | – | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
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 Six Months Ended September 30, 2022 and 2021
(U.S. Dollars in thousands)
(Unaudited – see Notice to Reader dated November 29, 2022)
| Six Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments for non-cash items: | ||||||||
| Share-based compensation expense | ||||||||
| Decrease in deferred tax liability | ( | ) | ( | ) | ||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Change in fair value of Deferred purchase price payable - Tarus and Deferred obligation - iOx milestone | ( | ) | - | |||||
| Fair value of shares issued for services | ||||||||
| Share of loss in associate | ||||||||
| Foreign exchange transaction loss | ||||||||
| Changes in operating working capital: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other receivables | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| 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: | ||||||||
| Repayment of notes payable assumed in Tarus acquisition | ( | ) | ||||||
| Repayment of milestone obligation assumed in Tarus acquisition | ( | ) | ||||||
| Proceeds from shares issued under registered offering | ||||||||
| Share issuance costs | ( | ) | ||||||
| Proceeds from exercise of stock purchase warrants | ||||||||
| Advance payment of warrants exercised | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| (Decrease) increase 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 | $ | $ | ||||||
| Increase in accounts payable for stock issuance costs | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| 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 | $ | $ | ||||||
| Exchange of iOx shares for settlement of notes payable, accrued interest and warrants | $ | $ | ||||||
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 November 29, 2022)
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 therapies that target known checkpoint resistance pathways to improve long-term treatment response and quality of life in patients with evasive cancers. Portage’s access to next-generation technologies coupled with a deep understanding of biological mechanisms enable the identification of clinical therapies and product development strategies that accelerate these medicines through the translational pipeline. Portage’s portfolio consists of six diverse platforms, with lead programs including invariant natural killer T-cell (“iNKT”) agonists and a suite of treatments targeting the adenosine pathway. Additional programs leverage delivery by intratumorals, nanoparticles, liposomes, aptamers, and virus-like particles. Within these six platforms, Portage has 14 products currently in development with multiple clinical readouts expected through the end of 2023.
On August 13, 2018, the Company reached a definitive agreement to acquire
On June 5, 2020, the Company effected a 100:1 reverse stock split. All share and per share information included in the condensed consolidated interim financial statements of the Company have been retroactively adjusted to reflect the impact of the reverse stock split. The authorized shares of ordinary shares of the Company remained at an unlimited number of ordinary shares without par value.
NOTE 2. LIQUIDITY
As of September 30, 2022, the Company had cash and cash equivalents of
approximately $
Portage filed a shelf registration statement and prospectus with the SEC under which it may sell shares, debt securities, warrants and units in one or more offerings from time to time, which became effective on March 8, 2021 (“Registration Statement” or “Prospectus”). In connection with the Registration Statement, the Company has filed with the SEC:
F-6
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 2. LIQUIDITY (Cont’d)
| · | a base prospectus, which covers the offering, issuance and sale by us of up to $ |
| · | a prospectus supplement covering the offer, issuance and sale by us in an “at the market” offering of up to a maximum
aggregate offering price of up to $ |
| · | 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 underwriting with Cantor Fitzgerald; and |
| · | a prospectus supplement dated August 19, 2022, for the offer, issuance and sale by us of up to $30,000,000 in ordinary shares from time to time to Lincoln Park Capital Fund, LLC and their resale of those shares and an additional resale of 94,508 shares. |
During the quarter ended June 30, 2021, the Company commenced an “at
the market” offering, under which it sold
On June 24, 2021,
The Company maintains its “at the market” facility with Cantor Fitzgerald. On July 6, 2022, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“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. Pursuant to the 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 Purchase Agreement for any reason, effective upon one business day prior written notice to Lincoln. Lincoln has no right to terminate the 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 DTC eligible, among other things. The 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 Purchase Agreement, excluding, however, an at-the-market transaction with a registered broker-dealer.
F-7
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 2. LIQUIDITY (Cont’d)
The Company has incurred substantial 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 and would expect to enter the capital markets if additional funding is required.
COVID-19 Effect
Beginning in early March 2020, the COVID-19 pandemic and the measures imposed to contain this pandemic have disrupted and are expected to continue to impact the Company’s business operations. The magnitude of the impact of the COVID-19 pandemic on the Company’s productivity, results of operations and financial position, and its disruption to the Company’s business and clinical programs and timelines, will depend, in part, on the length and severity of these restrictions and on the Company’s ability to conduct business in the ordinary course. There was a slowdown and temporary lack of research and development resources, principally due to the focus of third party research on the pandemic. The environment has substantially normalized in 2022.
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”), 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, 2022.
These condensed consolidated interim financial statements have been prepared on an historical cost basis except for items disclosed herein at fair value (see Note 19, “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 and Board of Directors on November 29, 2022.
Consolidation
The condensed consolidated interim financial statements include the accounts of the Company and;
| (a) | SalvaRx Limited (“SalvaRx”), a wholly-owned subsidiary, incorporated on May 6, 2015 in the British Virgin Islands; |
F-8
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 3. BASIS OF PRESENTATION (Cont’d)
Consolidation (Cont’d)
| (b) | iOx Therapeutics Ltd. (“iOx”), a United Kingdom (“U.K.”) based immune-oncology company, a |
| (c) | Saugatuck, a |
| (d) | Portage Development Services Inc., a 100% owned subsidiary incorporated in Delaware, which provides human resources, and other services to each operating subsidiary via a shared services agreement; |
| (e) | SalvaRx LLC, a 100% owned subsidiary through SalvaRx; |
| (f) | Saugatuck Rx LLC, a wholly-owned subsidiary of Saugatuck; and |
| (g) | Tarus Therapeutics, LLC, 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 September 30, 2022, non-controlling interest represents
the
Functional and Presentation Currency
The Company’s functional and presentation currency is the U.S. Dollar.
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 convertible note receivable), deferred tax assets, deferred tax liability, 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 and goodwill and the determination of the accounting acquirer and acquiree in the business combination accounting.
F-9
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies are set out in Note 4 to the fiscal 2022 audited consolidated financial statements of the Company. These policies have been applied consistently to all periods presented in these condensed consolidated interim financial statements.
Recent Accounting Pronouncements
IFRS Pronouncements Issued
Impact of Adoption of Significant New IFRS Standards in 2022
| (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 six months ended September 30, 2022.
F-10
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 4. SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
| (b) | IAS 37: Onerous Contracts – Cost of Fulfilling a Contract |
The amendment to IAS 37 clarifies the meaning of costs to fulfil a contract and that before a separate provision for an onerous contract is established, an entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to the contract. This amendment is effective for annual periods beginning January 1, 2022. The Company’s adoption of IAS 37 did not have a material effect on its consolidated financial statements.
| (c) | IAS 16: Proceeds Before Intended Use |
The amendment to IAS 16 prohibits an entity from deducting from the cost of an item of Property, plant and equipment any proceeds received from selling items produced while the entity is preparing the assets for its intended use (for example, the proceeds from selling samples produced when testing a machine to see if it is functioning properly). It also clarifies that an entity is testing whether the asset is functioning properly when it assesses the technical and physical performance of the asset. The amendment also requires certain related disclosures. This amendment is effective for annual periods beginning January 1, 2022. The Company’s adoption of IAS 16 did not have a material effect on its consolidated financial statements.
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 will be effective for annual periods beginning on or after January 1, 2023. 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. On September 11, 2014, the IASB issued narrow-scope amendments to IFRS 10 and IAS 28. The amendments were to be effective for annual periods commencing on or after January 1, 2016. In December 2015, the IASB decided to postpone the effective date of these amendments indefinitely.
F-11
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 5. PREPAID EXPENSES AND OTHER RECEIVABLES
| Schedule of prepaid expenses and other receivables | ||||||||
| (In thousands) | As of September 30, 2022 | As of March 31, 2022 | ||||||
| Prepaid clinical research organization | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Research & development tax credits | ||||||||
| Tax deposits | ||||||||
| Other prepaid expenses | ||||||||
| Other receivables | ||||||||
| Total prepaid expenses and other receivables | $ | $ | ||||||
NOTE 6. INVESTMENT IN ASSOCIATE
Details of the Company’s associate as of September 30, 2022 and March 31, 2022 are as follows:
| Schedule of investment associate | |||||||||
| Name | Principal Activity |
Place of Incorporation and Principal Place of Business |
Voting Rights Held as of September 30, 2022 |
Voting Rights Held as of March 31, 2022 |
|||||
| % | % |
The following table is a roll-forward of the Company’s investment in Stimunity S.A. (“Stimunity”) as of and for the six months ended September 30, 2022 and 2021:
| Schedule of investment in Stimunity S.A. | ||||||||
| As of and for the Six Months Ended September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Share of (loss) | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
On June 1, 2020, the Company made an additional investment of €
On July 13, 2022,
F-12
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 6. INVESTMENT IN ASSOCIATE (Cont’d)
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
equity in loss in Stimunity of $
Under the Shareholders’ Agreement, 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 the Company to waive its preferential subscription right, or (b) any dilutive issuance.
NOTE 7. INVESTMENTS IN PRIVATE COMPANIES
The following is a discussion of the Company’s investments in private companies as of September 30, 2022 and March 31, 2022.
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 $1.3 million for IHL through the issuance of
During the year ended March 31, 2020, the Company recorded an unrealized
gain of $
As of each of September 30, 2022 and March 31, 2022, the Company owned
approximately
On October 28, 2021, Intensity filed a Form S-1 Registration Statement with the SEC to register shares for an initial public offering, which was declared effective by the SEC, but subsequently withdrawn prior to closing. Intensity is still evaluating market conditions to determine the timing of an initial public offering. As of September 30, 2022 and March 31, 2022, the Company has valued its investment in Intensity based on Intensity’s Series C Preferred Stock Offering completed in 2020. If the offering is successful, the Company will value its investment in Intensity based upon fair value (market price) and will record periodic changes in carrying value through OCI.
F-13
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 8. ACQUISITION OF TARUS
On July 1, 2022, the Company, its wholly-owned subsidiary, Tarus Acquisition Inc., and Tarus Therapeutics, Inc., a Delaware corporation advancing adenosine receptor agonists 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 a wholly-owned subsidiary of the Company with the surviving entity renamed Tarus Therapeutics, LLC. (“Tarus”). 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, and the Call Option under the 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 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. |
As consideration for Tarus, the Company issued to Tarus shareholders an aggregate of ordinary shares of Portage, calculated on the basis of $18 million divided by the 60-day Volume Weighted Average Price per share. The shares have not been registered with the SEC and are subject to lock-up agreements for terms ranging from six to twelve months. Additionally, milestone payments of up to $ million in cash or Portage ordinary shares would be triggered upon achievement of future development and sales milestones. As a result of the transaction:
| · | The Company also assumed $2 million in short-term debt held by Tarus and deferred license milestones obligations ($1 million plus interest). The short-term debt was repaid by the Company in July 2022. |
| · | Upon enrolling the first patient in a Phase 2 clinical trial, Portage will pay an additional one-time milestone
payment of $15 million. Payment will be in the form of cash or Portage ordinary shares (at the discretion of Portage). The remaining $ |
F-14
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 8. ACQUISITION OF TARUS (Cont’d)
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 shares issued at $17.2 million, which represented the aggregate market value of the 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 $8.538 million, which reflected the estimated acquisition date fair value of contractual milestone obligations incurred. The principal assumptions for determining the fair value include the timing of development events, the probabilities of success and the discount rate used. The Company recorded the obligation as a non-current liability, in accordance with the provisions IAS 32 with respect to the classification of financial assets and financial liabilities.
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 following table summarizes the preliminary 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 | $ | |||
Pro forma Information
Summary unaudited pro forma condensed results of operations for the six months ended September 30, 2022 and 2021, assuming the Tarus acquisition had occurred at the beginning of the earliest period presented are as follows:
| Schedule of pro forma information | ||||||||
| For the Six Months Ended September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | ||
| Net loss and other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share | $ | ( | ) | $ | ( | ) | ||
Summary unaudited pro forma condensed results of operations for the three months ended September 30, 2022 and 2021, assuming the Tarus acquisition had occurred at the beginning of the earliest period presented are as follows:
| For the Three Months Ended September 30, | ||||||||
| (In thousands) | 2022 (1) | 2021 | ||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | ||
| Net loss and other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Loss per share | $ | ( | ) | $ | ( | ) | ||
| (1) |
F-15
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 8. ACQUISITION OF TARUS (Cont’d)
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 9. GOODWILL
The following is a roll-forward of goodwill:
| Schedule of IPR&D projects | ||||||||
| (In thousands) | As of September 30, 2022 | As of March 31, 2022 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Tarus goodwill | ||||||||
| Balance, end of period | $ | $ | ||||||
The Company’s goodwill arose primarily from the acquisition of SalvaRx and its portfolio of several projects and investments.
In July 2022, as a result of the acquisition of Tarus, the Company recorded
$
Under purchase accounting as of July 1, 2022 (the acquisition date), the assets and liabilities of Tarus Therapeutics, Inc., was recorded at their respective fair values and the excess of the acquisition consideration is goodwill. The purchase was in the form of a merger in which Tarus Therapeutics, Inc. was merged into Tarus Therapeutics, LLC., which is a wholly-owned subsidiary of Portage. All of the consideration for Tarus Therapeutics, LLC was paid or assumed by Portage and Portage will control the voting rights, the Board of Directors and the operations of Tarus Therapeutics, LLC.
As of September 30, 2022, the Company determined that it has only one cash-generating unit (“CGU”), the consolidated Portage Biotech Inc.
Impairment Review
On an annual basis, pursuant to IAS 36, “Impairment of Assets,” the Company assesses its long-lived assets with definite lives, which are not yet available for use, for potential indicators of impairment.
If any such indication exists, the Company estimates the recoverable amount of the asset or CGU and compares it to the carrying value.
The Company performed its annual impairment test in each of fiscal 2022 and fiscal 2021 and estimated the recoverable amount of the above-noted CGU based on its value in use, which was determined using a capitalized cash flow methodology and categorized within level 3 of the fair market value hierarchy.
F-16
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 9. GOODWILL (Cont’d)
The recoverable amount of the CGU has been determined based on its value in use. The recoverable amount considered assumptions based on probabilities of technical, regulatory and clinical acceptances and financial support. Further, management uses risk-adjusted cash flow projections based on financial budgets. Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the carrying amount to exceed its recoverable amount. The discount rate has been determined based on the Company’s best estimate of a risk adjusted discount rate.
The key assumptions used in the calculation of the recoverable amount include forecasts of the following:
| (a) | revenues; |
| (b) | normalized operating expenses; |
| (c) | income taxes; and |
| (d) | capital expenditures. |
Discounted cash flows are determined with reference to undiscounted risk
adjusted cash flows, and the discount rate approximated
As of September 30, 2022, management assessed whether any indications of impairment existed for the Company’s CGU. As of September 30, 2022, the Company’s market capitalization was less than its net assets, which is an external indicator of potential impairment. The Company evaluated this factor in conjunction with its assessment of the overall market environment and the progress made in developing the Company’s assets. The Company determined that a test for impairment was not required and no impairment was recorded for the three and six months ended September 30, 2022.
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 | ||||||||||
| Project # | Description | Value as of September 30, 2022 | Value as of March 31, 2022 | |||||||
| 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 | $ | $ | ||||||||
Additionally, at the end of each reporting period, the Company is required to assess whether there is any indication that an asset may be impaired. As indicated above, the Company identified an external indicator of potential impairment as of September 30, 2022. Pursuant to IAS 36, the Company completed its review of underlying fundamentals, execution, advancement of assets and value creation activities and concluded that no provision for impairment was required during the three and six months ended September 30, 2022.
F-17
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 10. IN-PROCESS RESEARCH AND DEVELOPMENT AND DEFERRED TAX LIABILITY (Cont’d)
Deferred tax liability represents iOx’s estimated tax on the difference between book and tax basis of the IPR&D, which is taxable in the U.K and the effect of usable net operating loss carryforwards.
As of September 30, 2022 and March 31, 2022, iOx had a net deferred
tax liability of approximately $
NOTE 11. UNSECURED NOTES PAYABLE
The following is a roll-forward of notes payable:
| Schedule of notes payable | ||||||||||||
| CURRENT | NON-CURRENT | |||||||||||
| (In thousands) | iOx | SalvaRx | Total | |||||||||
| Balance, April 1, 2021 | $ | $ | $ | |||||||||
| Exchange of notes payable and accrued interest for iOx shares | ( | ) | ( | ) | ||||||||
| Balance, March 31, 2022 | $ | $ | $ | |||||||||
| Balance, September 30, 2022 | $ | $ | $ | |||||||||
SalvaRx Unsecured Notes Payable and Warrants
In connection with the SalvaRx Acquisition in January 2019,
During September 2020, the Company settled the SalvaRx Notes obligations
originally due in June 2021 in an aggregate principal amount of approximately $3.7 million, plus accrued interest of $0.75 million in
exchange for cash payments totaling $1.77 million and
F-18
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 11. UNSECURED NOTES PAYABLE (Cont’d)
iOx Unsecured Notes Payable
In connection with the SalvaRx Acquisition in January 2019,
On September 8, 2021, the
NOTE 12. INCOME TAXES
The Company is a British Virgin Island business company. The Government of the British Virgin Islands 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 benefit from income taxes consists of the following:
| Schedule of income taxes benefit | ||||||||
| For the Six Months Ended September 30, | ||||||||
| (In thousands) | 2022 | 2021 | ||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State and local | ||||||||
| Foreign | ||||||||
| Current | ||||||||
| Deferred: | ||||||||
| Federal | ||||||||
| State and local | ||||||||
| Foreign | ||||||||
| Deferred | ||||||||
| Benefit from income taxes | $ | $ | ||||||
F-19
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 12. INCOME TAXES (Cont’d)
The following is a reconciliation of the U.S. taxes to the effective income tax rates for the six months ended September 30, 2022 and 2021 ($ in thousands):
| Schedule of reconciliation income tax rates | ||||||||
| Six Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Income (loss) on ordinary activities before tax | $ | $ | ( | ) | ||||
| Statutory U.S. income tax rate | % | % | ||||||
| Income tax at statutory income tax rate | ||||||||
| Losses recognized | ( | ) | ||||||
| Income tax benefit (expense) | $ | $ | ||||||
The Company has $1.3 million of Federal net operating losses, which carryforward
indefinitely but are limited to 80% of taxable income when utilized. As of each of September 30, 2022 and March 31, 2022, the Company
had U.S. deferred tax assets of $
The following is a reconciliation of the U.K. taxes to the effective income tax rates for the six months ended September 30, 2022 and 2021 ($ in thousands):
| Schedule of effective income tax rates | ||||||||
| Six Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Loss on ordinary activities before tax | $ | 3,207 | $ | 633 | ||||
| Statutory U.K. income tax rate | 19.0 | % | 19.0 | % | ||||
| Loss at statutory income tax rate | 609 | 120 | ||||||
| Change (increase) in deferred income tax rate | 192 | – | ||||||
| Foreign currency effect | 4,304 | 537 | ||||||
| Research and development credit | – | 45 | ||||||
| Losses (unrecognized) | – | (120 | ) | |||||
| Income tax benefit | $ | 5,105 | $ | 582 | ||||
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 loss to tax basis loss | ||||||||||||||||||||||||||||||||
| Six Months Ended September 30, 2022 | Six Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||
| United States | BVI | United Kingdom | Total | United States | BVI | Foreign | Total | |||||||||||||||||||||||||
| Pre-tax income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||
| Losses not subject to tax | ||||||||||||||||||||||||||||||||
| Utilization of losses not previously benefitted | ||||||||||||||||||||||||||||||||
| Taxable loss | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||
F-20
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 12. INCOME TAXES (Cont’d)
As of September 30, 2022 and March 31, 2022, the Company’s deferred tax assets and liabilities in the U.K. consisted of the effects of temporary differences attributable to the following (in thousands):
| Schedule of deferred tax assets and liabilities | ||||||||
| As of September 30, | As of March 31, | |||||||
| 2022 | 2022 | |||||||
| 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 research and development cash credits of approximately $
As of September 30, 2022 and March 31, 2022, iOx had a net deferred
tax liability of approximately $
There is no expiration date for accumulated tax losses in the U.K. entities.
F-21
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 13. WARRANT LIABILITY
Below is the roll-forward of warrants issued by entity (see Note 11, “Unsecured Notes Payable”):
| Schedule of warrant liability | ||||||||||||
| PBI | ||||||||||||
| Exercise Price | Warrants | Amount | ||||||||||
| In 000’$ | ||||||||||||
| Warrants outstanding, April 1, 2022 | $ | $ | ||||||||||
| Exercise of warrants as of September 30, 2022 | $ | |||||||||||
| Fair value adjustment as of September 30, 2022 (1) (2) | ( | ) | ||||||||||
| Warrants outstanding, September 30, 2022 | $ | $ | ||||||||||
| (1) | Portage warrant liability valued at contract price, adjusted for fair value using the Black-Scholes model. |
The Black-Scholes assumptions used in the fair value calculation of the warrants as of September 30, 2022 were:
Risk free rate: %
Expected Dividend: $
Expected Life: years
Volatility: %
| (2) | The Company recognized a gain of $ |
NOTE 14. CAPITAL STOCK
| (a) | Authorized ordinary shares: Unlimited number of common shares without par value. |
| (b) | Following is a roll-forward of ordinary shares for the six months ended September 30, 2022 and 2021: |
| Common shares: Unlimited number of common shares without par value | ||||||||||||||||
| Six Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Ordinary Shares | Amount | Ordinary Shares | Amount | |||||||||||||
| In 000’ | In 000’$ | In 000’ | In 000’$ | |||||||||||||
| Balance, beginning of period | $ | $ | ||||||||||||||
| Shares issued in Tarus acquisition | ||||||||||||||||
| Shares issued in iOx exchange | ||||||||||||||||
| Excess of non-controlling interest acquired over consideration – iOx | ||||||||||||||||
| Shares issued to Lincoln Park’s Committed Purchase | ||||||||||||||||
| Shares issued or accrued for services | ||||||||||||||||
| Shares issued in public offering and ATM | ||||||||||||||||
| Warrants exercised | ||||||||||||||||
| Balance, end of period | $ | $ | ||||||||||||||
On June 16, 2020, the Company completed a private placement of restricted ordinary shares at a price of $ per share for gross proceeds of $ million to accredited investors. Directors of the Company subscribed for shares, or approximately 30.8% of the private placement, for proceeds of $ million. The Company incurred costs of approximately $0.25 million in connection with the offering, which was treated as contra-equity on the Company’s balance sheet.
F-22
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 14. CAPITAL STOCK (Cont’d)
During the quarter ended June 30, 2021, the Company commenced an “at
the market” offering, under which it sold
On June 24, 2021, the Company completed a firm commitment underwritten
public offering of
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 we may issue additional ordinary shares. See Note 8, “Tarus Acquisition” for a further discussion.
On July 18, 2022, the Company completed the iOx Share Exchange Agreement
under which it exchanged ordinary shares for the remaining minority interest of
Additionally, on August 19, 2022, the Company issued ordinary shares to Lincoln Park Capital Fund L.L.C. in consideration for entering into the $ million committed share purchase agreement. See Note 17, “Commitments and Contingent Liabilities – Purchase Agreement” for a further discussion.
| (a) | The following table provides the activity for the Company’s stock option reserve for the six months ended September 30, 2022 and 2021: |
| Disclosure Of Terms Stock Option Reserve Explanatory | ||||||||||||||||
| Six Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| (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
On June 25, 2020, at the annual meeting of shareholders, the Company’s new incentive stock option plan (the “2020 Stock Option Plan”) was approved, which authorized the directors to fix the option exercise price and to issue stock options under the plan as they see fit. The Company’s 2020 Stock Option Plan is a 10% rolling stock option plan under which the directors are authorized to grant up to a maximum of 10% of the issued and outstanding ordinary shares on the date of grant.
F-23
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 15. STOCK OPTION RESERVE (Cont’d)
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 and dividend equivalent rights (the “2021 Equity Incentive Plan”). The aggregate number of equity securities, which may be issued under the 2021 Equity Incentive Plan has not been changed. Pursuant to the 2021 Equity Incentive Plan, on January 13, 2021, the Company granted an aggregate of stock options exercisable at a price of $ per share, representing the closing price of the shares on the day immediately preceding the grant date, which expire on January 13, 2031 to various directors, officers and consultants of the Company. options granted to members of the Board of Directors’ vest 1/3 on grant date, 1/3 on the first anniversary of the grant and 1/3 on the second anniversary of the grant. options granted to consultants (one of whom is also a director) vest 1/3 on each of the first three anniversaries of the date of grant.
Additionally, the Company granted
Amended and Restated 2021 Equity Incentive Plan and Grants of Stock Options and Restricted Stock Units
On January 19, 2022, the Board of Directors 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 shares available for awards to 2,001,812, which is equal to 15% of the issued and outstanding common 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 shares not to exceed an additional five percent (5%) of the aggregate number of shares then outstanding; |
| (2) | The authorization of incentive stock options (should shareholder approval be sought and obtained) under the Amended and Restated 2021 Equity Incentive Plan; and |
| (3) | The provision of dividend equivalent rights to be issued when authorized. |
Pursuant to the Amended and Restated 2021 Equity Incentive Plan, on January
19, 2022, the Company granted an aggregate of
Additionally, the Company granted
F-24
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 15. STOCK OPTION RESERVE (Cont’d)
On February 15, 2022, James Mellon, Linda Kozick and Mark Simon were appointed
to the Board of Directors of the Company. Mr. Mellon owned approximately 23.9% of the Company’s outstanding shares at that date.
Additionally, Mr. Mellon had previously served as a member of the Board of Directors from 2016 to August 14, 2020. On February 15, 2022,
in connection with the appointments, each of these directors were granted
On June 8, 2022, the Company granted
Following are the weighted average assumptions used in connection with the June 8, 2022 option grant, with respect to the Company’s Amended and Restated 2021 Equity Incentive Plan:
| Schedule of fair value of these stock options on the date of grant and black-scholes option pricing model | |||
| Assumption | Unvested Options | ||
| Risk free interest rate | % | ||
| Expected dividend | Nil | ||
| Expected volatility | % | ||
| Expected life | years | ||
| Fair value of Portage option | $ |
On July 27, 2022, the Company granted
Following are the weighted average assumptions used in connection with the July 27, 2022 option grant, with respect to the Company’s Amended and Restated 2021 Equity Incentive Plan:
| Assumption | Unvested Options | ||
| Risk free interest rate | % | ||
| Expected dividend | Nil | ||
| Expected volatility | % | ||
| Expected life | years | ||
| Fair value of Portage option | $ |
| (b) | The movements in the number of options issued for the six months ended September 30, 2022 and 2021 were: |
| Schedule of outstanding stock options | ||||||||||||||||
| PBI Amended and Restated 2021 Equity Incentive Plan | iOx Option Plan (Subsidiary Plan) | |||||||||||||||
| Six Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Balance, beginning of period | ||||||||||||||||
| Granted | ||||||||||||||||
| Expired or forfeited | ( | ) | ||||||||||||||
| Balance, end of period | ||||||||||||||||
| Exercisable, end of period | ||||||||||||||||
F-25
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 15. STOCK OPTION RESERVE (Cont’d)
| (c) | The following are the weighted average exercise price and the remaining contractual life for outstanding options by plan as of September 30, 2022 and 2021: |
| Schedule of weighted average exercise price and remaining contractual life | ||||||||||||||||
| PBI Amended and Restated 2021 Equity Incentive Plan | iOx Option Plan (Subsidiary Plan) | |||||||||||||||
| As of September 30, | As of September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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 on the date of the grants for all options outstanding as of September 30, 2022 and March 31, 2022.
The Company recorded approximately $
The Company recorded approximately $
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 following table reflects the loss and share data used in the basic and diluted EPS calculations (dollars in thousands, except per share amounts):
| Schedule of basic and diluted EPS calculations | ||||||||||||||||
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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 (Actual) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
F-26
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 16. (LOSS) PER SHARE (Cont’d)
The inclusion of the Company’s stock options, restricted stock units and share purchase warrants 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 six months ended September 30, 2022 and 2021. The following table reflects the outstanding securities by year that would have an anti-dilutive effect on loss per share and, accordingly, were excluded from the calculation.
| Schedule of anti-dilutive share | ||||||||
| As of September 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock options | ||||||||
| Restricted stock units | ||||||||
| Warrants | ||||||||
Inclusion of outstanding options or other common stock equivalents in the computation of diluted loss per share would have an anti-dilutive effect on the loss per share and are therefore excluded from the computation. Consequently, there is no difference between loss per share and diluted loss per share.
NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES
Effective March 15, 2022, iOx entered into a Master Services Agreement (“MSA”) with Parexel International (IRE) Limited (“Parexel”) under which Parexel agrees to provide services as CRO provided in a work order (“Work Order”) effective June 1, 2022 under which Parexel will operate a Phase 2 trial of IMM60 and pembrolizumab in advanced melanoma and non-small lung cancer (“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.
Stimunity Convertible Note
On July 13, 2022, the Company entered into a commitment with Stimunity
to provide €
Purchase Agreement
On July 6, 2022 (the “Signing Date”), the Company entered
into the Purchase Agreement with Lincoln Park Capital Fund, LLC, pursuant to which the Company may require Lincoln to purchase ordinary
shares having an aggregate value of up to $
F-27
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES (Cont’d)
Upon execution of the Purchase Agreement, the Company issued to Lincoln
ordinary shares, representing a 3% commitment fee valued at $
The 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 Purchase Agreement, the Company and Lincoln entered into a Registration Rights Agreement (the “Registration Rights Agreement”), dated July 6, 2022. Pursuant to the Registration Rights Agreement, the Company agreed, that it will 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 Purchase Agreement. The prospectus supplement was filed on August 18, 2022.
The Company Is obligated under the Tarus acquisition and the iOx Share Exchange Agreement for certain third party earnouts based on the achievement of certain milestones. See Note 8, “Acquisition of Tarus” and Note 18, “Related Party Transactions – Share Exchange Agreement – iOx” for further discussions.
NOTE 18. RELATED PARTY TRANSACTIONS
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. The Board of Directors, Chairman, Chief Executive Officer and Chief Financial Officer are key management personnel.
The following subsidiaries and associates are considered related parties:
| (a) | Stimunity. The CEO of Portage is one of three members of the Board of Directors of Stimunity (see Note 6, “Investment in Associate” and Note 17, “Commitments and Contingent Liabilities – Stimunity Convertible Note”). |
| (b) | iOx. Upon the iOx Share Exchange on July 18, 2022, the non-Portage director resigned leaving two Portage insiders as directors. The CEO of Portage is also the CEO of iOx, and the management team of the Company comprise the management team of iOx. See below for a discussion of the Company’s purchase of the non-controlling interest in iOx. |
| (c) | Saugatuck. One of the three directorships on the Board of Directors of Saugatuck is controlled by Portage. Additionally, the CEO of the Company is also the CEO of Saugatuck and the management team of the Company comprise the management team of Saugatuck. |
F-28
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
| (d) | Intensity. The CEO of Portage is an officer of Intensity and both he and the VP of Projects and Operations of the Company provide
services to Intensity. The Company commenced invoicing Intensity for such services in February 2022 (see Note 7, “Investments in
Private Companies”). Additionally, Intensity provides services (primarily rent) to Portage, which is billed monthly. Portage accrued
approximately $ |
| (e) | Portage Development Services Inc. Portage Development Services Inc. is a 100% owned subsidiary incorporated in Delaware, which provides human resources, and other services to each operating subsidiary of Portage via a shared services agreement. |
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,
Share Exchange Agreement – iOx
On July 18, 2022, the Company and its wholly-owned subsidiary, SalvaRx Ltd. (“SalvaRx”), entered into a 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 agonist 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 Portage’s acquisition of SalvaRx. 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 agonists, 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, Portage owns 100% of the issued and outstanding shares of iOx.
F-29
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
As additional consideration for the sale of the iOx Exchange Shares to the Company, 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/agonist) 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 issuer's own equity instruments, it is either: |
| (i) | a non-derivative that includes no contractual obligation for the issuer 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. |
When a derivative financial instrument gives one party a choice over how it is settled (for instance, the issuer 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 balance sheet 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 fair value of the liability of $0.054 million as of and for the three and six months ended September 30, 2022.
Employment Agreements
PDS entered into a Services Agreement with our CEO effective December
15, 2021. The Services Agreement provides that the CEO will receive a base salary of $
F-30
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
Under the Services Agreement, the CEO may terminate his employment with PDS at any time for Good Reason, as defined in the 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 Services Agreement. In the event that the CEO’s employment is terminated due to his death or Disability, for “Good Reason” or without “Just Cause,” (each as defined in the Services Agreement) 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 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. Additionally, 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.
Additionally, 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 Services Agreement, and the exercise period for such stock options will be increased by a period of two years from the Termination Date.
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 twelve (12) months following the effective date of a “Change in Control” (as defined in the Services Agreement), then in addition to paying or providing the CEO with the Accrued Obligations (as defined in the Services Agreement), the Company will provide the following “Change in Control Severance Benefits”:
| (1) | PDS will pay the base salary continuation benefit for eighteen (18) months; |
| (2) | PDS will pay the life insurance benefit for eighteen (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 twelve equal installments commencing on the first payroll date that is more than sixty (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 eleven (11) months thereafter; |
| (4) | PDS will provide the CEO with continued medical and dental benefits, as described above, for eighteen (18) months; and |
| (5) | All stock options (and any other unvested equity incentive award) held by the CEO relating to shares of the Company or its parent 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 with each of our five other senior
officers (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 Services Agreements provides for an
initial term of two years that is automatically renewed for one-year periods (except two of the Services Agreement, which provides for
an initial term of one year and that is automatically renewed for one-year periods). The Services Agreements initially provide for annual
base salaries ranging from $175,000 to $
F-31
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
The Services Agreements with the Executives 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 Services Agreements). In such instances, the 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 Services Agreements, and the exercise period for such stock options will be increased by a period of two years from the Termination Date.
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 twelve (12) months following the effective date of a “Change in Control” (as defined), then in addition to paying or providing the Executive with the Accrued Obligations, the Company will provide the following “Change in Control Severance Benefits” (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 twelve (12) months; |
| (2) | PDS will pay the life insurance benefit for twelve (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 twelve equal installments commencing on the first payroll date that is more than sixty (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 eleven (11) months thereafter; |
| (4) | PDS will provide the Executive with continued medical and dental benefits, as described above, for twelve (12) months; and |
| (5) | All stock options (and any other unvested equity incentive award) held by the Executive relating to shares of the Company or its parent 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 Services Agreements also include customary confidentiality, as well as provisions relating to assignment of inventions. The 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.
F-32
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 18. RELATED PARTY TRANSACTIONS (Cont’d)
Bonuses & Board Compensation Arrangements
In December 2021, the Compensation Committee approved performance bonuses payable to senior management totaling $0.7 million. The bonuses were paid in December 2021.
In addition, the Compensation Committee of the Board established board of director compensation. Effective January 1, 2022, each non-executive board member will be entitled to receive cash board fees of $40,000 per annum, payable quarterly in arrears. Additionally, each non-executive board member will be entitled to an annual grant of 6,900 options to purchase Portage ordinary shares, which would vest the first annual anniversary of the date of grant. The Company incurred board fees totaling $82,500 and $157,500 during the three and six months ended September 30, 2022, respectively. There were no board fees incurred during the three and six months ended September 30, 2021.
Non-executive Board chairpersons will be entitled to an annual cash fee
of $30,000, payable quarterly in arrears. In lieu of a non-executive chairperson, the lead director will be entitled to an annual cash
fee of $20,000 per annum paid quarterly in arrears.
NOTE 19. 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 September 30, 2022 and March 31, 2022:
| Schedule of financial instruments | ||||||||||||||||
| As of September 30, 2022 | As of March 31, 2022 | |||||||||||||||
| (In thousands) | Amortized Cost | Fair Value through Other Comprehensive Income (FVTOCI) | Amortized Cost | FVTOCI | ||||||||||||
| Financial assets | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Prepaid expenses and other receivables | $ | $ | $ | $ | ||||||||||||
| Convertible note receivable, including accrued interest | $ | $ | $ | $ | ||||||||||||
| Investments | $ | $ | $ | $ | ||||||||||||
| Amortized Cost | Fair Value through Profit or Loss (FVTPL) | Amortized Cost | FVTPL | |||||||||||||
| Financial liabilities | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | ||||||||||||
| Warrant liability | $ | $ | $ | $ | ||||||||||||
| Deferred purchase price payable - Tarus | $ | $ | $ | $ | ||||||||||||
| Deferred obligation - iOx milestone | $ | $ | $ | $ | ||||||||||||
F-33
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont’d)
A summary of the Company’s risk exposures as it relates to financial instruments are reflected below.
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 private entities, accounts payable, warrant liability and unsecured notes payable.
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:
Convertible Note Receivable: The fair value of the convertible note 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 17, “Commitments and Contingent Liabilities – Stimunity Convertible Note”).
Investment in Intensity: Fair value of the asset is determined by considering other comparable equity funding transactions by Intensity with unrelated investors (Level 3).
Accrued Equity Issuable: The fair value is estimated based on the average of the quoted market prices for the period in which the shares were earned (Level 1).
Warrant Liability: The fair value is estimated using a Black-Scholes model (Level 3) (see Note 13, “Warrant Liability”).
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 8, “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 fair value of the liability of $0.016 million as of and for the three and six months ended September 30, 2022.
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 iOx Share Exchange Agreement, adjusted at each reporting date for any change in fair value (Level 3) (see Note 18, “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. The Company recorded a gain from the change (decrease) in fair value of the liability of $0.054 million as of and for the three and six months ended September 30, 2022.
F-34
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 19. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Cont’d)
There have been no transfers between levels of the fair value hierarchy for the six months ended September 30, 2022 and the year ended March 31, 2022.
The Company’s financial instruments are exposed to certain financial risks: credit risk and liquidity risk.
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfil 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 on-demand deposits 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 September 30, 2022 and March 31, 2022, 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 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. The Company believes that it has sufficient funding to finance the committed drug development work, apart from meeting its operational needs for the foreseeable future.
However, 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, “Liquidity” and Note 14, “Capital Stock” for a discussion of the Company’s share offering and Note 17, “Commitments and Contingent Liabilities – Purchase Agreement” for a further discussion.
NOTE 20. CAPITAL DISCLOSURES
The Company considers the items included in shareholders’ equity
as capital. The Company had accounts payable and accrued expenses of approximately $
F-35
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 20. CAPITAL DISCLOSURES (Cont’d)
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 September 30, 2022, shareholders’ equity attributable to the owners of the company was approximately $ million (approximately $ million as of March 31, 2022).
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 six months ended September 30, 2022 and 2021.
NOTE 21. NON-CONTROLLING INTEREST
| Schedule of non-controlling interest | ||||||||||||
| (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 September 30, 2022 | $ | $ | ( | ) | $ | ( | ) | |||||
| (In thousands) | iOx | Saugatuck | Total | |||||||||
| Non-controlling interest as of April 1, 2021 | $ | $ | ( | ) | $ | |||||||
| Share-based compensation expense | ||||||||||||
| Exchange of notes payable, accrued interest and warrants for iOx shares | ||||||||||||
| Net (loss) attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||
| Non-controlling interest as of September 30, 2021 | $ | $ | ( | ) | $ | |||||||
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 11, “Unsecured Notes Payable – iOx Unsecured Notes Payable” and Note 18, “Related Party Transactions – Share Exchange Agreement - iOx” for further discussions.
Saugatuck and subsidiary includes Saugatuck and its wholly-owned subsidiary, Saugatuck Rx LLC.
NOTE 22. EVENTS AFTER THE BALANCE SHEET DATE
| a) | Sale of ordinary shares |
In October, 2022, the Company restarted the ATM and commenced sales of
ordinary shares pursuant to the Sales Agreement. Through November 22, 2022, the Company sold ordinary shares under the ATM and
generated net proceeds of approximately $
F-36
Portage Biotech Inc.
Notes to Condensed Consolidated Interim Financial Statements
(U.S. Dollars)
(Unaudited – See Notice to Reader dated November 29, 2022)
NOTE 22. EVENTS AFTER THE BALANCE SHEET DATE (Cont’d)
| b) | Submission of Matters to a Vote of Security Holders |
The 2022 Annual Meeting of Shareholders (the “Annual Meeting”) of the Company was held on November 10, 2022. At the Annual Meeting, the Company’s shareholders:
| · | Elected seven incumbent directors to serve until the next annual meeting of the Company’s shareholders or until their respective successors have been duly elected and qualified; and |
| · | Approved the Amended and Restated 2021 Equity Incentive Plan, as amended and updated in January 2022. |
The number of votes cast for, against or withheld and the number of broker non-votes with respect to each Proposal is set forth below.
| Schedule of number of votes cast | ||||||||||||
| Proposal 1 | Shares For | Shares Withheld | Broker Non-Votes | |||||||||
| Ian Walters | ||||||||||||
| Gregory Bailey | ||||||||||||
| Steven Mintz | ||||||||||||
| James Mellon | ||||||||||||
| Linda Kozick | ||||||||||||
| Mark Simon | ||||||||||||
| Robert Glassman | ||||||||||||
| Proposal 2 | Shares For | Shares Against | Broker Non-Votes | |||||||||
| Approved the Amended and Restated 2021 Equity Incentive Plan, as amended and updated in January 2022. | ||||||||||||
F-37
Exhibit 99.2
PORTAGE BIOTECH INC.
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2022
MANAGEMENT’S DISCUSSION AND ANALYSIS
Prepared as of November 29, 2022
Index
| Forward-Looking Statements | 3 |
| Nature of Operations and Overview | 4 |
| Summary of Results | 8 |
| Number of Ordinary Shares and Warrants | 8 |
| Business Environment – Risk Factors | 9 |
| Our Programs and Technology – Recent Developments | 9 |
| Results of Operations | 14 |
| Liquidity and Capital Resources | 18 |
| Key Contractual Obligations | 21 |
| Off-balance Sheet Arrangements | 22 |
| Transactions with Related Parties | 22 |
| Financial and Derivative Instruments | 22 |
| Use of Estimates and Judgments | 24 |
| New Accounting Standards, Interpretations and Amendments | 24 |
| Internal Controls over Financial Reporting | 25 |
| Public Securities Filings | 25 |
| 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 six months ended September 30, 2022, should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three and six months ended September 30, 2022, together with the related Management’s Discussion and Analysis and audited consolidated financial statements for the year ended March 31, 2022, and Annual Report on Form 20-F for the year ended March 31, 2022.
Forward-Looking Statements
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" 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 plans and ability to develop and commercialize product candidates and the timing of these development programs; |
| · | clinical development of our product candidates, including the results of current and future clinical trials; |
| · | the benefits and risks of our product candidates as compared to others; |
| · | our maintenance and establishment of intellectual property rights in our product candidates; |
| · | our need for financing and our estimates regarding our capital requirements and future revenues and profitability; |
| · | our estimates of the size of the potential markets for our product candidates; and |
| · | our selection and licensing of product candidates. |
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 the Company’s Annual Report on Form 20-F for the year ended March 31, 2022.
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 post pharmaceutical development endeavors of manufacturing, marketing and distribution of our development products.
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 the Company’s unaudited condensed consolidated interim financial statements for the three and six months ended September 30, 2022.
| 3 |
Nature of Operations and Overview
Portage is a clinical stage immune-oncology company advancing first-in-class and best-in-class therapies that target known checkpoint resistance pathways to improve long-term treatment response and quality of life in patients with evasive 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. Including the Tarus Therapeutics acquisition, we currently manage 16 immuno-oncology assets at various development stages, four of which are clinical stage. We source, nurture and develop the creation of early- to mid-stage, first- and best-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 products or technologies based on biology addressing known resistance pathways/mechanisms of current check point inhibitors with established scientific rationales, including intratumoral delivery, nanoparticles, liposomes, aptamers, and virus-like particles.
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. 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; |
| · | 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 evasive cancers. |
Our execution is achieved, in part, through our internal core team and our large network of experts, contract labs, and academic partners.
The Company believes that it is not subject to the regulation of the Investment Company Act of 1940, as amended (“40 Act”), based on the definition of investment companies. Notwithstanding the foregoing, as the Company primarily operates within the biomedical industry as a research and development business, the Company believes that it is also able to take advantage of the non-exclusive safe harbor of Rule 3a-8 promulgated under the 40 Act so as not to be characterized as an investment company. The Company has adopted a capital preservation policy referenced in that rule.
| 4 |
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 with a goal of advancing one therapeutic candidate into the clinic and one program into IND-enabling studies each year; 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 August 1, 2022, the current state of our immuno-oncology therapeutic 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 the Company, you should make your own analysis of forward-looking statements and our projections about candidate and program development and results.
| 5 |
Our Business Model
Portage is 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 IP for each platform is held in separate private entities. Our employees and consultants work across the pipeline 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 built a network of trusted external service providers, choosing 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 first- and best-in-class therapies for a variety of cancers sourced via our extensive industry contacts and relationships (e.g., 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 the experienced drug development leadership team and approach to resource allocation differentiate us from other potential licensees. |
| 6 |
| · | Leverage unique commoditized checkpoint marketplace and explore the potential to further enhance long-term clinical benefit 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 which lack differentiation, resulting in a competitive market dynamic, that will favor combination therapy. There is substantial opportunity for potential expansion in the PD-1 market with our invariant natural killer T-cell (“iNKT”) agonists and adenosine inhibitors. 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 iNKT agonists 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 14 approved PD-1 antibodies, and every major pharmaceutical company competes in this space. One illustrative example of potentially expanding eligible patients is with iNKT agonists upregulating expression of PD-L1, patient populations that are typically not good candidates for PD-1 antibodies due to their lack of or low expression of PD-L1 may be able to utilize iNKTs to sensitize tumors to PD-1 agents. 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: Each operating subsidiary is a separate legal entity that holds the relevant intellectual property of its therapeutic candidates or programs. 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 incubate internal programs, leveraging internal resources and network of service providers as needed to support our discovery, lead optimization, and IND-enabling efforts. When we decide to license from or collaborate with external parties, we establish distinct operating entities to hold and advance those programs. This structure enables us to keep licensors economically incentivized at the program level through our ability to offer equity and access to potential cash milestones and royalty payments.
The Company is a BVI business company incorporated under the BVI Act with its registered office located at Clarence Thomas Building, P.O. Box 4649, Road Town, Tortola, BVI. Its USA agent, Portage Development Services Inc., is located at 61 Wilton Road, Westport, CT 06880.
The Company currently is a foreign private issuer under the United States Securities and Exchange Commission (“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.
| 7 |
Summary of Results
The following table summarizes financial information for the quarter ended September 30, 2022, and the preceding eight quarters (all amounts in 000’US$ except net loss per share, which are actual amounts). All share and per share amounts reflect the 1:100 reverse stock split effected June 5, 2020.
| Quarter ended | Sept. 30 | June 30, | Mar. 31, | Dec. 31, | Sept. 30, | June 30, | Mar. 31, | Dec. 31, | Sept. 30, |
| 2022 | 2022 | 2022 | 2021 | 2021 | 2021 | 2021 | 2020 | 2020 | |
| Net (loss) attributable to owners of the Company | (949) | (1,729) | (7,317) | (3,512) | (2,975) | (3,066) | (11,498) | (1,184) | (2,455) |
| Working capital (1) to (9) | 15,737 | 21,138 | 24,049 | 25,639 | 27,301 | 28,106 | 1,738 | 2,875 | 25 |
| Equity attributable to owners of the Company | 178,434 | 120,682 | 121,205 | 125,789 | 127,140 | 127,711 | 101,449 | 104,945 | 102,233 |
| Net (loss) per share - Basic | (0.06) | (0.13) | (0.55) | (0.26) | (0.22) | (0.25) | (0.95) | (0.10) | (0.21) |
| Net (loss) per share - Diluted | (0.06) | (0.13) | (0.55) | (0.26) | (0.22) | (0.25) | (0.95) | (0.10) | (0.21) |
| (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. |
| (5) | September 30, 2021 working capital is net of warrant liability of $535 settleable on a non-cash basis. |
| (6) | June 30, 2021 working capital is net of warrant liability of $751 settleable on a non-cash basis. |
| (7) | March 31, 2021 working capital is net of warrant liability of $1,120 settleable on a non-cash basis. |
| (8) | December 31, 2020 working capital is net of warrant liability of $771 settleable on a non-cash basis. |
| (9) | September 30, 2020 working capital is net of accrued equity issuable of $3,972 and warrant liability of $271 settled or settleable on a non-cash basis. |
Number of Ordinary Shares and Warrants
The following table summarizes the number of the Company’s ordinary shares issued and outstanding and warrants at September 30, 2022 and November 29, 2022:
| As of, | September 30, 2022 | November 29, 2022 | ||||||
| Shares issued and outstanding (a) (b) | 16,943,672 | 17,065,379 | ||||||
| Warrants (c) | 33,888 | — |
| (a) | This amount excludes an aggregate 243,000 restricted stock units granted to the executive chairman and an employee on January 13, 2021, which vested immediately on the date of grant and are subject to certain restrictions and 135,740 restricted stock units granted to employees (one of whom is also a director) on January 19, 2022, which vested immediately on the date of grant and are subject to certain restrictions. |
| (b) | The September 30, 2022 amount excluded 3,635 shares earned for services rendered from July 1, 2022 to September 30, 2022, accrued at September 30, 2022 for financial statement purposes and issued in October 2022. The November 29, 2022 amount excludes 1,492 shares earned for services rendered in October 2022, accrued at October 31, 2022 but not yet issued. |
| (c) | Warrants are exercisable into equal number of ordinary shares at an average exercise prise of $6.64 and at September 30, 2022, expired in October 2022. |
| 8 |
Business Environment – Risk Factors
Please refer to the Annual Report on Form 20-F for the year ended March 31, 2022 for detailed information as the economic and industry factors that are substantially unchanged as of the date hereof.
Our Programs and Technology – Recent Developments
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, T-cells and B-cells and stimulate an antigen-specific expansion of these cells. An operating subsidiary holds an exclusive license (with the right to sub-license) from the Ludwig Institute to use, research, develop and commercialize iNKT cell agonists, 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 activator/agonist formulated in a liposome with a 6-member carbon head structure that has been shown to activate both human and murine iNKT cells, resulting in dendritic cell (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 (Jukes 2016). 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 dendritic cell (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 100 patients with melanoma or non-small cell lung carcinoma (NSCLC) in order to evaluate safety and efficacy.
Preliminary Phase 1 data presented at the American Society of Clinical Oncology (“ASCO”) Annual Meeting in June 2022, suggests PORT-2 was well tolerated when administered as a monotherapy, with no severe or serious related adverse events. All possibly related adverse events were mild to moderate and did not limit dosing. This has enabled a plan to accelerate opening of the combination safety cohort with pembrolizumab, in parallel with the ongoing high dose monotherapy cohort. Biomarker data presented at the ASCO meeting in 2022 confirmed the mechanism of action (i.e., both activation of the innate and adaptive arms of the immune system). One of the two patients treated at the 3mg/m2 dose had a mixed response with several tumors showing >50% reduction in diameter indicating single agent activity. In November 2022, the Company presented clinical updates from its ongoing Phase 1 trial at the Society for Immunotherapy of Cancer’s 37th Annual Meeting. Based on the interim results, we are encouraged by the growing patient data set that supports proof of concept for using an iNKT agonist in cancer treatment. PORT-2 has a favorable safety and tolerability profile as a monotherapy at all doses tested to date, has demonstrated evidence of single agent activity, and biomarkers confirm mechanistic potential of PORT-2 to activate both the adaptive and innate immune systems.
With the enhanced management team, efficient organization, and financial resources obtained in 2021, Portage has decided to expand the PORT-2 trial beyond the U.K. to accelerate clinical trials while addressing COVID-19 headwinds. The Company has hired a global clinical research organization (CRO-Parexel) and is preparing for regulatory submissions in other countries. By expanding the regions and sites contributing to the trial, Portage expects to accelerate enrollment in the planned Phase 2 portions of this trial. The Company entered into a clinical collaboration with Merck to supply pembrolizumab for this trial.
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PORT-3 (IMM65)
PORT-3 is a PLGA-nanoparticle formulation of 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 inhibitor with a peptide vaccine in a particle has shown to be approximately 5 times more potent in killing cancer cells and generating an antigen specific CD8 T-cell response than giving the 2 agents individually (ref Dolen et al Oncoimmunology paper).
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 (GMP)-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 it 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 product has the 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. Notably, Portage received additional grant support from the Horizon 2020 program to explore next generation targeted nanoparticles. Preliminary safety data for repeat dosing of PORT-3, a nanoparticle co-formulation of PORT-2 and NY-ESO-1 immunogenic peptides developed for the treatment of NY-ESO-1 positive solid tumors, has shown promise. We are evaluating opportunities and awaiting more data.
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 (100-500 fold) of extracellular adenosine. Engagement with adenosine receptors A2A and 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 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. Portage is advancing the following four first-in-class adenosine inhibitors, which together represent a broad suite of adenosine-targeting approaches and will enable a comprehensive exploration of how targeting the adenosine pathway could potentially improve response in multiple cancer and non-cancer indications:
PORT-6 (TT-10)
Adenosine receptor type 2A (A2A) inhibitor to treat A2A expressing solid tumors. We believe PORT-6 is more potent, more durable and more selective than other clinical stage A2A agents.
PORT-7 (TT-4)
Adenosine receptor type 2B (A2B) inhibitor to treat solid tumors; PORT-7 has a very selective profile that focuses on A2B.
PORT-8 (TT-53)
Dual inhibitor of adenosine receptors 2A and 2B (A2A/A2B) to treat solid tumors; Portage has the ability to combine these two to titrate the levels of A2A and A2B or has the ability to give the dual inhibitor (PORT-08).
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PORT-9 (TT-3)
An A2B inhibitor to treat colorectal and gastrointestinal cancers.
In preparation for entering clinical trials for the adenosine programs, Portage will conduct an examination of which solid tumor types have a high expression of receptors A2A and A2B and enrich for patients that have high expression and therefore have potential to benefit most from treatment. Portage has designed the ADPORT-601 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 the Portage 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.
Other Programs in Development
Amphiphilic platform
DfuseRx SM, identifies combinations of anti cancer agents with amphiphilic diffuse enhancers that can passively enter into cancer cells. These novel formulations with unique IP can be directly injected into any solid tumors, and the payloads will diffuse across the membrane and disperse throughout the tumor, while sparing healthy cells. Once inside the cells, the technology is diluted away and the payloads are stuck inside the cells. The payloads are able to disperse to areas of the tumor that do not have blood supply and hence oral or IV drugs will not reach.
PORT-1 (INT230-6)
Intensity Therapeutics, Inc., our affiliate (“Intensity”), is developing INT230-6 (which we refer to as PORT-1) as a fixed dose formulation of cisplatin, vinblastine and a penetration enhancer. In animal models, the drug has shown efficacy in the majority of the animals, by a combination of direct killing of the cancer, and also a CD4 and CD8 T-cell response (Bloom et al). Newly released interim safety and survival data from the Phase 1/2 IT-01 trial presented at ASCO 2021 demonstrated that both INT230-6 (PORT-1) monotherapy and combination therapy with immune checkpoint drugs are well-tolerated. The proven mechanism of action includes direct tumor-killing effects, as well as responses generated in non-injected tumors (abscopal responses) resulting from antigen presentation and immune activation. PORT-1 is the first of Portage’s assets that entered the clinic and has demonstrated proof-of-concept in humans. The specific rapid local killing in the normal three-dimensional environment inside the body we believe is critical for robust antigen presentation and immune activation. Animal studies also showed synergy when combined with checkpoint inhibition (Bender et al, Bloom et al). The product candidate has been dosed into 80 subjects in a Phase 1 and Phase 2 trial. This has shown proof of concept that the vast majority of the drug stays in the tumor, and a dose equivalent to three times the approved dose of the cytotoxic agent was very well tolerated without the typical chemo side effects. The most common adverse event related to the treatment was pain at the injection site. As a result, PORT-1 is being studied in nine Phase 2 trials including seven clinical collaborations with the two largest immuno-oncology drug manufacturers, BMS and Merck, in combination with their respective checkpoints in high unmet need medical types (pancreatic, gall bladder, sarcoma, non-microsatellite unstable colorectal, etc.). Intensity has also launched a randomized Phase 2 trial of INT230-6 vs no treatment in early stage breast cancer (the “INVINCIBLE Trial”) and has expanded its collaboration efforts with the INVINCIBLE Trial, conducted by the Ottawa Hospital and the Ontario Institute for Cancer Research. Intensity made three presentations on INT230-6 at the ASCO Annual Meeting in June 2022 with clinical data suggesting INT230-6 has potential to prolong survival when compared to historical results. An innovative window of opportunity trial in pre-surgical early stage breast cancer confirmed that one treatment with PORT-1, can result in near complete necrosis of breast tumors with an influx of key immune cells to process the dying tumor.
As of September 30, 2022, the Company owned approximately 7.35% of Intensity’s outstanding shares on a fully diluted basis.
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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. The Company has 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. We are looking to accelerate preclinical development of our PORT-4 platform, which may potentially increase the potency and improve the safety of numerous anti-cancer drugs through co-delivery of combination treatments to the tumor.
As of September 30, 2022, the Company 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) have shown proof of concept in animal models and Stimunity S.A. (“Stimunity”) is beginning to progress the 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. Our researchers have developed a way to administer the product systemically and does not require direct tumor injections. 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 (VLP) 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. Given that this is a simple way to boost the immune response to any target, we are also pursuing a project to boost immune response to COVID and other pathogens. To that end, the team 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, AACR 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. Given the progress to date, Stimunity is preparing the product to be able to file an IND.
As of September 30, 2022, the Company owned approximately 44% of the outstanding shares of Stimunity, the subsidiary on which the PORT-5 platform is managed.
| 12 |
Early-Stage R&D Collaborations
We continue to evaluate and test new antibody targets. Our interest here lies in the suppressive tumor micro-environment, and how we can down regulate or remove MDSC, TAMs, Tregs and other signals that impede the immune response from clearing cancer cells. One new effort that we have initiated is collaborations with two leading artificial intelligence/machine learning companies in order to screen for agents with specific attributes in this area. This may allow us a fast track an asset to the clinic with a re-purposed product.
| · | Portage is also initiating a collaboration with Dr. Robert Negrin and his team at Stanford University to evaluate the use of PORT-2 with iNKT cell therapies in animals. This work will evaluate if an agonist 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 agonists have on driving an adaptive immune response and correcting the suppressive tumor microenvironment. |
| · | Portage entered into a Cooperative Research and Development Agreement (“CRADA”) with the U.S. National Cancer Institute (“NCI”). The Company and NCI will advance preclinical and potential clinical development of STING agonists and anti-RAGE agents for cancer vaccines. The Company and NCI will develop agents to enhance the efficacy of proprietary cancer vaccines and mouse model cancer vaccines developed by NCI. After the Tarus acquisition, the Company amended the CRADA to include exploration of the different adenosine compounds. |
| 13 |
Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021
(All Amounts in 000’$)
Results of Operations
The following details major expenses for the three months ended September 30, 2022, compared to the three months ended September 30, 2021:
| Three months ended September 30, | 2022 | 2021 | ||||||
| In 000’$ | In 000’$ | |||||||
| Operating expenses | $ | (3,653 | ) | $ | (3,330 | ) | ||
| Change in fair value of deferred purchase price payable - Tarus and deferred obligation - iOx milestone | 70 | — | ||||||
| Share of loss in associate accounted for using equity method | (56 | ) | (58 | ) | ||||
| Change in fair value of warrant liability | 24 | 15 | ||||||
| Foreign exchange transaction loss | (58 | ) | — | |||||
| Interest income (expense), net | 35 | (7 | ) | |||||
| Loss before provision for income taxes | (3,638 | ) | (3,380 | ) | ||||
| Income tax benefit | 2,553 | 503 | ||||||
| Net loss and other comprehensive loss | $ | (1,085 | ) | $ | (2,877 | ) | ||
| Comprehensive (loss) income attributable to: | ||||||||
| Owners of the Company | $ | (949 | ) | $ | (2,975 | ) | ||
| Non-controlling interest | (136 | ) | 98 | |||||
| Total comprehensive loss for period | $ | (1,085 | ) | $ | (2,877 | ) |
Results of Operations for the Three Months Ended September 30, 2022, Compared to the Three Months Ended September 30, 2021
The Company generated a net loss and other comprehensive loss of approximately $1.1 million during the three months ended September 30, 2022 (the “Fiscal 2023 Quarter”), compared to a net loss and other comprehensive loss of approximately $2.9 million during the three months ended September 30, 2021 (the “Fiscal 2022 Quarter”), a decrease in loss of $1.8 million year over year.
The components of the change in net loss are as follows:
| · | Operating expenses, which include research and development and general and administrative expenses, were $3.6 million in the Fiscal 2023 Quarter, compared to $3.3 million in the Fiscal 2022 Quarter, an increase of $0.3 million, which is discussed more fully below. |
| · | The Company’s other items of income and expense were substantially non-cash in nature and aggregated approximately $0.015 million net income in the Fiscal 2023 Quarter, compared to approximately $0.050 million net loss in the Fiscal 2022 Quarter, a change in other items of income and expense of approximately $0.065 million, quarter over quarter. The Fiscal 2023 Quarter reflected a gain from the change (decrease) in fair value of the deferred purchase price payable - Tarus and deferred obligation - iOx milestone during the period. |
| · | Additionally, the Company reflected a net deferred income tax benefit of $2.5 million in the Fiscal 2023 Quarter, compared to a net deferred income tax benefit of $0.5 million in the Fiscal 2022 Quarter. The Fiscal 2023 Quarter includes the foreign currency effect on deferred tax liability balance settleable in Great British pounds of $2.2 million and the recognition of current period losses in the U.K. of $0.3 million, as well as the rate change effect of $0.1 million. The Fiscal 2022 Quarter reflected the foreign currency effect on deferred tax liability balance settleable in Great British pounds, and the recoverable research and development tax credits generated in the U.K. |
| 14 |
Operating Expenses
The overall analysis of the operating expenses is as follows:
| Three months ended September 30, | 2022 | 2021 | ||||||
| In 000’$ | In 000’$ | |||||||
| Research and development | $ | 1,565 | $ | 1,330 | ||||
| General and administrative expenses | 2,088 | 2,000 | ||||||
| Total operating expenses | $ | 3,653 | $ | 3,330 |
Research and Development Costs
Research and development (“R&D”) costs are comprised of the following:
| Three months ended September 30, | 2022 | 2021 | ||||||
| In 000’$ | In 000’$ | |||||||
| Share-based compensation expense | $ | 659 | $ | 1,064 | ||||
| Payroll-related expenses | 499 | 230 | ||||||
| Research and development – Clinical | 150 | — | ||||||
| Research and development services and storage | 124 | (63 | ) | |||||
| Consulting fees | 100 | 26 | ||||||
| Research and development – CRADA | 31 | — | ||||||
| Other outside services - lab testing, peptide handling, etc. | 2 | — | ||||||
| Legal regarding Patents’ registration | — | 73 | ||||||
| Total research and development costs | $ | 1,565 | $ | 1,330 |
R&D costs increased by approximately $0.2 million, or approximately 15%, from approximately $1.3 million in the Fiscal 2022 Quarter, to approximately $1.5 million in the Fiscal 2023 Quarter. The increase was attributable to clinical trial costs largely associated with the iNKT clinical trials in the Fiscal 2023 Quarter of $0.2 million. There were no such costs incurred in the Fiscal 2022 Quarter. Additionally, the Company incurred payroll-related expenses of $0.5 million in the Fiscal 2023 Quarter, compared to $0.2 million in the Fiscal 2022 Quarter. The increase was attributable to increases in staff, as well as the formalization of a compensation program designed to attract and retain strong management. Additionally, the Company incurred costs of $0.03 million associated with the National Cancer Institute study (CRADA program) in the Fiscal 2023 Quarter. These increases were partially offset by a reduction in non-cash share-based compensation expense with respect to options to purchase ordinary shares granted to employees, which was attributable to (a) the vesting over time of a portion of prior year grants; and (b) the decrease in the fair value of grants made in fiscal 2022.
General and Administrative Expenses
Key components of general and administrative expenses are the following:
| Three months ended September 30, | 2022 | 2021 | ||||||
| In 000’$ | In 000’$ | |||||||
| Professional fees | $ | 767 | $ | 327 | ||||
| Share-based compensation expense | 565 | 1,081 | ||||||
| D&O insurance | 312 | 413 | ||||||
| Payroll-related expenses | 255 | 78 | ||||||
| Directors fees | 83 | — | ||||||
| Office and general expenses | 65 | 66 | ||||||
| Consulting fees | 41 | 35 | ||||||
| Total general and administrative expenses | $ | 2,088 | $ | 2,000 |
| 15 |
General and administrative expenses increased by approximately $0.1 million, or approximately 5%, from approximately $2.0 million in the Fiscal 2022 Quarter, to approximately $2.1 million in the Fiscal 2023 Quarter. The principal reason for the increase was the $0.4 million increase in professional fees, of which approximately $0.1 million was attributable to legal fees associated with the Tarus merger (acquisition of four pipeline candidates targeting the adenosine pathway) and $0.2 million was attributable to stamp fees in the U.K. related to acquiring the outstanding minority interest of our iNKT agonist platform. Additionally, payroll-related expenses increased by $0.2 million due to the formalization of a compensation program adopted in the Fiscal 2023 Quarter. These increases were partially offset by a decrease in non-cash share-based compensation expense of $0.5 million attributable to the vesting of certain options granted in prior years and lower fair value associated with more recent grants, the decrease of $0.1 million associated with directors and officers (“D&O”) insurance attributable to lower premiums under the current policy.
Six Months Ended September 30, 2022 Compared to the Six Months Ended September 30, 2021
(All Amounts in 000’$)
Results of Operations
The following details major expenses for the six months ended September 30, 2022, compared to the six months ended September 30, 2021:
| Six months ended September 30, | 2022 | 2021 | ||||||
| In 000’$ | In 000’$ | |||||||
| Operating expenses | $ | (7,740 | ) | $ | (6,923 | ) | ||
| Change in fair value of deferred purchase price payable - Tarus and deferred obligation - iOx milestone | 70 | — | ||||||
| Share of loss in associate accounted for using equity method | (116 | ) | (102 | ) | ||||
| Change in fair value of warrant liability | 25 | 384 | ||||||
| Foreign exchange transaction loss | (110 | ) | — | |||||
| Interest income (expense), net | 56 | (41 | ) | |||||
| Loss before provision for income taxes | (7,815 | ) | (6,682 | ) | ||||
| Income tax benefit | 5,105 | 582 | ||||||
| Net loss and other comprehensive loss | $ | (2,710 | ) | $ | (6,100 | ) | ||
| Comprehensive (loss) income attributable to: | ||||||||
| Owners of the Company | $ | (2,678 | ) | $ | (6,041 | ) | ||
| Non-controlling interest | (32 | ) | (59 | ) | ||||
| Total comprehensive loss for period | $ | (2,710 | ) | $ | (6,100 | ) |
Results of Operations for the Six Months Ended September 30, 2022, Compared to the Six Months Ended September 30, 2021
The Company generated a net loss and other comprehensive loss of approximately $2.7 million during the six months ended September 30, 2022 (the “Fiscal 2023 Six Months”), compared to a net loss and other comprehensive loss of approximately $6.1 million during the six months ended September 30, 2021 (the “Fiscal 2022 Six Months”), a decrease in loss of $3.4 million year over year.
The components of the change in net loss are as follows:
| · | Operating expenses, which include research and development and general and administrative expenses, were $7.7 million in the Fiscal 2023 Six Months, compared to $6.9 million in the Fiscal 2022 Six Months, an increase of $0.8 million, which is discussed more fully below. |
| · | The Company’s other items of income and expense were substantially non-cash in nature and aggregated approximately $0.1 million net loss in the Fiscal 2023 Six Months, compared to approximately $0.2 million net income in the Fiscal 2022 Six Months, a change in other items of income and expense of approximately $0.3 million, year over year. The primary reason for the year-over-year difference in other items of income and expense was the difference in the fair value of warrants outstanding recognized in the year-over-year period, foreign exchange loss in the fiscal 2023 quarter, partially offset by a gain from the change (decrease) in fair value of the deferred purchase price payable - Tarus and deferred obligation - iOx milestone. |
| 16 |
| · | Additionally, the Company reflected a net deferred income tax benefit of $5.1 million in the Fiscal 2023 Six Months, compared to a net deferred income tax benefit of $0.6 million in the Fiscal 2022 Six Months. The Fiscal 2023 Six Months includes the foreign currency effect on deferred tax liability balance settleable in Great British pounds of $4.3 million and the recognition of current period losses in the U.K. of $0.6 million, as well as the rate change effect of $0.2 million. The Fiscal 2022 Six Months reflected recoverable research and development tax credits generated in the U.K., partially offset by the foreign currency effect on deferred tax liability balance settleable in Great British pounds. |
Operating Expenses
The overall analysis of the operating expenses is as follows:
| Six months ended September 30, | 2022 | 2021 | ||||||
| In 000’$ | In 000’$ | |||||||
| Research and development | $ | 3,441 | $ | 2,876 | ||||
| General and administrative expenses | 4,299 | 4,047 | ||||||
| Total operating expenses | $ | 7,740 | $ | 6,923 |
Research and Development Costs
R&D costs are comprised of the following:
| Six months ended September 30, | 2022 | 2021 | ||||||
| In 000’$ | In 000’$ | |||||||
| Share-based compensation expense | $ | 1,211 | $ | 2,159 | ||||
| Payroll-related expenses | 905 | 440 | ||||||
| Research and development – Clinical | 792 | — | ||||||
| Research and development services and storage | 243 | 106 | ||||||
| Consulting fees | 124 | 50 | ||||||
| Research and development – CRADA | 100 | — | ||||||
| Legal regarding Patents’ registration | 40 | 115 | ||||||
| Other outside services – lab testing, peptide handling, etc. | 26 | 6 | ||||||
| Total research and development costs | $ | 3,441 | $ | 2,876 |
R&D costs increased by approximately $0.5 million, or approximately 17%, from approximately $2.9 million in the Fiscal 2022 Six Months, to approximately $3.4 million in the Fiscal 2023 Six Months. The increase was attributable to clinical trial costs largely associated with the iNKT clinical trials in the Fiscal 2023 Six Months of $0.8 million. There were no such costs incurred in the Fiscal 2022 Six Months. Additionally, the Company incurred payroll-related expenses of $0.9 million in the Fiscal 2023 Six Months, compared to $0.4 million in the Fiscal 2022 Six Months. The increase was attributable to increases in staff, as well as the formalization of a compensation program designed to attract and retain strong management. Additionally, the Company incurred costs of $0.1 million associated with the National Cancer Institute study (CRADA program) in the Fiscal 2023 Six Months. These increases were partially offset by a reduction in non-cash share-based compensation expense with respect to options to purchase ordinary shares granted to employees, which was attributable to (a) the vesting over time of a portion of prior year grants; and (b) the decrease in the fair value of grants made in fiscal 2022.
| 17 |
General and Administrative Expenses
Key components of general and administrative expenses are the following:
| Six months ended September 30, | 2022 | 2021 | ||||||
| In 000’$ | In 000’$ | |||||||
| Professional fees | $ | 1,670 | $ | 678 | ||||
| Share-based compensation expense | 1,189 | 2,168 | ||||||
| D&O insurance | 619 | 826 | ||||||
| Payroll-related expenses | 506 | 225 | ||||||
| Directors fees | 158 | — | ||||||
| Office and general expenses | 116 | 115 | ||||||
| Consulting fees | 41 | 35 | ||||||
| Total general and administrative expenses | $ | 4,299 | $ | 4,047 |
General and administrative expenses increased by approximately $0.3 million, or approximately 8%, from approximately $4.0 million in the Fiscal 2022 Six Months, to approximately $4.3 million in the Fiscal 2023 Six Months. The principal reason for the increase was the $1.0 million increase in professional fees, of which approximately $0.6 million was attributable to legal fees associated with the Tarus merger (acquisition of four pipeline candidates targeting the adenosine pathway) and $0.2 million was attributable to stamp fees in the U.K. related to acquiring the outstanding minority interest of our iNKT agonist platform. Additionally, payroll-related expenses increased by $0.3 million due to the formalization of a compensation program adopted in the Fiscal 2023 Six Months. These increases were partially offset by a decrease in non-cash share-based compensation expense of $1.0 million attributable to the vesting of certain options granted in prior years and lower fair value associated with more recent grants and the decrease of $0.2 million associated with D&O insurance, which was attributable to lower premiums under the current policy.
Liquidity and Capital Resources
Capital Resources
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, the Company has filed with the SEC:
| · | a base prospectus, which covers the offering, issuance and sale by us of up to $200,000,000 in the aggregate of the securities identified above from time to time in one or more offerings; |
| · | a prospectus supplement covering the offer, issuance and sale by us in an “at the market” offering of up to a maximum aggregate offering price of $50,000,000 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 (“Cantor Fitzgerald”); |
| · | 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 underwriting with Cantor Fitzgerald; and |
| · | a prospectus supplement dated August 19, 2022, for the offer, issuance and sale by us of up to $30,000,000 in ordinary shares from time to time to Lincoln Park Capital Fund, LLC and their resale of those shares and an additional resale of 94,508 shares. |
The Sales Agreement permits the Company to sell in an at the market offering up to $50,000,000 of ordinary shares from time to time, the amount of which is included in the $200,000,000 of securities that may be offered, issued and sold by the Company under the base prospectus. The sales under the prospectus will be deemed to be made pursuant to an “at the market” offering as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933. 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.
During the quarter ended June 30, 2021, the Company commenced an “at the market” offering, under which it sold 90,888 ordinary shares generating gross proceeds of approximately $2.6 million ($2.5 million, net of commissions).
| 18 |
On June 24, 2021, the Company 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 Company entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“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. Pursuant to the 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 Purchase Agreement for any reason, effective upon one business day prior written notice to Lincoln. Lincoln has no right to terminate the 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 DTC eligible, among other things. The 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 Purchase Agreement, excluding, however, an at-the-market transaction with a registered broker-dealer.
Upon execution of the Purchase Agreement, the Company issued to Lincoln 94,508 ordinary shares, representing a 3% commitment fee.
Liquidity
The accompanying condensed consolidated interim financial statements for the three and six months ended September 30, 2022 have been prepared on a basis that assumes that the Company 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 six months ended September 30, 2022 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 September 30, 2022, the Company had cash and cash equivalents of approximately $15.0 million and total current liabilities of approximately $1.4 million (inclusive of approximately $0.008 million warrant liability settleable on a non-cash basis). For the six months ended September 30, 2022, the Company is reporting a net loss of approximately $2.7 million, and cash used in operating activities of approximately $4.7 million. As of October 31, 2022, the Company had approximately $15.1 million of cash and cash equivalents on hand. The Company believes its current cash resources are sufficient to fund operations for at least thirteen months from November 29, 2022, the date of this report.
During the quarter ended June 30, 2021, the Company made an “at the market” offering, under which it sold 90,888 ordinary shares generating gross proceeds of approximately $2.6 million ($2.5 million, net of commissions). On June 24, 2021, the Company completed a firm commitment underwritten public offering of 1,150,000 ordinary shares at a public offering price of $23.00 per share for gross proceeds of approximately $26.5 million and was settled June 28, 2021. The Company incurred aggregate offering expenses for the public offering of approximately $1.8 million, including approximately $1.6 million of management, underwriting and selling expenses.
The Company has incurred substantial 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 and would expect to enter the capital markets when additional funding is required.
| 19 |
Cash Flows From Operating Activities
During the Fiscal 2023 Six Months, the Company used cash of $4.7 million to fund operating activities, compared to $2.9 million used during the Fiscal 2022 Six Months. Operations in both the Fiscal 2023 Six Months and the Fiscal 2022 Six Months were funded by existing cash from the “at the market” offering and the public offering in 2021.
The Company’s continuing operations are dependent upon any one of:
| 1. | the development and identification of economically recoverable therapeutic solutions; |
| 2. | the ability of the Company to obtain the necessary financing to complete the research; or |
| 3. | the future profitable production, or proceeds, from the disposition of intellectual property. |
The Company has incurred substantial operating losses since inception due to significant research and development spending and corporate overhead and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2022, the Company had cash and cash equivalents of approximately $15.0 million, working capital of approximately $15.7 million (including prepaid expenses of $1.5 million) and an accumulated deficit of approximately $57.7 million. The Company has funded its operations from proceeds from the sale of equity and debt securities. The Company will require significant additional capital to make the investments that it needs to execute its longer-term business plan. 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, even if it were successful, future equity issuances would result in dilution to its existing stockholders and any future debt securities may contain covenants that limit the Company’s operations or ability to enter into certain transactions.
It is anticipated that the Convertible Note, as further described below, will be funded by existing cash and cash provided under the Purchase Agreement described above.
Cash Flows From Investing Activities
During the Fiscal 2023 Six Months, the Company used cash of $0.6 million to find investing activities. During the Fiscal 2022 Six Months, there were no investing cash flow activities.
On July 13, 2022, the Company entered into a commitment with Stimunity to provide €600,000 under a Convertible Note with a maturity date of September 1, 2023. The Convertible Note provides for interest at 7% per annum. The Convertible Note was funded by the Company on September 12, 2022 by existing cash and cash provided under the Purchase Agreement described above. See “Key Contractual Obligations” below for a further discussion.
Cash Flows From Financing Activities
During the Fiscal 2023 Six Months, the Company used cash of $3.0 million to fund financing activities. During the Fiscal 2022 Six Months, the Company generated net cash of $27.3 million from financing activities.
During the Fiscal 2023 Six Months, as consideration for the Tarus acquisition, the Company issued to 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. The shares have not been registered with the SEC and are subject to lock-up agreements for terms ranging from six to twelve months. Additionally, milestone payments of up to $32 million in cash or Portage ordinary shares would be triggered upon achievement of future development and sales milestones. As a result of the transaction:
| · | The Company also assumed $2 million in short-term debt held by Tarus and deferred license milestones obligations ($1 million plus interest). The short-term debt was repaid by the Company in July 2022 and the repayment of the milestone obligation was paid by the Company in August 2022. |
| · | Upon enrolling the first patient in a Phase 2 clinical trial, Portage will pay an additional one-time milestone payment of $15 million. Payment will be in the form of cash or Portage ordinary shares (at the discretion of Portage). The remaining $17 million milestone is based on targeted commercial sales. |
| 20 |
During the three months ended June 30, 2021, the Company commenced an “at the market” offering, under which it sold 90,888 ordinary shares generating gross proceeds of approximately $2.6 million ($2.5 million, net of commissions). On June 24, 2021, the Company completed a firm commitment underwritten public offering of 1,150,000 ordinary shares at a public offering price of $23.00 per share for gross proceeds of approximately $26.5 million and was settled on June 28, 2021. The Company incurred aggregate offering expenses for the public offering of approximately $1.8 million, including approximately $1.6 million of management, underwriting and selling expenses.
Key Contractual Obligations
Details of contractual obligations, commitments and contingent liabilities are provided in Note 17, “Commitments and Contingent Liabilities,” to the unaudited condensed consolidated interim financial statements for the three and six months ended September 30, 2022.
On July 1, 2022, the Company, its wholly-owned subsidiary, Tarus Acquisition Inc., and Tarus Therapeutics, Inc., a Delaware corporation advancing adenosine receptor agonists 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 a wholly-owned subsidiary of the Company with the surviving entity renamed Tarus Therapeutics, LLC (“Tarus”).
As consideration for Tarus, the Company issued to 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. The shares have not been registered with the SEC and are subject to lock-up agreements for terms ranging from six to twelve months. Additionally, payments of up to $32 million in cash or Portage ordinary shares would be triggered upon achievement of future development and sales milestones. As a result of the transaction:
| · | The Company 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. The Company repaid the short-term debt in July 2022. |
| · | Upon enrolling the first patient in a Phase 2 clinical trial, Portage will pay an additional one-time payment of $15 million. Payment will be in the form of cash or Portage ordinary shares (at the discretion of Portage). The remaining $17 million milestone is based on target commercial sales. |
On July 13, 2022, the Company entered into a commitment with Stimunity to provide €600,000 under a Convertible Note with a maturity date of September 1, 2023 (the “Maturity Date”). The Convertible Note provides for interest at 7% per annum. The Convertible Note is automatically converted into Series A shares upon Stimunity commencing a Series A subscription round for €20 million. If such Subscription round is completed prior to the Maturity Date, the Company will be entitled to convert the Convertible Note into Series A shares at the subscription share price less 15%. Additionally, if subscribers create a new category of shares with additional rights of less than €5 million (the “Minimum Raise”), the Company will have the right to convert the Convertible Note and the historical Series A shares owned into the new category of shares. In the event that Stimunity does not close a subscription prior to the Maturity Date or raises less than the Minimum Raise, the Company will have the right to convert into Series A shares at €363.00 per share or the raise price less 15%, whichever is lower. The Convertible Note was funded by the Company on September 12, 2022 by existing cash and cash provided under the Purchase Agreement described above.
On July 18, 2022, the Company and its wholly-owned subsidiary, SalvaRx Ltd. (“SalvaRx”), entered into a 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 agonist 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 Portage’s acquisition of SalvaRx. 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. |
| 21 |
The Company now owns the worldwide rights to its small molecule iNKT agonists, 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 1,070,000 Portage ordinary shares to be allocated among the Sellers based upon their relative ownership. As a result of the Share Exchange Agreement, Portage owns 100% of the issued and outstanding shares of iOx.
As additional consideration for the sale of the iOx Exchange Shares to the Company, 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/agonist) 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.
Off-balance Sheet Arrangements
As of September 30, 2022 and March 31, 2022, the Company 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 18, “Related Party Transactions” to the unaudited condensed consolidated interim financial statements for the three and six months ended September 30, 2022.
Financial and Derivative Instruments
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, therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The following table summarizes the Company’s financial instruments as of September 30, 2022 and March 31, 2022:
| As of September 30, 2022 | As of March 31, 2022 | |||||||||||||||
| (In thousands) | Amortized Cost | Fair Value through Other Comprehensive | Amortized Cost | FVTOCI | ||||||||||||
| Financial assets | ||||||||||||||||
| Cash and cash equivalents | $ | 15,038 | $ | — | $ | 23,352 | $ | — | ||||||||
| Prepaid expenses and other receivables | $ | 1,542 | $ | — | $ | 1,480 | $ | — | ||||||||
| Convertible note receivable, including accrued interest | $ | — | $ | 590 | $ | — | — | |||||||||
| Investments | $ | — | $ | 8,966 | $ | — | $ | 9,082 | ||||||||
| Amortized Cost | Fair Value through Profit or Loss (FVTPL) | Amortized Cost | FVTPL | |||||||||||||
| Financial liabilities | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | 1,425 | $ | — | $ | 750 | $ | — | ||||||||
| Warrant liability | $ | — | $ | 8 | $ | — | $ | 33 | ||||||||
| Deferred purchase price payable - Tarus | $ | — | $ | 8,522 | $ | — | $ | — | ||||||||
| Deferred obligation - iOx milestone | $ | — | $ | 5,424 | $ | — | $ | — | ||||||||
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A summary of the Company’s risk exposures as it relates to financial instruments are reflected below.
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 private entities, accounts payable, warrant liability and unsecured notes payable.
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:
Convertible Note Receivable: The fair value of the convertible note 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).
Investment in Intensity: Fair value of the asset is determined by considering other comparable equity funding transactions by Intensity with unrelated investors (Level 3).
Accrued Equity Issuable: The fair value is estimated based on the average of the quoted market prices for the period in which the shares were earned (Level 1).
Warrant Liability: The fair value is estimated using a Black-Scholes model (Level 3).
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 Company experience, as well as the relevant cost of capital. The Company recorded a gain from the change (decrease) in fair value of the liability of $0.016 million as of and for the three and six months ended September 30, 2022.
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 iOx 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 Company experience, as well as the relevant cost of capital. The Company recorded a gain from the change (decrease) in fair value of the liability of $0.054 million as of and for the three and six months ended September 30, 2022.
There have been no transfers between levels of the fair value hierarchy for the six months ended September 30, 2022 and the year ended March 31, 2022.
The Company’s financial instruments are exposed to certain financial risks: credit risk and liquidity risk.
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Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfil 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 on-demand deposits 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 September 30, 2022 and March 31, 2022, 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 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. The Company believes that it has sufficient funding to finance the committed drug development work, apart from meeting its operational needs for the foreseeable future.
However, 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.
Use of Estimates and Judgments
The preparation of the condensed consolidated interim financial statements in conformity with International Financial Reporting Standards (“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 convertible note receivable), deferred tax assets, deferred tax liability, 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 and goodwill and the determination of the accounting acquirer and acquiree in the business combination accounting.
New Accounting Standards, Interpretations and Amendments
The Company is also unaware of any applicable but not-yet-adopted standards that are expected to materially affect the Company’s financial statements for future periods.
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Internal Controls Over Financial Reporting
The management of the Company, including the CEO and CFO, is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company's internal control system was designed to provide reasonable assurance to the Company's management and the 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 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 September 30, 2022. 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 (COSO). Based on the evaluation under these criteria, management identified material weaknesses in the Company’s internal controls over financial reporting and, as a result, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2022.
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 (i) to properly segregate duties and perform oversight of work performed and to perform compensating controls over the finance and accounting functions, (ii) to establish and perform fair value estimates or subsequently monitor fluctuations in fair value estimates, and (iii) to apply complex accounting principles, including those relating to business combination accounting, 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 research and development assets, share-based payments, carrying amounts of goodwill and intangible assets and business combination accounting. |
Public Securities Filings
Additional information, including the Company’s annual information in the Annual Report on Form 20-F, is filed with the Canadian Securities Administrators at www.sedar.com and with the United States Securities and Exchange Commission at www.edgar.com.
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