Cardiol Therapeutics Inc 6-K, filed Nov 10, 2022
Cardiol Therapeutics Inc. (CRDL)
About this 6-K
Cardiol Therapeutics Inc filed this 6-K on November 10, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
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: 001-40712
Cardiol Therapeutics
Inc.
(Translation of registrant's name into English)
602-2265 Upper Middle Road East, Oakville,
Ontario, Canada L6H 0G5
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
¨ Form 20-F x Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
SUBMITTED HEREWITH
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.
| CARDIOL THERAPEUTICS INC. | |||
| (Registrant) | |||
| Date: November 10, 2022 | By: | /s/ Chris Waddick | |
| Name: | Chris Waddick | ||
| Title: | Chief Financial Officer | ||
Exhibit 99.1
CARDIOL THERAPEUTICS INC.
CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2022
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED)
Cardiol Therapeutics Inc.
Condensed Interim Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
Unaudited
As at September 30, 2022 | As at December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents (note 3) | $ | 65,532,440 | $ | 83,899,070 | ||||
| Accounts receivable | 154,118 | 65,739 | ||||||
| Other receivables | 297,957 | 341,388 | ||||||
| Prepaid expenses (note 14) | 1,434,419 | 2,495,141 | ||||||
| Prepaid inventory (note 12(iv)) | 339,051 | 339,051 | ||||||
| Total current assets | 67,757,985 | 87,140,389 | ||||||
| Non-current assets | ||||||||
| Property and equipment (note 4) | 284,831 | 356,493 | ||||||
| Intangible assets (note 5) | 315,913 | 379,246 | ||||||
| Total assets | $ | 68,358,729 | $ | 87,876,128 | ||||
| EQUITY AND LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities (note 14) | $ | 7,653,273 | $ | 4,859,352 | ||||
| Current portion of lease liability (note 6) | 49,316 | 44,708 | ||||||
| Derivative liability (note 7) | 1,943,563 | 6,661,122 | ||||||
| Total current liabilities | 9,646,152 | 11,565,182 | ||||||
| Non-current liabilities | ||||||||
| Lease liability (note 6) | 35,455 | 72,871 | ||||||
| Total liabilities | 9,681,607 | 11,638,053 | ||||||
| Equity | ||||||||
| Share capital (note 8) | 146,927,190 | 142,918,829 | ||||||
| Warrants (note 10) | 3,517,867 | 4,176,780 | ||||||
| Contributed surplus (note 9) | 15,165,557 | 12,660,329 | ||||||
| Deficit | (106,933,492 | ) | (83,517,863 | ) | ||||
| Total equity | 58,677,122 | 76,238,075 | ||||||
| Total equity and liabilities | $ | 68,358,729 | $ | 87,876,128 | ||||
The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these consolidated financial statements.
Commitments (notes 5 and 12)
Approved on behalf of the Board:
“David Elsley”, Director |
“Guillermo Torre-Amione”, Director |
- 1 -
Cardiol
Therapeutics Inc.
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
(Expressed in Canadian Dollars)
Unaudited
| Three
Months Ended September 30, 2022 | Three
Months Ended September 30, 2021 | Nine
Months Ended September 30, 2022 | Nine
Months Ended September 30, 2021 | |||||||||||||
| Revenue | ||||||||||||||||
| Sales | $ | - | $ | - | $ | - | $ | 78,760 | ||||||||
| Operating expenses (notes 9, 13, 14) | ||||||||||||||||
| General and administration | $ | 8,130,743 | $ | 7,571,515 | $ | 18,896,733 | $ | 18,303,301 | ||||||||
| Research and development | 5,089,423 | 2,592,094 | 13,344,132 | 7,342,587 | ||||||||||||
| Loss before other income (expenses) | (13,220,166 | ) | (10,163,609 | ) | (32,240,865 | ) | (25,567,128 | ) | ||||||||
| Interest income | 389,338 | 35,930 | 652,985 | 78,234 | ||||||||||||
| Gain on foreign exchange | 2,970,896 | 124,612 | 3,290,249 | 15,036 | ||||||||||||
| Change in derivative liability (note 7) | 1,723,442 | - | 4,717,559 | - | ||||||||||||
| Other income | 164,443 | 93,076 | 164,443 | 93,076 | ||||||||||||
| Net loss and comprehensive loss for the period | $ | (7,972,047 | ) | $ | (9,909,991 | ) | $ | (23,415,629 | ) | $ | (25,380,782 | ) | ||||
| Basic and diluted net loss per share (note 11) | $ | (0.13 | ) | $ | (0.23 | ) | $ | (0.38 | ) | $ | (0.65 | ) | ||||
| Weighted average number of common shares outstanding | 62,336,296 | 43,169,772 | 62,066,132 | 39,308,910 | ||||||||||||
The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these consolidated financial statements.
- 2 -
Cardiol
Therapeutics Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Expressed
in Canadian Dollars)
Unaudited
| Nine
Months Ended September 30, 2022 | Nine
Months Ended September 30, 2021 | |||||||
| Operating activities | ||||||||
| Net loss and comprehensive loss for the period | $ | (23,415,629 | ) | $ | (25,380,782 | ) | ||
| Adjustments for: | ||||||||
| Depreciation of property and equipment | 98,541 | 101,498 | ||||||
| Amortization of intangible assets | 63,333 | 63,333 | ||||||
| Share-based compensation | 4,065,228 | 3,909,056 | ||||||
| Change in derivative liability | (4,717,559 | ) | - | |||||
| Accretion on lease liability | 7,282 | 10,002 | ||||||
| Shares for services | 433,673 | 3,048,365 | ||||||
| Research and development expenses to be settled through warrant exercise | 1,355,775 | 16,063 | ||||||
| Changes in non-cash working capital items: | ||||||||
| Accounts receivable | (88,379 | ) | (65,799 | ) | ||||
| Other receivables | 43,431 | (99,651 | ) | |||||
| Prepaid expenses | 1,060,722 | (1,215,697 | ) | |||||
| Inventory | - | 17,968 | ||||||
| Accounts payable and accrued liabilities | 2,793,921 | 52,278 | ||||||
| Net cash used in operating activities | (18,299,661 | ) | (19,543,366 | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | (26,879 | ) | (12,916 | ) | ||||
| Net cash used in investing activities | (26,879 | ) | (12,916 | ) | ||||
| Financing activities | ||||||||
| Issuance of units | - | 22,003,200 | ||||||
| Share issuance costs | - | (1,378,225 | ) | |||||
| Issuance of warrants, net of issuance costs | - | 8,147 | ||||||
| Proceeds from stock options exercised | - | 2,837,083 | ||||||
| Proceeds from warrants exercised | - | 10,752,218 | ||||||
| Payment of lease liability | (40,090 | ) | (38,937 | ) | ||||
| Net cash provided by (used in) financing activities | (40,090 | ) | 34,183,486 | |||||
| Net change in cash and cash equivalents | (18,366,630 | ) | 14,627,204 | |||||
| Cash and cash equivalents, beginning of period | 83,899,070 | 14,025,187 | ||||||
| Cash and cash equivalents, end of period | $ | 65,532,440 | $ | 28,652,391 | ||||
The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these consolidated financial statements.
- 3 -
Cardiol
Therapeutics Inc.
Condensed Interim Consolidated Statements of Changes in Equity
(Expressed in Canadian Dollars)
Unaudited
| Share capital | Contributed | |||||||||||||||||||||||
| Number | Amount | Warrants | surplus | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2020 | 32,860,291 | $ | 51,923,471 | $ | 4,460,728 | $ | 8,765,773 | $ | (51,879,619 | ) | $ | 13,270,353 | ||||||||||||
| Issuance of units | 6,112,000 | 18,211,000 | 3,792,200 | - | - | 22,003,200 | ||||||||||||||||||
| Issuance of warrants, net of issuance costs | - | - | 8,147 | - | - | 8,147 | ||||||||||||||||||
| Share issuance costs | - | (1,140,691 | ) | (237,534 | ) | - | - | (1,378,225 | ) | |||||||||||||||
| Options exercised | 998,333 | 2,837,083 | - | - | - | 2,837,083 | ||||||||||||||||||
| Fair value of options exercised | - | 1,357,160 | - | (1,357,160 | ) | - | - | |||||||||||||||||
| Warrants exercised | 3,353,123 | 10,607,242 | 144,976 | - | - | 10,752,218 | ||||||||||||||||||
| Fair value of warrants exercised | - | 3,867,107 | (3,867,107 | ) | - | - | - | |||||||||||||||||
| Shares for services | 683,592 | 2,169,176 | - | 879,189 | - | 3,048,365 | ||||||||||||||||||
| Share-based compensation | - | - | - | 3,909,056 | - | 3,909,056 | ||||||||||||||||||
| Fair value of warrants earned | - | - | 16,063 | - | - | 16,063 | ||||||||||||||||||
| Net loss and comprehensive loss for the period | - | - | - | - | (25,380,782 | ) | (25,380,782 | ) | ||||||||||||||||
| Balance, September 30, 2021 | 44,007,339 | $ | 89,831,548 | $ | 4,317,473 | $ | 12,196,858 | $ | (77,260,401 | ) | $ | 29,085,478 | ||||||||||||
| Balance, December 31, 2021 | 61,922,999 | $ | 142,918,829 | $ | 4,176,780 | $ | 12,660,329 | $ | (83,517,863 | ) | $ | 76,238,075 | ||||||||||||
| Warrants exercised | 503,672 | 2,014,688 | (2,014,688 | ) | - | - | - | |||||||||||||||||
| Shares for services | 136,107 | 433,673 | - | - | - | 433,673 | ||||||||||||||||||
| Share-based compensation | - | - | - | 4,065,228 | - | 4,065,228 | ||||||||||||||||||
| Fair value of warrants earned | - | - | 1,355,775 | - | - | 1,355,775 | ||||||||||||||||||
| Performance share units exercised | 1,000,000 | 1,560,000 | - | (1,560,000 | ) | - | - | |||||||||||||||||
| Net loss and comprehensive loss for the period | - | - | - | - | (23,415,629 | ) | (23,415,629 | ) | ||||||||||||||||
| Balance, September 30, 2022 | 63,562,778 | $ | 146,927,190 | $ | 3,517,867 | $ | 15,165,557 | $ | (106,933,492 | ) | $ | 58,677,122 | ||||||||||||
The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these consolidated financial statements.
- 4 -
Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial
Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 1. | Nature of operations |
Cardiol Therapeutics Inc. (the “Corporation”) was incorporated under the laws of the Province of Ontario on January 19, 2017. The Corporation’s registered and legal office is located at 2265 Upper Middle Rd. E., Suite 602, Oakville, Ontario, L6H 0G5, Canada.
The Corporation is a clinical-stage life sciences company focused on the research and clinical development of anti-inflammatory and anti-fibrotic therapies for the treatment of heart diseases. The Corporation’s lead product, CardiolRx™, is a pharmaceutically manufactured oral cannabidiol formulation that is being clinically developed for use in heart diseases. It is recognized that cannabidiol inhibits activation of the inflammasome pathway, an intracellular process known to play an important role in the inflammation and fibrosis associated with myocarditis, pericarditis, and heart failure.
The Corporation has received Investigational New Drug Application (“IND”) authorization from the United States Food and Drug Administration (“FDA”) to conduct a Phase II multi-national, randomized, double-blind, placebo-controlled trial designed to evaluate the efficacy and safety of CardiolRx in acute myocarditis (the “ARCHER” trial). This disease remains an important cause of acute and fulminant heart failure and is a leading cause of sudden cardiac death in people under 35 years of age.
The Corporation has also received an IND authorization from the FDA to conduct a Phase II open-label pilot study designed to evaluate the tolerance and safety of CardiolRx in patients with recurrent pericarditis. This disease is associated with symptoms including debilitating chest pain, shortness of breath, and fatigue, and results in physical limitations, reduced quality of life, emergency department visits, and hospitalizations.
In addition, the Corporation is developing a novel subcutaneously administered cannabidiol drug formulation targeting the inflammation and fibrosis that is associated with the development and progression of heart failure. Heart failure affects 26 million people in the developed world and remains a leading cause of death and hospitalization, with associated annual healthcare costs in the U.S. alone exceeding $30 billion.
On December 20, 2018, the Corporation completed its initial public offering (the “IPO”) on the Toronto Stock Exchange (the “TSX”). As a result, the Corporation’s common shares commenced trading on that date on the TSX under the symbol “CRDL”, and on May 12, 2021, warrants commenced trading under the symbol “CRDL.WT.A”. On August 10, 2021, the Corporation’s common shares commenced trading on the Nasdaq Capital Market (“Nasdaq”) under the symbol “CRDL”.
| 2. | Significant accounting policies |
Statement of compliance
The Corporation applies International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”). These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly, they do not include all of the information required for full annual consolidated financial statements required by IFRS as issued by IASB and interpretations by IFRIC.
The policies applied in these unaudited condensed interim consolidated financial statements are based on IFRSs issued and outstanding as of November 9, 2022, the date the Board of Directors approved the statements. The same accounting policies and methods of computation are followed in these unaudited condensed interim consolidated financial statements as compared with the most recent annual consolidated financial statements as at and for the year ended December 31, 2021, other than as noted below.
- 5 -
Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial
Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
2. Significant accounting policies (continued)
Statement of compliance (continued)
Any subsequent changes to IFRS that are given effect in the Corporation’s annual consolidated financial statements for the year ending December 31, 2022, could result in restatement of these unaudited condensed interim consolidated financial statements.
Basis of consolidation
These unaudited condensed interim consolidated financial statements consolidate the accounts of the Corporation and its wholly owned subsidiary, Cardiol Therapeutics USA Inc. (“Cardiol USA”), incorporated under the laws of Delaware. Control exists when the Corporation has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The subsidiary is fully consolidated from the date on which control is obtained by the Corporation and is de-consolidated from the date control ceases. Intercompany transactions and balances are eliminated.
| 3. | Cash and cash equivalents |
Cash and cash equivalents include a cashable Guaranteed Investment Certificate totaling $61,568 earning interest of 0.5% per annum and maturing on December 4, 2022 (December 31, 2021 - cashable Guaranteed Investment Certificate totaling $61,568 earning interest of 0.5% per annum and maturing on December 4, 2022). The Guaranteed Investment Certificate may be redeemed prior to maturity without penalty.
| 4. | Property and equipment |
Cost | Right-of- use asset | Equipment | Leasehold improvements | Office equipment | Computer equipment | Total | ||||||||||||||||||
| Balance, December 31, 2020 | $ | 200,319 | $ | 123,058 | $ | 237,248 | $ | 65,716 | $ | 74,619 | $ | 700,960 | ||||||||||||
| Additions | - | 7,712 | - | - | 5,204 | 12,916 | ||||||||||||||||||
| Balance, December 31, 2021 | 200,319 | 130,770 | 237,248 | $ | 65,716 | $ | 79,823 | $ | 713,876 | |||||||||||||||
| Additions | - | - | - | - | 26,879 | 26,879 | ||||||||||||||||||
| Balance, September 30, 2022 | $ | 200,319 | $ | 130,770 | $ | 237,248 | $ | 65,716 | $ | 106,702 | $ | 740,755 | ||||||||||||
Accumulated Depreciation | Right-of- use asset | Equipment | Leasehold improvements | Office equipment | Computer equipment | Total | ||||||||||||||||||
| Balance, December 31, 2020 | $ | 63,441 | $ | 53,052 | $ | 55,032 | $ | 15,644 | $ | 34,237 | $ | 221,406 | ||||||||||||
| Depreciation for the year | 40,068 | 22,159 | 50,840 | 10,015 | 12,895 | 135,977 | ||||||||||||||||||
| Balance, December 31, 2021 | $ | 103,509 | $ | 75,211 | $ | 105,872 | $ | 25,659 | $ | 47,132 | $ | 357,383 | ||||||||||||
| Depreciation for the period | 30,051 | 12,501 | 38,130 | 6,009 | 11,850 | 98,541 | ||||||||||||||||||
| Balance, September 30, 2022 | $ | 133,560 | $ | 87,712 | $ | 144,002 | $ | 31,668 | $ | 58,982 | $ | 455,924 | ||||||||||||
Carrying value | Right-of- use asset | Equipment | Leasehold improvements | Office equipment | Computer equipment | Total | ||||||||||||||||||
| Balance, December 31, 2021 | $ | 96,810 | $ | 55,559 | $ | 131,376 | $ | 40,057 | $ | 32,691 | $ | 356,493 | ||||||||||||
| Balance, September 30, 2022 | $ | 66,759 | $ | 43,058 | $ | 93,246 | $ | 34,048 | $ | 47,720 | $ | 284,831 | ||||||||||||
- 6 -
Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial
Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 5. | Intangible assets |
| Cost | Exclusive global license agreement | ||||
| Balance, December 31, 2020, December 31, 2021, and September 30, 2022 | $ | 767,228 | |||
| Accumulated Amortization | Exclusive global license agreement | |||
| Balance, December 31, 2020 | $ | 303,538 | ||
| Amortization for the year | 84,444 | |||
| Balance, December 31, 2021 | $ | 387,982 | ||
| Amortization for the period | 63,333 | |||
| Balance, September 30, 2022 | $ | 451,315 | ||
| Carrying Value | Exclusive global license agreement | ||||
Balance, December 31, 2021 | $ | 379,246 | |||
| Balance, September 30, 2022 | $ | 315,913 | |||
Exclusive global agreement (“Meros License Agreement”)
In 2017, the Corporation was granted by Meros Polymers Inc. (“Meros”) the sole, exclusive, irrevocable license to patented nanotechnologies for use with any drugs to diagnose, or treat, cardiovascular disease, cardiopulmonary disease, and cardiac arrhythmias. Meros is focused on the advancement of nanotechnologies developed at the University of Alberta.
Under the Meros License Agreement, Cardiol agreed to certain milestones and milestone payments, including the following: (i) payment of $100,000 upon enrolling the first patient in a Phase IIB clinical trial designed to investigate the safety and indications of efficacy of one of the licensed technologies; (ii) payment of $500,000 upon enrolling the first patient in a Pivotal Phase III clinical trial designed to investigate the safety and efficacy of one of the licensed technologies; (iii) $1,000,000 upon receiving regulatory approval from the FDA for any therapeutic and/or prophylactic treatment incorporating the licensed technologies. Cardiol also agreed to pay Meros the following royalties:
(a) 5% of worldwide proceeds of net sales of the licensed technologies containing cannabinoids, excluding non-royalty sub-license income in (b) below, that Cardiol receives from human and animal disease indications and derivatives as outlined in the Meros License Agreement;
(b) 7% of any non-royalty sub-license income that Cardiol receives from human and animal disease indications and derivatives for licensed technologies containing cannabinoids as outlined in the Meros License Agreement;
(c) 3.7% of worldwide proceeds of net sales that Cardiol receives from the licensed technology in relation to human and animal cardiovascular and/or cardiopulmonary disease, heart failure, and/or cardiac arrhythmia diagnosis and/or treatments using the drugs, excluding cannabinoids included in (a) above, outlined in the Meros License Agreement; and
- 7 -
Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial
Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 5 | Intangible assets (continued) |
(d) 5% of any non-royalty sub-license income that Cardiol receives in relation to any human and animal heart disease, heart failure and/or arrhythmias indications, excluding cannabinoids included in (b) above, as outlined in the Meros License Agreement.
In addition, as part of the consideration under the Meros License Agreement, Cardiol (i) issued to Meros 1,020,000 common shares; and (ii) issued to Meros 1,020,000 special warrants convertible automatically into common shares for no additional consideration upon the first patient being enrolled in a Phase 1 clinical trial using the licensed technologies as described in the Meros License Agreement.
| 6. | Lease liability |
| Carrying Value | ||||
| Balance, December 31, 2020 | $ | 156,566 | ||
| Repayments | (51,916 | ) | ||
| Accretion | 12,929 | |||
| Balance, December 31, 2021 | $ | 117,579 | ||
| Repayments | (40,090 | ) | ||
| Accretion | 7,282 | |||
| Balance, September 30, 2022 | $ | 84,771 | ||
| Current portion | 49,316 | |||
| Long-term portion | $ | 35,455 | ||
(i) When measuring the lease liability for the property lease that was classified as an operating lease, the Corporation discounted the lease payments using its incremental borrowing rate. The property lease expires on May 31, 2024, and the lease payments were discounted with a 9% interest rate.
| 7. | Derivative liability |
On November 5, 2021, the Corporation issued 8,175,000 warrants as part of a unit financing. Each warrant is exercisable into one common share at the price of USD$3.75 per share for a period of three years from closing. The warrants have been classified as a derivative liability on the statement of financial position and are re-valued at each reporting date, as the warrants were issued in a currency other than the Corporation’s functional currency. The only significant unobservable input is the volatility, which could cause an increase or decrease in fair value. As at September 30, 2022, the fair value of the derivative liability was $1,943,563 (December 31, 2021 - $6,661,122), resulting in a decrease in the value derivative liability for the three and nine months ended September 30, 2022 of $1,723,442 and $4,717,559 (September 30, 2021 - $nil and $nil).
- 8 -
Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial
Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 7. | Derivative liability (continued) |
Significant assumptions used in determining the fair value of the derivative warrant liabilities at September 30, 2022 are as follows:
| Nine Months Ended September 30, 2022 | ||||
| Share price | USD$ | 1.03 | ||
| Exercise price | USD$ | 3.75 | ||
| Risk-free interest rate | 3.78 | % | ||
| Expected volatility | 84 | % | ||
| Expected life in years | 2.10 | |||
| Expected dividend yield | Nil | |||
| 8. | Share capital |
a) Authorized share capital
The authorized share capital consisted of unlimited number of common shares. The common shares do not have a par value. All issued shares are fully paid.
b) Common shares issued
| Number of common shares | Amount | |||||||
| Balance, December 31, 2020 | 32,860,291 | $ | 51,923,471 | |||||
| Shares for services (i) | 683,592 | 2,169,176 | ||||||
| Stock options exercised (note 9) | 998,333 | 2,837,083 | ||||||
| Fair value of stock options exercised (note 9) | - | 1,357,160 | ||||||
| Issuance of units (ii) | 6,112,000 | 22,003,200 | ||||||
| Fair value of warrants (ii) | - | (3,792,200 | ) | |||||
| Share issuance costs (ii) | - | (1,140,691 | ) | |||||
| Warrants exercised (note 10) | 3,353,123 | 10,607,242 | ||||||
| Fair value of warrants exercised (note 10) | - | 3,867,107 | ||||||
| Balance, September 30, 2021 | 44,007,339 | $ | 89,831,548 | |||||
| Balance, December 31, 2021 | 61,922,999 | $ | 142,918,829 | |||||
| Shares for services (iii) | 136,107 | 433,673 | ||||||
| Warrants exercised (note 10) | 503,672 | 2,014,688 | ||||||
| Performance share units exercised (note 9) | 1,000,000 | 1,560,000 | ||||||
| Balance, September 30, 2022 | 63,562,778 | $ | 146,927,190 | |||||
- 9 -
Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 8. | Share capital (continued) |
(i) During the nine months ended September 30, 2021, the Corporation issued 683,592 shares for services with a combined value of $2,169,176. The fair value of the shares were determined to be equal to the value of the services rendered.
(ii) On May 12, 2021, the Corporation completed its short form base shelf prospectus offering by issuing 6,112,000 common share units at $3.60 per unit for gross proceeds of $22,003,200, as well as an additional 433,400 warrants at $0.02 per warrant for $8,668. Each unit consisted of one common share and one-half of one common share purchase warrant. Each whole warrant is exercisable into one common share at the price of $4.60 per share for a period of three years from closing. The underwriters were paid cash fees of $1,025,590.
The fair value of $3,792,200 was assigned to the 3,056,000 warrants issued as part of the units as estimated by using a fair value market technique incorporating the Black-Scholes option pricing model, using the following assumptions: a risk-free interest rate of 0.53%; an expected volatility factor of 81%; an expected dividend yield of 0%; and an expected life of 3 years.
(iii) During the nine months ended September 30, 2022, the Corporation issued 136,107 common shares with a fair value of $202,945. The fair value of the shares was determined to be equal to the value of the services rendered. Included in shares for services is $230,728 related to vesting of previously issued shares. The vesting conditions are as follows: 25,000 restricted common shares that contain service-based conditions and vest on March 29, 2023.
c) 2022 At-The-Market (“ATM”) Program
In June 2022, the Corporation announced it has entered into an equity distribution agreement with Canaccord Genuity LLC and Cantor Fitzgerald & Co. (the “Sales Agents”) acting as co-agents in connection with the 2022 at-the-market offering program (the “2022 ATM Program”). Under the terms of the 2022 ATM Program, the Corporation may, from time to time, sell common shares having an aggregate value of USD$50,000,000 through the Sales Agents on the Nasdaq Capital Market. As at September 30, 2022 and November 9, 2022, the Corporation has not issued any shares under the 2022 ATM Program.
The timing and extent of the use of the 2022 ATM Program will be at the discretion of the Corporation and the Corporation has no obligation to sell any shares pursuant to the 2022 ATM Program. Accordingly, total gross proceeds from offerings under the 2022 ATM Program could be less than US$50 million. The 2022 ATM Program will be effective until the earlier of the issuance and sale of all of the Offered Shares issuable pursuant to the 2022 ATM Program and March 8, 2024, unless terminated prior to such date by the Corporation or the Sales Agents.
| 9. | Share-based payments |
The Corporation has adopted an Omnibus Equity Incentive Plan in accordance with the policies of the TSX, which permits the grant or issuance of options, Restricted Share Units (“RSUs”), Performance Share Units (“PSUs”) and Deferred Share Units (“DSUs”), as well as other share-based payment arrangements. The maximum number of shares that may be issued upon the exercise or settlement of awards granted under the plan may not exceed 15% of the Corporation’s issued and outstanding shares from time to time. The Board of Directors determines the price per common share and the number of common shares which may be allotted to directors, officers, employees, and consultants, and all other terms and conditions of the option, subject to the rules of the TSX.
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Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 9. | Share-based payments (continued) |
(a) Stock Options
| Number of stock options | Weighted average exercise price ($) | |||||||
| Balance, December 31, 2020 | 2,861,300 | $ | 3.78 | |||||
| Issued | 1,961,666 | 4.38 | ||||||
| Expired | (106,667 | ) | 2.90 | |||||
| Exercised | (998,333 | ) | 2.84 | |||||
| Balance, September 30, 2021 | 3,717,966 | $ | 4.38 | |||||
| Balance, December 31, 2021 | 4,301,800 | $ | 4.16 | |||||
| Issued | 602,500 | 1.84 | ||||||
| Expired | (403,334 | ) | 4.34 | |||||
| Cancelled (note 9(c)) | (2,512,490 | ) | 4.06 | |||||
| Balance, September 30, 2022 | 1,988,476 | $ | 3.54 | |||||
At the grant date, the fair value stock options issued was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions:
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||
| Fair value of stock options at grant date | $ | 1.34 | $ | 2.45 | ||||
| Share price | $ | 2.34 | $ | 4.37 | ||||
| Exercise price | $ | 1.84 | $ | 4.38 | ||||
| Risk-free interest rate | 2.44 | % | 0.50 | % | ||||
| Expected volatility | 98 | % | 90 | % | ||||
| Expected life in years | 5.00 | 3.25 | ||||||
| Expected dividend yield | Nil | Nil | ||||||
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Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 9. | Share-based payments (continued) |
(a) Stock Options (continued)
The following table reflects the actual stock options issued and outstanding as of September 30, 2022:
Expiry date | Exercise | Weighted average life (years) | Number
of | Number
of (exercisable) | ||||||||||||
| February 8, 2023 | 4.56 | 0.36 | 300,976 | 300,976 | ||||||||||||
| February 18, 2023 | 4.80 | 0.39 | 340,000 | 340,000 | ||||||||||||
| February 22, 2023 | 4.46 | 0.40 | 130,000 | 130,000 | ||||||||||||
| February 23, 2025 | 3.54 | 2.40 | 20,000 | 20,000 | ||||||||||||
| August 19, 2025 | 2.12 | 2.89 | 100,000 | 66,667 | ||||||||||||
| August 30, 2025 | 5.00 | 2.92 | 110,000 | 110,000 | ||||||||||||
| April 1, 2026 | 5.77 | 3.50 | 60,000 | 60,000 | ||||||||||||
| December 8, 2026 | 3.59 | 4.19 | 325,000 | - | ||||||||||||
| January 11, 2027 | 2.18 | 4.28 | 220,000 | - | ||||||||||||
| March 14, 2027 | 2.07 | 4.45 | 60,000 | - | ||||||||||||
| May 12, 2027 | 1.46 | 4.62 | 115,000 | - | ||||||||||||
| September 12, 2027 | 1.61 | 4.95 | 207,500 | - | ||||||||||||
| 3.54 | 2.66 | 1,988,476 | 1,027,643 | |||||||||||||
(b) Performance Share Units
The Corporation has 600,000 outstanding PSUs as at September 30, 2022 (September 30, 2021 - 100,000). During the nine months ended September 30, 2022, 1,200,000 PSUs granted to certain consultants of the Corporation expired. The performance criteria were not achieved and therefore no shares were granted in connection with these PSUs. Upon expiry, $1,121,400 of previously recognized share-based compensation was reversed through general and administration. During the nine months ended September 30, 2022, 1,000,000 PSUs vested and were exercised by certain consultants of the Corporation for a total value of $1,560,000.
(c) Restricted Share Units
During the nine months ended September 30, 2022, the Corporation cancelled 2,512,490 stock options held by certain employees, consultants, officers, and directors of the Corporation and issued 2,600,000 RSUs of the Corporation to replace the cancelled stock options. The cancelled stock options were revalued as of the grant date of the RSUs using the Black-Scholes option pricing model with weighted average assumptions that correspond to their times to maturity. The following weighted average assumptions were used for the calculation:
| Fair value of stock options at RSU grant date | $ | 0.47 | ||
| Share price | $ | 1.41 | ||
| Exercise price | $ | 4.06 | ||
| Risk-free interest rate | 3.60 | % | ||
| Expected volatility | 85 | % | ||
| Expected life in years | 3.13 | |||
| Expected dividend yield | Nil |
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Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 9. | Share-based payments (continued) |
(c) Restricted Share Units (continued)
RSUs were measured at the Corporation’s share price of $1.44 on September 30, 2022. The incremental fair value of 1,387,155 RSUs which vested immediately, with a cumulative value of $1,427,235, are included in share-based compensation. The incremental fair value of 1,212,845 unvested RSUs, with a value of $1,065,520, will vest in line with the options they replaced, with the exception of 400,000 RSUs that have modified vesting conditions from the stock options they replaced.
An additional 39,783 RSUs were granted with a value of $56,094. These will vest one year from the grant date. The total outstanding RSUs at September 30, 2022 is 2,639,783 (December 31, 2021 - nil). Of the outstanding RSUs, 1,542,448 have fully vested as of September 30, 2022.
| 10. | Warrants |
Number of warrants | Amount | |||||||
| Balance, December 31, 2020 | 4,521,604 | $ | 4,460,728 | |||||
| Issued (i), (note 8 (ii)) | 3,617,603 | 3,707,789 | ||||||
| Exercised | (3,353,123 | ) | (3,867,107 | ) | ||||
| Earned (ii) | - | 16,063 | ||||||
| Balance, September 30, 2021 | 4,786,084 | $ | 4,317,473 | |||||
| Balance, December 31, 2021 | 12,452,178 | $ | 4,176,780 | |||||
| Expired (note 12 (iii)) | (320,328 | ) | - | |||||
| Exercised (note 12 (iii)) | (503,672 | ) | (2,014,688 | ) | ||||
| Earned (ii) | - | 1,355,775 | ||||||
| Balance, September 30, 2022 | 11,628,178 | $ | 3,517,867 | |||||
(i) 128,203 warrants with a fair value of $144,976 carrying an exercise price of $3.25 and an original expiry date of June 4, 2022, are included in this amount as a result of the exercise of 256,409 warrants carrying a price of $2.50. At the grant date, the fair value of the warrants issued was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions:
| Nine Months Ended September 30, 2021 | ||||
| Fair value of warrants at grant date | $ | 1.13 | ||
| Share price | $ | 3.88 | ||
| Exercise price | $ | 3.25 | ||
| Risk-free interest rate | 0.16 | % | ||
| Expected volatility | 83 | % | ||
| Expected life in years | 1.10 | |||
| Expected dividend yield | Nil | |||
(ii) During the nine months ended September 30, 2022, 338,943 warrants with a fair value of $1,355,775 (nine months ended September 30, 2021 - 4,016 warrants with a fair value of $16,063) were earned pursuant to the Caro Development Agreement (see note 12 (iii)).
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Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 10. | Warrants (continued) |
The following table reflects the actual warrants issued and outstanding as of September 30, 2022, excluding 1,020,000 special warrants convertible automatically into common shares for no additional consideration in accordance with the original escrow release terms as described in the Meros License Agreement (see note 5):
| Expiry date | Exercise price ($) | Remaining contractual life (years) | Warrants exercisable | |||||||||
| May 12, 2024 | 4.60 | 1.62 | 3,453,178 | |||||||||
| November 5, 2024(1) | 5.13 | 2.10 | 8,175,000 | |||||||||
| 4.98 | 1.96 | 11,628,178 | ||||||||||
(1) Warrants carry an exercise price of USD$3.75. This amount was translated to CAD for presentation purposes at the September 30, 2022 rate of 1.37. These warrants are classified as a derivative liability on the statement of financial position (see note 7).
| 11. | Loss per share |
For the three and nine months ended September 30, 2022, basic and diluted loss per share has been calculated based on the loss attributable to common shareholders of $7,972,047 and $23,415,629, respectively (three and nine months ended September 30, 2021 - $9,909,991 and $25,380,782, respectively) and the weighted average number of common shares outstanding of 62,336,296 and 62,066,132, respectively (three and nine months ended September 30, 2021 - 43,169,772 and 39,308,910, respectively). Diluted loss per share did not include the effect of stock options, PSUs, RSUs, and warrants as they are anti-dilutive.
| 12. | Commitments |
(i) The Corporation has leased premises with third parties. The minimum committed lease payments, which include the lease liability payments shown as base rent, are approximately as follows:
| Base rent | Variable rent | Total | |||||||||||
| 2022 | $ | 13,843 | $ | 12,962 | $ | 26,805 | |||||||
| 2023 | 55,376 | 51,846 | 107,222 | ||||||||||
| 2024 | 23,073 | 21,603 | 44,676 | ||||||||||
| $ | 92,292 | $ | 86,411 | $ | 178,703 | ||||||||
(ii) The Corporation has signed various agreements with consultants to provide services. Under the agreements, the Corporation has the following remaining commitments.
| 2022 | $ | 260,387 |
(iii) Cardiol entered into a development agreement (the “Caro Development Agreement”) with the Clinical Academic Research Organization, S.A. DE C.V. (“Caro”) dated August 28, 2018, for the further research and development of proprietary drug formulations for the treatment of heart failure. Caro is a Mexican corporation dedicated to providing clinical and scientific experimentation and consulting, as well as performing development activities by itself or through third-party providers.
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Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 12. | Commitments (continued) |
Pursuant to the terms of the Caro Development Agreement, Caro will provide scientific experimentation, research activities, medical drug development activities, and medical drug formulation and discovery to Cardiol (the “Development Activities”), as set out in a development plan (the “Development Plan”). Under the Caro Development Agreement, Caro may also engage third-party providers of development activities in support of the Development Plan, which is anticipated to be limited to third-party vendors of materials.
Pursuant to the terms of the Caro Development Agreement, Cardiol upon execution of the Caro Development Agreement allotted and set aside 824,000 Common Shares of Cardiol, and issued to Caro 824,000 warrants (the “Caro Compensation Warrants”), each warrant having the following qualifications: (i) an expiry date of August 31, 2022, or such earlier date as may be specified by a relevant stock exchange; (ii) an exercise price of $4 per share (to be settled through the issuance of invoices by Caro); and (iii) each of the Caro Compensation Warrants entitles Caro to purchase one Common Share of Cardiol for the exercise price. The Compensation Warrants were earned and became exercisable as the Development Activities were completed. Cardiol also further agreed to pay Caro US$400,000 in cash (paid). The unexercised warrants expired on August 31, 2022. Prior to that, 503,672 warrants that were earned were exercised into common shares, carrying a value of $2,014,688.
Pursuant to the terms of the Caro Development Agreement, both Cardiol and Caro may terminate the Caro Development Agreement if either party believes in good faith that the continued performance of the Development Activities may be commercially unwise, jeopardize safety, or otherwise be unethical or illegal. However, if Caro terminates the Caro Development Agreement for any reason except breach of contract by Cardiol, or terminates the development activities under the contract prior to achievement of all milestones in the Development Plan, then any unexercised Caro Compensation Warrants that are not related to Development Activities and milestones in the Development Plan that have been attained up to the time of termination of the Caro Development Agreement shall be deemed terminated as of the time of termination of the Caro Development Agreement.
Further, if Cardiol terminates the Caro Development Agreement for any reason (including breach of contract by Caro), or requires Caro to terminate the Development Activities prior to achievement of all milestones in the Development Plan, then the Caro Compensation Warrants issued to Caro that can be invoiced for the CARO Development Activities completed up to the time of termination shall be considered to have been earned notwithstanding such termination.
(iv) Cardiol entered into an exclusive supply agreement (the “Exclusive Supply Agreement”) with Noramco, Inc. (“Noramco”) dated September 28, 2018, as amended on December 7, 2018, December 11, 2018, July 2, 2019, September 11, 2019, and November 12, 2019, pursuant to which Noramco will be the exclusive supplier of pharmaceutical cannabidiol for Cardiol, provided Noramco is able to meet Cardiol’s supply requirements.
During 2020, the Exclusive Supply Agreement was assigned to Purisys, LLC (“Purisys”), an affiliate of Noramco headquartered in Athens, Georgia. This assignment had no impact on Cardiol’s rights under the Exclusive Supply Agreement.
Pursuant to the terms of the Exclusive Supply Agreement, Cardiol paid a non-refundable payment of US$3,000,000 (the “Exclusivity Payment”). The Exclusivity Payment represents a prepayment for inventory and is being credited towards purchases. Prepaid inventory at September 30, 2022 was $339,051 (December 31, 2021 - $339,051),
Purisys shall not sell pharmaceutical cannabidiol to any third party for use in the production of products sold to retail pharmacies in Canada and Mexico, such as Shoppers Drug Mart Inc. Notwithstanding this restriction, Purisys shall have the right to sell pharmaceutical cannabidiol to third parties outside Canada for use in products that are approved as prescription medicines by the Therapeutic Products Directorate of Health Canada for delivery into Canada.
The Exclusive Supply Agreement expires on December 31, 2038, subject to certain renewal provisions.
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Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 12. | Commitments (continued) |
(v) Pursuant to the terms of agreements with various other contract research organizations, the Corporation is committed for contract research services for 2022 at a cost of approximately $1,378,612, and 2023 at a cost of approximately $456,572.
| 13. | Other expenses and adjustments |
The following details highlight certain components of the research and development and general and administration expenses classified by nature. Remaining research and development and operating expenses include personnel costs and expenses paid to third parties:
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||
| Research and development expenses | ||||||||||||||||
| Non-cash share-based compensation | 192,094 | 179,092 | 455,279 | 420,520 | ||||||||||||
| General and administration expenses | ||||||||||||||||
| Depreciation of property and equipment | 33,364 | 34,478 | 98,541 | 101,498 | ||||||||||||
| Amortization of intangible assets | 21,111 | 21,111 | 63,333 | 63,333 | ||||||||||||
| Non-cash share-based compensation | 1,826,347 | 762,019 | 3,609,949 | 3,488,536 | ||||||||||||
| 14. | Related party transactions |
(a) The Corporation entered into the following transactions with related parties:
(i) Included in research and development expense is $706,896 and $1,409,428 for the three and nine months ended September 30, 2022 (three and nine months ended September 30, 2021 - $291,844 and $1,072,580) paid to a company related to a director. As at September 30, 2022, $729,292 (December 31, 2021 - $671,462) was owed to this company and this amount was included in accounts payable and accrued liabilities, and $1,500 (December 31, 2021 - $12,402) was paid to this company and was included in prepaid expenses.
(b) Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Corporation directly or indirectly, including any directors (executive and non-executive) of the Corporation. Remuneration of directors and key management personnel of the Corporation, except as noted in (a) above, was as follows:
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||
| Salaries and benefits | 497,017 | 559,845 | $ | 1,866,635 | $ | 1,995,733 | ||||||||||
| Share-based payments | 1,225,099 | 358,126 | 2,072,878 | 811,774 | ||||||||||||
| 1,722,116 | 917,971 | $ | 3,939,513 | $ | 2,807,507 | |||||||||||
As at September 30, 2022, $125,775 (December 31, 2021 - $46,488) was owed to key management personnel and this amount was included in accounts payable and accrued liabilities.
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Cardiol Therapeutics Inc.
Notes to Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2022
(Expressed in Canadian Dollars)
Unaudited
| 15. | Uncertainty due to COVID-19 |
The coronavirus (COVID-19) pandemic has impacted and could further impact our expected timelines, operations, and the operations of our third-party suppliers, manufacturers, and CROs as a result of quarantines, facility closures, travel and logistics restrictions, and other limitations in connection with the outbreak. While we expect this to be temporary, there is uncertainty around its duration and its broader impact. The Corporation had not experienced any adverse material effects as at September 30, 2022.
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Exhibit 99.2
CARDIOL THERAPEUTICS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2022
MANAGEMENT’S DISCUSSION AND ANALYSIS
Introduction
The following management’s discussion and analysis (“MD&A”) of the financial condition and results of the operations of Cardiol Therapeutics Inc. (the “Corporation” or “Cardiol”) constitutes management of the Corporation’s (“Management”) review of the factors that affected the Corporation’s financial and operating performance for the three and nine months ended September 30, 2022 (the “2022 Fiscal Period”). This MD&A was written to comply with the requirements of National Instrument 51-102 – Continuous Disclosure Obligations. This discussion should be read in conjunction with the financial statements for the years ended December 31, 2021 and 2020 and the unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2022 (“Financial Statements”), together with the respective notes thereto. Results are reported in Canadian dollars, unless otherwise noted. The Financial Statements and the financial information contained in this MD&A are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and interpretations of the IFRS Interpretations Committee. In the opinion of Management, all adjustments (which consist only of normal recurring adjustments) considered necessary for a fair presentation have been included.
This MD&A is dated November 9, 2022. All dollar amounts in this MD&A are reported in Canadian dollars, unless otherwise stated. Unless otherwise noted or the context indicates otherwise, the terms “we”, “us”, “our”, “Cardiol” or the “Corporation” refer to Cardiol Therapeutics Inc.
This MD&A is presented current to November 9, 2022 unless otherwise stated. The financial information presented in this MD&A is derived from the Financial Statements. This MD&A contains forward-looking statements that involve risks, uncertainties, and assumptions, including statements regarding anticipated developments in future financial periods and our plans and objectives. There can be no assurance that such information will prove to be accurate, and readers are cautioned not to place undue reliance on such forward-looking statements. See “Forward-Looking Statements” and “Risk Factors”.
Forward-Looking Information
This MD&A contains forward-looking information that relates to the Corporation’s current expectations and views of future events. In some cases, this forward-looking information can be identified by words or phrases such as “may”, “might”, “could”, “will”, “expect”, “anticipate”, “estimate”, “intend”, “plan”, “indicate”, “seek”, “believe”, “predict”, or “likely”, or the negative of these terms, or other similar expressions intended to identify forward-looking information. Statements containing forward-looking information are not historical facts. The Corporation has based this forward-looking information on its current expectations and projections about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy, and financial needs. The forward-looking information includes, among other things, statements relating to:
| • | our anticipated cash needs, and the need for additional financing; |
| • | our development of our product candidates for use in basic research, clinical studies and commercialization; |
| • | our ability to develop new routes of administration of our product candidates, including parenteral, for use in basic research, clinical studies, and commercialization; |
| • | our ability to develop new formulations of our product candidates for commercialization; |
| • | the successful development and commercialization of our current product candidates and the addition of future products and product candidates; |
| • | the ability for our drug delivery technologies to deliver our products candidates to inflamed and/or fibrotic tissue; |
| • | our intention to build a pharmaceutical brand and our products focused on addressing inflammation and fibrosis in heart disease, including acute myocarditis, recurrent pericarditis, and heart failure; |
| • | the expected medical benefits, viability, safety, efficacy, effectiveness and dosing of our product candidates; |
| • | patents and intellectual property, including, but not limited to, our (a) ability to procure, defend, and/or enforce our intellectual property relating to our drugs, drug formulations, routes of administration, drug candidates, and associated uses, methods, and/or processes, and (b) freedom to operate; |
| • | our competitive position and the regulatory environment in which we operate; |
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| • | the molecular targets and mechanism of action of our product candidates; |
| • | our financial position; our business strategy; our growth strategies; our operations; our financial results; our dividend policy; our plans and objectives; and |
| • | expectations of future results, performance, achievements, prospects, opportunities, or the market in which we operate. |
In addition, any statements that refer to expectations, intentions, projections, or other characterizations of future events or circumstances contain forward-looking information. Forward-looking information is based on certain assumptions and analyses made by the Corporation in light of the experience and perception of historical trends, current conditions, and expected future developments and other factors we believe are appropriate and are subject to risks and uncertainties. Although we believe that the assumptions underlying these statements are reasonable, they may prove to be incorrect, and we cannot assure that actual results will be consistent with this forward-looking information. Given these risks, uncertainties, and assumptions, prospective investors should not place undue reliance on this forward-looking information. Whether actual results, performance, or achievements will conform to the Corporation’s expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions, and other factors, including those listed under “Risk Factors”, which include:
| • | the inherent uncertainty of product development including basic research and clinical trials; |
| • | our requirement for additional financing; |
| • | our negative cash flow from operations; |
| • | our history of losses; |
| • | dependence on the success of our early-stage product candidates which may not generate revenue; |
| • | reliance on Management, loss of members of Management or other key personnel, or an inability to attract new Management team members; |
| • | our ability to successfully design, initiate, execute, and complete clinical trials, including the high cost, uncertainty, and delay of clinical trials, and additional costs associated with any failed clinical trials; |
| • | the uncertainty our investigational products will have a therapeutic benefit in the clinical indications we are pursuing; |
| • | potential equivocal or negative results from clinical trials and their adverse impacts on our future commercialization efforts; |
| • | our ability to receive and maintain regulatory exclusivities, including Orphan Drug Designations/Approvals, for our drugs and drug candidates; |
| • | delays in achievement of projected development goals; |
| • | management of additional regulatory burdens; |
| • | volatility in the market price for our securities; |
| • | failure to protect and maintain and the consequential loss of intellectual property rights; |
| • | third-party claims relating to misappropriation by the Corporation of their intellectual property; |
| • | reliance on third parties to conduct and monitor our pre-clinical studies and clinical trials; |
| • | our product candidates being subject to controlled substance laws which may vary from jurisdiction to jurisdiction; |
| • | changes in laws, regulations, and guidelines relating to our business, including tax and accounting requirements; |
| • | our reliance on early-stage research regarding the medical benefits, viability, safety, efficacy, and dosing of our products; |
| • | claims for personal injury or death arising from the use of products and product candidates produced by us; |
| • | uncertainty relating to market acceptance of our product candidates; |
| • | our lack of experience in commercializing any products, including selling, marketing, or distributing our products; |
| • | the level of pricing and reimbursement for our products and product candidates, if approved; |
| • | our dependence on Dalton Chemical Laboratories, Inc. operating as Dalton Pharma Services (“Dalton”) and other contract manufacturers; |
| • | unsuccessful collaborations with third parties; |
| • | business disruptions affecting third-party suppliers and manufacturers; |
| • | lack of control in future production and selling prices of our product candidates; |
| • | competition in our industry; |
| • | our inability to develop new technologies and products and the obsolescence of existing technologies and products; |
| • | unfavorable publicity or consumer perception towards our products; |
| • | product liability claims and product recalls; |
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| • | expansion of our business to other jurisdictions; |
| • | fraudulent activities of employees, contractors, and consultants; |
| • | our reliance on key inputs and their related costs; |
| • | difficulty associated with forecasting demand for our products; |
| • | operating risk and insurance coverage; |
| • | our inability to manage growth; |
| • | conflicts of interest among the officers and directors (“Director”) of the Corporation; |
| • | managing damage to our reputation and third-party reputational risks; |
| • | relationships with customers and third-party payors and consequential exposure to applicable anti-kickback, fraud, and abuse, and other healthcare laws; |
| • | exposure to information systems security threats; |
| • | no dividends for the foreseeable future; |
| • | future sales of common shares and warrants by existing shareholders causing the market price for the common shares and warrants to fluctuate; |
| • | the issuance of common shares in the future causing dilution; and |
| • | the impact of the coronavirus (“COVID-19”) pandemic on operations, including the conduct and completion of clinical trials. |
If any of these risks or uncertainties materialize, or if assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those anticipated in the forward-looking information.
Information contained in forward-looking information in this MD&A is provided as of November 9, 2022, and we disclaim any obligation to update any forward-looking information, whether as a result of new information or future events or results, except to the extent required by applicable securities laws. Accordingly, potential investors should not place undue reliance on forward-looking information.
Overview
On December 20, 2018, the Corporation completed its initial public offering (the “IPO”) on the Toronto Stock Exchange (the “TSX”). As a result, the common shares commenced trading on the TSX under the symbol “CRDL”. On May 12, 2021, warrants arising from a “bought deal” short form prospectus offering that closed on the same date, commenced trading on the TSX. These warrants trade under the symbol “CRDL.WT.A”. On August 10, 2021, the Corporation’s common shares commenced trading on the Nasdaq Capital Market (“Nasdaq”) under the symbol “CRDL”.
The Corporation is a clinical-stage life sciences company focused on the research and clinical development of anti-inflammatory and anti-fibrotic therapies for the treatment of heart diseases. The Corporation’s lead product candidate, CardiolRx™, is a pharmaceutically manufactured oral cannabidiol formulation that is being clinically developed for use in heart diseases. It is recognized that cannabidiol inhibits activation of the inflammasome pathway, an intracellular process known to play an important role in the inflammation and fibrosis associated with myocarditis, pericarditis, and heart failure.
The Corporation has received Investigational New Drug Application (“IND”) authorization from the United States (“U.S.”) Food and Drug Administration (“FDA”) to conduct a Phase II multi-national, randomized, double-blind, placebo-controlled trial designed to evaluate the efficacy and safety of CardiolRx in acute myocarditis (the “ARCHER” trial). Myocarditis is an acute inflammatory condition of the heart muscle (myocardium) characterized by chest pain, impaired cardiac function, atrial and ventricular arrhythmias, and conduction disturbances. Although the symptoms are often mild, myocarditis remains an important cause of acute and fulminant heart failure and is a leading cause of sudden cardiac death in people under 35 years of age. Although viral infection is the most common cause of myocarditis, the condition can also result from administration of therapies used to treat several common cancers, including chemo-therapeutic agents and immune checkpoint inhibitors. There are no FDA-approved therapies for acute myocarditis which affects an estimated 54,000 people in the U.S. per year. Patients hospitalized with acute myocarditis experience an average 7-day length of stay and a 6% risk of in-hospital mortality, with average hospital charge per stay estimated at $110,000 in the United States. Severe cases frequently require ventricular assist devices or extracorporeal oxygenation and may necessitate heart transplantation.
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The Corporation has also received IND authorization from the FDA to conduct a Phase II open-label pilot study designed to evaluate the tolerance and safety of CardiolRx in patients with recurrent pericarditis. The study will also assess the improvement in objective measures of disease, and during an extension period, assess the feasibility of weaning concomitant background therapy including corticosteroids, while taking CardiolRx. Recurrent pericarditis refers to inflammation of the pericardium (the membrane or sac that surrounds the heart) that follows an initial episode (frequently resulting from a viral infection). Patients may have multiple recurrences. Symptoms include debilitating chest pain, shortness of breath, and fatigue, resulting in physical limitations, reduced quality of life, emergency department visits, and hospitalizations. The only FDA-approved therapy for recurrent pericarditis, launched in 2021, is extraordinarily costly and is primarily used as a third-line intervention. The number of cases of patients seeking and receiving treatment for recurrent pericarditis annually in the U.S. is estimated at 38,000. Hospitalization due to recurrent pericarditis is often associated with a 6-8-day length of stay and cost per stay is estimated to range between $20,000 and $30,000 in the U.S.
The Corporation is planning to pursue the development of CardiolRx as an Orphan Drug for the treatment of acute myocarditis and recurrent pericarditis. The U.S. Orphan Drug Designation program was created to provide the sponsor of a drug significant incentives, including seven-year marketing exclusivity and exemptions from certain FDA fees, to develop treatments for diseases that affect fewer than 200,000 people in the U.S. Products with Orphan Drug Designation also frequently qualify for accelerated regulatory review. The program was successfully utilized to support the first FDA approval of cannabidiol for the treatment of seizures associated with rare pediatric epilepsy syndromes. The European Union has a similar program for rare diseases.
In addition, the Corporation is developing a novel subcutaneously administered drug formulation of cannabidiol intended for use in heart failure – a leading cause of death and hospitalization in the developed world, with associated healthcare costs in the United States exceeding $30 billion annually.
Operations Highlights
During the 2022 Fiscal Period
(i) During the 2022 Fiscal Period, the Corporation granted 602,500 stock options to certain consultants, Directors and employees of the Corporation. Each option allows the holder to acquire one common share of the Corporation at exercise prices between $1.46 and $2.18 with expiry dates between January 11, 2027, and September 12, 2027. These options vest one-third on each anniversary date. During the 2022 Fiscal Period, the Corporation cancelled 2,512,490 stock options held by certain employees, consultants, officers and Directors of the Corporation and issued 2,600,000 restricted share units (“RSUs”) of the Corporation to replace the cancelled stock options.
(ii) In January 2022, the Corporation announced the appointment of its Scientific Advisory Board (See “Clinical Programs - Scientific Advisory Board”).
(iii) In March 2022, the Corporation announced the appointment of Jennifer M. Chao to its Board of Directors. Ms. Chao has also been appointed Chair of the Corporate Governance and Compensation Committee. Iain Chalmers stepped down from the Board of Directors to accommodate Ms. Chao’s appointment.
Ms. Chao has over 25 years of experience in the biotech and life sciences industries focused primarily on finance and corporate strategy. She is Managing Partner of CoreStrategies Management, LLC, a company she founded in 2008 to provide transformational corporate and financial strategies to biotech/life science companies for maximizing core valuation. She currently serves on the Board of Directors of Endo International (“Endo”) and is a member of the Audit Committee and Compliance Committee. Prior to joining Endo, Ms. Chao served as Chairman of the Board of BioSpecifics Technologies Corp. (“BioSpecifics”) from October 2019 until its acquisition by Endo for approximately USD $660 million in December 2020. She also served as Chair of BioSpecifics’ Compensation Committee and as a member of the Audit Committee, Strategy Committee, Intellectual Property Committee, and Nominating and Corporate Governance Committee from 2015 to 2020.
Additionally, from 2004 to 2008, Ms. Chao was Managing Director and Senior Lead Biotechnology Securities Analyst at Deutsche Bank, responsible for U.S. large- and small- to mid-cap biotechnology companies with global client coverage; and was known for differentiated fundamentals securities analysis and high visibility coverage of game changing technologies, paradigm shifting treatment algorithms, industry trends and portfolio risk/reward management. Prior to that, Ms. Chao served as Managing Director and Senior Lead Biotechnology Analyst at RBC Capital Markets and VP, Senior Biotechnology Analyst at Leerink Swann & Co. Ms. Chao was a research fellow at Massachusetts General Hospital/Harvard Medical School, as a recipient of the BioMedical Research Career Award, and received her B.A. in Politics and Greek Classics from New York University.
(iv) In March 2022, the Corporation incorporated a wholly owned subsidiary, Cardiol Therapeutics USA Inc. (“Cardiol USA”), under the laws of Delaware.
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(v) In May 2022, Corporation announced the appointment of Teri Loxam and Chris Waddick to its Board of Directors. Ms. Loxam has also been appointed Chair of the Audit Committee. Dr. Guillermo Torre-Amione stepped down from the Audit Committee to accommodate Ms. Loxam’s appointment.
Teri Loxam has over 25 years of experience in the pharmaceutical, life sciences, and entertainment industries with diverse roles spanning strategy, investor relations, finance, and communications. Ms. Loxam joined Kira Pharmaceuticals (“Kira”) in November 2021 as Chief Operating Officer and Chief Financial Officer. In this role, she oversees finance, operations, and strategic functions for the company. Prior to joining Kira, Ms. Loxam served as Chief Financial Officer at SQZ Biotech (“SQZ”) where she led the company’s financial operations, investor relations and communications/public relations functions. While at SQZ, she was instrumental in helping the company raise over $200M in private and public funding, including taking the company public through an IPO on the NYSE in October 2020. Before joining SQZ, Ms. Loxam served as Sr. Vice President of Investor Relations and Global Communications at Merck. In this role, she led its investor relations and investment community interactions as well as its internal and external communications efforts globally. Prior to Merck, Ms. Loxam was Vice President, Investor Relations for IMAX Corporation, where she reshaped the entertainment company’s investor strategy, helping to convert its investor base and helping the company go public in China with an IPO on the Hong Kong Exchange. Ms. Loxam also spent over a decade at Bristol-Myers Squibb in a variety of roles of increasing responsibility across Strategy, Treasury, and Investor Relations. She started her career as a marine biologist and worked at Sea World of San Diego before making a transition into business. Ms. Loxam is a member of the board of directors of Vaxcyte. She holds an MBA from the University of California, Irvine, and a Bachelor of Science degree in Biology from the University of Victoria, B.C., Canada.
Chris Waddick has over thirty years of experience in financial and executive roles in the biotechnology and energy industries, with substantial knowledge of public company management and corporate governance, and in designing, building, and managing financial processes, procedures, and infrastructure. Mr. Waddick has served as Chief Financial Officer and Corporate Secretary of Cardiol since August 16, 2018. He serves as Executive Vice President and Chief Financial Officer for a private Ontario energy company. Previously, Mr. Waddick spent more than twelve years at Vasogen Inc., a biotechnology company focused on the research and commercial development of novel therapeutics for the treatment of heart failure and other inflammatory conditions. While serving as Chief Financial Officer and Chief Operating Officer, the company grew from start up to an organization employing over 250 employees that established the necessary systems and infrastructure to advance an anti-inflammatory therapy through to the completion of an international multi-center pivotal trial involving 2,500 patients. Vasogen went public on the TSX and the NASDAQ, raising over $200 million to support corporate development and reached a market capitalization of over USD$1 billion. Prior to Vasogen, he held progressively senior financial positions at Magna International Inc. and Union Gas Limited. Mr. Waddick is a CPA and earned a business degree from Wilfrid Laurier University and a Master of Business Administration from York University.
(vi) In June 2022, the Corporation announced it has entered into an equity distribution agreement with Canaccord Genuity LLC and Cantor Fitzgerald & Co. (the “Sales Agents”) acting as co-agents in connection with the 2022 at-the-market offering program (the “2022 ATM Program”). Under the terms of the 2022 ATM Program, the Corporation may, from time to time, sell common shares having an aggregate value of USD$50,000,000 through the Sales Agents on the Nasdaq Capital Market. As at November 9, 2022, the Corporation has not issued any shares under the 2022 ATM Program.
The timing and extent of the use of the 2022 ATM Program will be at the discretion of the Corporation and the Corporation has no obligation to sell any shares pursuant to the 2022 ATM Program. Accordingly, total gross proceeds from offerings under the 2022 ATM Program could be less than USD$50 million. The 2022 ATM Program will be effective until the earlier of the issuance and sale of all of the Offered Shares issuable pursuant to the 2022 ATM Program and March 8, 2024, unless terminated prior to such date by Cardiol or the Sales Agents.
(vii) In August 2022, the Corporation announced that the first patient had been enrolled in ARCHER, the Corporation’s Phase II, multi-center, international, double-blind, randomized, placebo-controlled trial designed to study the safety and tolerability of CardiolRx, as well as its impact on myocardial recovery, in patients presenting with acute myocarditis.
Subsequent to September 30, 2022
(i) In October 2022, the Corporation announced that study results demonstrate the active pharmaceutical ingredient (“API”) in CardiolRx inhibits and also promotes the reversal of mechanisms known to play a role in the occurrence and development of cardiac fibrosis. The data were presented by its research collaborators from Houston Methodist DeBakey Heart & Vascular Center at The Annual Scientific Meeting of the Heart Failure Society of America (“HFSA2022”).
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The poster entitled “Cannabidiol Inhibits Endothelial-to-Mesenchymal Transition and also Promotes the Reverse Process in vitro” was presented within the “Basic and Translational Science” category of the HFSA2022 Scientific Programme. The authors concluded that the API in CardiolRx protects cardiac function and exhibits an antifibrotic effect, possibly mediated by endothelial-to-mesenchymal transition (“EndoMT”).
(ii) In November 2022, the Corporation announced study results demonstrating that pharmaceutically manufactured cannabidiol (the active pharmaceutical ingredient in CardiolRx) significantly reduces pericardial effusion and thickening in a pre-clinical model of acute pericarditis and significantly suppresses the secretion of key inflammatory markers interleukin-1ß (“IL-1ß”) and interleukin-6 (“IL-6”) in vitro. The data were presented by the Corporation’s research collaborators from Virginia Commonwealth University (“VCU”) at The American Heart Association Scientific Sessions 2022 (“AHA2022”).
The poster entitled “Protective Effects of Pharmaceutically Manufactured Cannabidiol in a Mouse Model of Acute Pericarditis” was presented on November 5th within the “Late-Breaking Basic Science Posters” session of AHA2022. The authors concluded that the pharmaceutically manufactured cannabidiol administered in the study may represent a novel therapy for treating pericarditis and preventing its complications and recurrence. Data presented also demonstrated a dose-response effect on IL-1ß in vitro. In addition, cannabidiol was shown in vitro to significantly inhibit the transcription of IL-1ß and NLRP3, as measured by mRNA expression. NLRP3 is a sensor protein that comprises a part of the NLRP3 inflammasome, a large multiprotein complex that regulates inflammatory responses of the innate immune system. The Corporation has filed comprehensive patent applications with the U.S. patent office in connection with these new findings.
Clinical Programs
Phase II Open Label Pilot Study – Recurrent Pericarditis
Pericarditis refers to inflammation of the pericardium (the membrane or sac that surrounds the heart) that follows an initial episode (frequently resulting from a viral infection). Patients may have multiple recurrences. Symptoms include debilitating chest pain, shortness of breath, and fatigue, resulting in physical limitations, reduced quality of life, emergency department visits, and hospitalizations. Causes of pericarditis can include infection (e.g., tuberculosis), systemic disorders such as autoimmune and inflammatory diseases, cancer, and post-cardiac injury syndromes. Based on time of presentation, acute pericarditis is a symptomatic event lasting less than four to six weeks, the diagnosis of which is based on meeting two of four criteria: chest pain; pericardial rub; electrocardiogram changes; and new or worsening pericardial swelling. Elevation of inflammatory markers such as CRP, and evidence of pericardial inflammation by an imaging technique (computed tomography scan or cardiac magnetic resonance) may help the diagnosis and the monitoring of disease activity. Although generally self-limited and not life threatening, acute pericarditis is diagnosed in 0.2% of all cardiovascular in-hospital admissions and is responsible for 5% of emergency room admissions for chest pain in North America and Western Europe.
Recurrent pericarditis is the reappearance of symptoms after a symptom-free period of at least 4 – 6 weeks following an episode of acute pericarditis. These recurrences appear in 15% to 30% of acute cases and usually within 18 months. Furthermore, up to 50% of patients with a recurrent episode of pericarditis experience more recurrences. Standard first-line medical therapy consists of non-steroidal anti-inflammatory drugs or aspirin with or without colchicine. Corticosteroids such as prednisone are second-line therapy in patients with continued recurrence and inadequate response to conventional therapy. The only FDA-approved therapy for recurrent pericarditis, launched in 2021, is a costly and potent subcutaneously injected interleukin-1 inhibitor with immunosuppressive effects. It is generally used as a third-line intervention in patients with a third or fourth recurrence.
The number of cases of patients seeking and receiving treatment for recurrent pericarditis annually in the U.S. is estimated at 38,000. Hospitalization due to recurrent pericarditis is often associated with a 6-8-day length of stay and cost per stay is estimated to range between $20,000 and $30,000 in the U.S.
In May 2022, the Corporation announced the FDA has authorized the Corporation’s IND to commence a Phase II open-label pilot study designed to evaluate the tolerance and safety of CardiolRx in patients with recurrent pericarditis. The study will also assess the improvement in objective measures of disease, and during an extension period, assess the feasibility of weaning concomitant background therapy including corticosteroids, while taking CardiolRx. Recurrent pericarditis is a rare disease in the United States, thereby making CardiolRx eligible for orphan drug status under the FDA’s Orphan Drug Designation program.
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Cardiol’s study is expected to enroll 25 patients at major clinical centers specializing in pericarditis in the United States. The study protocol has been designed in collaboration with thought leaders in pericardial disease. The trial’s primary efficacy endpoint is the change, from baseline to 8 weeks, in patient-reported pericarditis pain using an 11-point numeric rating scale (“NRS”). The NRS is a validated clinical tool used across multiple conditions with acute and chronic pain, including previous studies of recurrent pericarditis. Secondary endpoints include the pain score after 26 weeks of treatment, and changes in C-reactive protein (“CRP”).
The Phase II open-label recurrent pericarditis study was designed with the support of an independent Advisory Committee and key trial investigators, consisting of international thought leaders in cardiovascular disease, including:
| • | Study Chair: Allan Klein, MD, CM – Director, Center for the Diagnosis and Treatment of Pericardial Diseases, and Professor of Medicine, Heart, Vascular and Thoracic Institute, Cleveland Clinic; |
| • | Antonio Abbate, MD – Ruth C. Heede Professor of Cardiology, School of Medicine, and Department of Medicine, Division of Cardiovascular Medicine - Heart and Vascular Center, University of Virginia; |
| • | Allen Luis, MBBS, PhD – Co-Director of the Pericardial Diseases Clinic, Associate Professor of Medicine, Department of Cardiovascular Medicine, at Mayo Clinic Rochester Minnesota; |
| • | Paul Cremer, MD – Department of Cardiovascular Imaging, Center for the Diagnosis and Treatment of Pericardial Diseases, Heart, Vascular and Thoracic Institute, Cleveland Clinic; |
| • | Stephen Nicholls – Director of Cardiology, Monash Health, Director, Monash Victorian Heart Institute, and Professor of Cardiology, Monash University, Melbourne; and |
| • | Stefano Toldo, PhD – Associate Professor School of Medicine, Internal Medicine, Department of Cardiology at Virginia Commonwealth University. |
It is estimated that patient recruitment will be completed in approximately one year following the initiation of all clinical research centers. Cardiol has budgeted additional costs to complete this study to be approximately $4 million. If Cardiol determines that the Phase II study meets its objectives, it currently expects to undertake the next steps of its clinical development program, which would consist of a larger clinical study, the details of which will be determined in conjunction with regulatory agencies. The total cost and timeline to complete this clinical development program cannot be determined at this stage as this will depend on a variety of factors. The Corporation expects to involve a commercial partner from the pharmaceutical industry, to fund the late-stage clinical development and commercialization of CardiolRx for the treatment of recurrent pericarditis.
Phase II study – Acute myocarditis (ARCHER)
Myocarditis is an acute inflammatory condition of the heart muscle (myocardium) characterized by chest pain, impaired cardiac function, atrial and ventricular arrhythmias, and conduction disturbances. Although the symptoms are often mild, myocarditis remains an important cause of acute and fulminant heart failure and is a leading cause of sudden cardiac death in people under 35 years of age. Although viral infection is the most common cause of myocarditis, the condition can also result from administration of therapies used to treat several common cancers, including chemo- therapeutic agents and immune checkpoint inhibitors.
In a proportion of patients, the inflammation in the heart persists and causes decreased heart function with symptoms and signs of heart failure, and as such treatment is based on standard-of-care recommendations for heart failure. This includes diuretics, ACE inhibitors, angiotensin receptors blockers, beta blockers, and aldosterone inhibitors. For those with a fulminant presentation, intensive care is often required, with the use of inotropic medications (to increase the force of the heart muscle contraction). Severe cases frequently require ventricular assist devices or extracorporeal oxygenation and may necessitate heart transplantation. There are no FDA-approved therapies for acute myocarditis. Patients hospitalized with acute myocarditis experience an average 7-day length of stay and a 6% risk of in-hospital mortality, with average hospital charge per stay estimated at $110,000 in the U.S.
Data from multiple sources, including the ‘Global Burden of Disease Study’, reports that the number of cases per year of myocarditis ranges from approximately 10 to 22/100,000 persons (estimated U.S. patient population of 33,000 to 73,000), qualifying the condition as a rare disease in the U.S. and in Europe. Cardiol believes that there is a significant opportunity to develop a therapy for acute myocarditis that may be eligible for designation as an orphan drug under the FDA’s Orphan Drug Designation and the European Medicines Agency programs.
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In August 2021, Cardiol received IND authorization from the FDA to conduct a Phase II clinical trial of CardiolRx in acute myocarditis - the ARCHER trial. ARCHER has also received regulatory clearance in multiple other jurisdictions, and is expected to enroll 100 patients at major cardiac centers in North America, Europe, Latin America, and Israel. The trial has been designed in collaboration with an independent steering committee comprising distinguished thought leaders in heart failure and myocarditis from international centers of excellence. The primary endpoints of the trial, which will be evaluated after 12 weeks of double-blind therapy, consist of the following cardiac magnetic resonance imaging measures: left ventricular function (ejection fraction and longitudinal strain) and myocardial edema/fibrosis (extra-cellular volume), each of which has been shown to predict long-term prognosis of patients with acute myocarditis.
Members of the Steering Committee include:
| • | Chair: Dennis M. McNamara, MD – Professor of Medicine at the University of Pittsburgh. He is also the Director of the Heart Failure/Transplantation Program at the University of Pittsburgh Medical Center; |
| • | Co-Chair: Leslie T. Cooper, Jr., MD – General cardiologist and the Chair of the Mayo Clinic Enterprise Department of Cardiovascular Medicine, as well as chair of the Department of Cardiovascular Medicine at the Mayo Clinic in Florida; |
| • | Arvind Bhimaraj, MD – Specialist in Heart Failure and Transplantation Cardiology and Assistant Professor of Cardiology, Institute for Academic Medicine at Houston Methodist and at Weill Cornell Medical College, NYC; |
| • | Wai Hong Wilson Tang, MD – Advanced Heart Failure and Transplant Cardiology specialist at the Cleveland Clinic in Cleveland, Ohio. Dr. Tang is also the Director of the Cleveland Clinic’s Center for Clinical Genomics; Research Director, and staff cardiologist in the Section of Heart Failure and Cardiac Transplantation Medicine in the Sydell and Arnold Miller Family Heart & Vascular Institute at the Cleveland Clinic; |
| • | Peter Liu, MD – Chief Scientific Officer and Vice President, Research, of the University of Ottawa Heart Failure Institute, and Professor of Medicine and Physiology at the University of Toronto and University of Ottawa; |
| • | Carsten Tschöpe, MD – Professor of Medicine and Cardiology and Vice Director of the Department of Internal Medicine and Cardiology, University Medicine Berlin. For his outstanding work, Dr. Tschöpe was awarded the prestigious Arthur Weber Prize by the German Cardiac Society - Cardiovascular Research; |
| • | Matthias Friedrich, MD – Full Professor with the Departments of Medicine and Diagnostic Radiology at McGill University in Montreal, and Chief, Cardiovascular Imaging at the McGill University Health Centre. Dr. Friedrich founded one of the first large Cardiovascular Magnetic Resonance centres in Germany at the Charité University Hospital in Berlin; |
| • | Yaron Arbel, MD – Senior interventional cardiologist and is the Director of the CardioVascular Research Center (CVRC) at the Tel Aviv Medical Center. Professor Arbel has published over 180 articles in leading international medical journals, including European Heart Journal, JACC, and Circulation; and |
| • | Edimar Bocchi, MD – Serves as the Head of Heart Failure Clinics and Heart Failure Team at Heart Institute (Incor) of Hospital das Clinicas of São Paulo University Medical School, Associate Professor of São University Medical School, São Paulo, Brazil; |
The first patient was enrolled in the study in August 2022, and it is expected that patient recruitment will take 12 to 18 months to complete following the initiation of all clinical research centers. Cardiol has budgeted additional costs to complete this study to be approximately $9 million. If Cardiol determines that the Phase II study meets its objectives, it currently expects to undertake the next steps of its clinical development program, which would consist of a larger clinical study, the details of which will be determined in consultation with regulatory agencies. The total cost and timeline to complete this clinical development program cannot be determined at this stage as this will depend on a variety of factors. The Corporation expects to involve a commercial partner from the pharmaceutical industry, to fund the late-stage clinical development and commercialization of CardiolRx for the treatment of acute myocarditis.
Phase II/III study – COVID-19 (LANCER)
In October 2022, the Corporation announced that it will discontinue the LANCER trial due to lack of eligible patients to support recruitment and will prioritize its Phase II clinical programs focused on developing CardiolRx™ for two underserved diseases affecting the heart – acute myocarditis and recurrent pericarditis.
The LANCER trial, which was designed to investigate the cardioprotective properties of CardiolRx™ in patients hospitalized with COVID-19 who have a prior history of, or risk factors for, cardiovascular disease, was discontinued due to the continuous decline in the number of eligible patients, and a lower than anticipated event rate in the study.
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Over the course of the study, multiple factors contributed to the decline in the number of patients that met the inclusion criteria of the trial, including: (i) a significant increase in vaccine-induced or natural immunity in the general population; (ii) the predominant circulating variants causing milder disease than their predecessors; and (iii) an increase in the regulatory approval and usage of therapeutics for the successful treatment of mild-to-moderate disease in patients who previously would have progressed to require hospitalization.
Scientific Advisory Board
The Corporation has established a Scientific Advisory Board comprised of distinguished thought leaders in cardiovascular medicine. These individuals will lend their expertise in cardiovascular research and provide invaluable guidance to the Corporation’s research and clinical programs. The Scientific Advisory Board members include:
Paul M. Ridker, MD, MPH
Dr. Ridker is director of the Center for Cardiovascular Disease Prevention, a translational research unit at Brigham and Women’s Hospital (BWH), Boston. A cardiovascular medicine specialist, he is also the Eugene Braunwald Professor of Medicine at Harvard School of Medicine (HMS). Dr. Ridker received his medical degree from HMS and then completed an internal medicine residency and a cardiology fellowship at BWH. Dr. Ridker is board certified in internal medicine. His clinical interests include coronary artery disease and the underlying causes and prevention of atherosclerotic disease. Dr. Ridker is the author of over 900 peer-reviewed publications and reviews, 64 book chapters, and six textbooks related to cardiovascular medicine. His primary research focus has involved inflammatory mediators of heart disease and the molecular and genetic epidemiology of hemostasis and thrombosis, with particular interests in biomarkers for coronary disease, “predictive” medicine, and the underlying causes and prevention of atherosclerotic disease. Notably, Dr. Ridker has been the Principal Investigator or Study Chairman of several large international trials that have demonstrated the role of inflammation in the genesis and management of coronary artery disease. He was included in TIME magazine’s list of 100 most influential people of 2004, and between the years 2000 and 2010, Dr. Ridker was among the ten most often cited researchers in cardiovascular medicine worldwide. Amongst many other honors, he received the American Heart Association Distinguished Scientist Award in 2013, gave the Braunwald Lecture of the American College of Cardiology in 2019, was awarded the Gotto Prize for Atherosclerosis Research from the International Atherosclerosis Society in 2021, and is an elected Member of the National Academy of Medicine (USA).
Bruce McManus, PhD, MD
Dr. McManus is Professor Emeritus, Department of Pathology and Laboratory Medicine, the University of British Columbia. He has served as CEO, Centre of Excellence for Prevention of Organ Failure (PROOF Centre), Director, UBC Centre for Heart Lung Innovation, and Scientific Director, Institute of Circulatory and Respiratory Health, CIHR. Dr. McManus received BA and MD degrees (University of Saskatchewan), an MSc (Pennsylvania State University), and a PhD (University of Toledo). He pursued post-doctoral fellowships at the University of California, Santa Barbara (Environmental Physiology) and at the National Heart, Lung, and Blood Institute, Bethesda, MD (Cardiovascular & Pulmonary Pathology), and residency training at the Peter Bent Brigham Hospital, Harvard University (Internal Medicine and Pathology). Dr. McManus’ investigative passion relates to mechanisms, consequences, detection and prevention of injury and aberrant repair in inflammatory diseases of the heart and blood vessels. He has had a longstanding interest in the diagnosis and management of acute viral myocarditis. His life’s scholarship is reflected in more than 400 original peer-reviewed publications, over 60 chapters, and several books. He is an extraordinary mentor. Dr. McManus has been widely appreciated for his research, mentoring, and leadership contributions to the health sciences. Amongst many awards and honors, Dr. McManus received the prestigious Max Planck Research Award in 1991, was elected a Fellow of the Royal Society of Canada in 2002, was appointed a Member of the Order of Canada in 2018, and to the Order of British Columbia the following year.
Joseph A. Hill, MD, PhD
Dr. Hill is Professor of Internal Medicine and Molecular Biology, Chief of Cardiology at UT Southwestern Medical Center, Dallas, TX, and Director of the Harry S. Moss Heart Center. Dr. Hill holds both the James T. Willerson, MD, Distinguished Chair in Cardiovascular Diseases, and the Frank M. Ryburn Jr. Chair in Heart Research. He graduated from Duke University with MD and PhD degrees in 1987. His PhD dissertation research was in the field of cardiac ion channel biophysics. Dr. Hill then worked for five years as a postdoctoral fellow at the Institut Pasteur in Paris studying central and peripheral nicotinic receptors. He next completed an internal medicine internship and residency, as well as a clinical cardiology fellowship, at the Brigham and Women’s Hospital, Harvard Medical School. He served on faculty at the University of Iowa for five years before moving in 2002 to the UT Southwestern. Dr. Hill’s research examines molecular mechanisms of structural, functional, metabolic, and electrophysiological remodeling in cardiac hypertrophy and heart failure. He has served on many NIH panels and committees and delivered numerous invited lectures in the U.S. and around the world. Dr. Hill has received many recognitions and awards, including election to the Association of American Professors and the 2018 Research Achievement Award from the International Society for Heart Research. For the past six years, Dr. Hill has been the Editor-in-Chief of the prestigious American Heart Association journal Circulation.
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Outlook
During the next 12 - 36 months, the Corporation expects to achieve the following corporate milestones:
| • | Complete Phase II open-label pilot study in recurrent pericarditis with CardiolRx; |
| • | Complete Phase II ARCHER trial in acute myocarditis with CardiolRx; |
| • | Advance development of a subcutaneously administered formulation; |
The timelines for reaching these milestones may be adversely impacted by the current COVID-19 pandemic or other factors.
The Corporation expects that the September 30, 2022, working capital of $58,111,833 will be sufficient to fund operations and capital requirements, associated with achieving these corporate milestones, into 2026.
Use of Offering Proceeds
The Corporation may reallocate the net offering proceeds that it obtained from the April 2021 Offering (as defined below) and the November 2021 Offering (as defined below) from time to time depending upon our growth strategy relative to market and other conditions in effect at the time. Until we expend the net offering proceeds, we will hold them in cash and/or invest them in short-term, interest-bearing, investment-grade securities.
A comparison between the projected use of proceeds for the two-year period subsequent to closing the April 2021 Offering, as disclosed in the Corporation’s prospectus dated April 30, 2021 (the “April 2021 Offering”), and spending from May 12, 2021 (offering closing date) to September 30, 2022 is as follows:
| Use of Proceeds | Amount | Spent | Remaining | |||||||||
| Phase II/III Clinical Trials in Acute Myocarditis | 6,500,000 | 3,534,419 | 2,965,581 | |||||||||
| Pre-clinical studies | 1,500,000 | 1,214,338 | 285,662 | |||||||||
| Research and Development of Subcutaneous Formulation | 4,000,000 | 452,631 | 3,547,369 | |||||||||
A comparison between the projected use of proceeds for the two-year period subsequent to closing the November 2021 Offering, as disclosed in the Corporation’s prospectus dated November 3, 2021 (the “November 2021 Offering”), and spending from November 5, 2021 (offering closing date) to September 30, 2022 is as follows (figures in the below “Amount” column are translated to CAD from USD at a rate of 1.37):
| Use of Proceeds | Amount | Spent | Remaining | |||||||||
| LANCER Study | 5,475,840 | 5,421,313 | 182,675 | |||||||||
| Phase II Clinical Trials in Acute Myocarditis | 4,380,672 | - | 4,380,672 | |||||||||
| Subcutaneous Development | 3,285,504 | - | 3,285,504 | |||||||||
| Development of Additional Orphan Program | 4,380,672 | 191,149 | 4,106,963 | |||||||||
| Discovery Research | 10,951,680 | - | 10,951,680 | |||||||||
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Summary of Quarterly Results
The Corporation’s quarterly information in the table below is prepared in accordance with IFRS.
| Total | Profit or (Loss) | Total | |||||||||||||||
| Three Months Ended | Revenue ($) | Total ($) | Per
Share(9) ($) | Assets ($) | |||||||||||||
| September 30, 2022(1) | nil | (7,972,047 | ) | (0.13 | ) | 68,358,729 | |||||||||||
| June 30, 2022(2) | nil | (6,489,487 | ) | (0.10 | ) | 74,264,968 | |||||||||||
| March 31, 2022(3) | nil | (8,954,095 | ) | (0.14 | ) | 79,432,326 | |||||||||||
| December 31, 2021(4) | nil | (6,257,462 | ) | (0.11 | ) | 87,876,128 | |||||||||||
| September 30, 2021(5) | nil | (9,909,991 | ) | (0.23 | ) | 31,731,649 | |||||||||||
| June 30, 2021(6) | 78,760 | (6,560,943 | ) | (0.16 | ) | 36,749,684 | |||||||||||
| March 31, 2021(7) | nil | (8,909,848 | ) | (0.26 | ) | 21,097,832 | |||||||||||
| December 31, 2020(8) | nil | (9,666,527 | ) | (0.15 | ) | 15,893,181 | |||||||||||
Note:
| 1. | Net loss of $7,972,047 included general and administration of $8,130,743 and research and development of $5,089,423. These are partially offset by the gain on foreign exchange of $2,970,896, and change in derivative liability of $1,723,442. |
| 2. | Net loss of $6,489,487 included general and administration of $4,825,039 and research and development of $4,407,182. These are partially offset by the gain on foreign exchange of $1,689,797, and change in derivative liability of $861,600. |
| 3. | Net loss of $8,954,095 included general and administration of $5,940,952 and research and development of $3,847,527. These are partially offset by the gain on the change in derivative liability of $2,132,517. |
| 4. | Net loss of $6,257,462 included general and administration of $9,569,839 and research and development of $3,527,834. These are partially offset by the gain on the change in derivative liability of $4,916,304. |
| 5. | Net loss of $9,909,991 included general and administration of $7,571,515 and research and development of $2,592,094. |
| 6. | Net loss of $6,560,943 included general and administration of $4,430,388 and research and development of $2,071,681. |
| 7. | Net loss of $8,909,848 included general and administration of $6,301,398 and research and development of $2,678,812. |
| 8. | Net loss of $9,666,527 included research and development of $7,240,954 and general and administration of $2,377,762. |
| 9. | Basic and fully diluted. |
Discussion of Operations
Nine months ended September 30, 2022, compared to the nine months ended September 30, 2021
For the nine months ended September 30, 2022, the Corporation’s net loss was $23,415,629, compared to a net loss of $25,380,782 for the nine months ended September 30, 2021. The decrease in net loss of $1,965,153 is a result of the following:
| • | General and administration expenses increased to $18,896,733 for the nine months ended September 30, 2022, compared to $18,303,301 for the nine months ended September 30, 2021. The increase in the Corporation’s operations during the nine months ended September 30, 2022, was offset by the start-up costs related to the patient in-take in the LANCER trial, as well as the financing on May 12, 2021 that occurred during the nine months ended September 30, 2021. |
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| • | Research and development increased to $13,344,132 for the nine months ended September 30, 2022, compared to $7,342,587 for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, the Corporation incurred increased research and development costs related to basic science, pre-clinical studies, and clinical studies, specifically relating to the Phase II/III COVID-19 trial and the Phase II acute myocarditis trial. |
| • | The net loss is partially offset by the gain on the change in derivative liability, based on the revaluation as at September 30, 2022 of $4,717,559. There was no derivative liability during the nine months ended September 30, 2021. |
| • | The net loss is partially offset by a gain on foreign exchange during the nine months ended September 30, 2022 of $3,290,249, compared to a gain on foreign exchange during the nine months ended September 30, 2021 of $15,036. The increase is mainly based on the revaluation of funds held in USD. |
Three months ended September 30, 2022, compared to the three months ended September 30, 2021
For the three months ended September 30, 2022, the Corporation’s net loss was $7,972,047, compared to a net loss of $9,909,991 for the three months ended September 30, 2021. The decrease in net loss of $1,937,944 is a result of the following:
| • | General and administration expense increased to $8,130,743 for the three months ended September 30, 2022, compared to $7,571,515 for the three months ended September 30, 2021. During the three months ended September 30, 2022, the Corporation’s operations increased due to clinical trials in progress, as well as additional pre-clinical research. |
| • | Research and development increased to $5,089,423 for the three months ended September 30, 2022, compared to $2,592,094 for the three months ended September 30, 2021. During the three months ended September 30, 2022, the Corporation incurred increased research and development costs related to basic science, pre-clinical studies, and clinical studies, specifically relating to the Phase II/III COVID-19 trial and the Phase II acute myocarditis trial. |
| • | The net loss for the three months ended September 30, 2022, is partially offset by the gain on the change in derivative liability, based on the revaluation as at September 30, 2022, of $1,723,442. There was no derivative liability during the three months ended September 30, 2021. |
| • | The net loss for the three months ended September 30, 2022, is partially offset by the gain on foreign exchange, mainly based on the revaluation of funds held in USD. This resulted in a gain during the three months ended September 30, 2022, of $2,970,896. During the three months ended September 30, 2021, the Corporate incurred a gain on foreign exchange of $124,612. |
Capital Management
The Corporation manages its capital to ensure sufficient financial flexibility to achieve the ongoing business objectives including research activities, funding of future growth opportunities, and pursuit of acquisitions.
The Corporation monitors its capital structure and makes adjustments according to market conditions in an effort to meet its objectives given the current outlook of the business and industry in general. The Corporation may manage its capital structure by issuing new shares, repurchasing outstanding shares, adjusting capital spending, or disposing of assets. The capital structure is reviewed by Management and the Board of Directors on an ongoing basis.
The Corporation considers its capital to be total equity, comprising share capital, warrants, and contributed surplus, less accumulated deficit, which at September 30, 2022 totaled $58,677,122 (December 31, 2021 – $76,238,075).
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The Corporation manages capital through its financial and operational forecasting processes. The Corporation reviews its working capital and forecasts its future cash flows based on operating expenditures, and other investing and financing activities. The forecast is updated based on activities related to its research programs and reviewed with the Board of Directors of the Corporation.
The Corporation is not currently subject to any capital requirements imposed by a lending institution or regulatory body. The Corporation expects that its capital resources will be sufficient to discharge its liabilities as of the current statement of financial position date.
Off-Balance Sheet Arrangements
As of the date of this MD&A, the Corporation does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Corporation, including, and without limitation, such considerations as liquidity and capital resources.
Liquidity and Financial Position
At September 30, 2022, Cardiol had $65,532,440 in cash and cash equivalents (December 31, 2021 – $83,899,070).
At September 30, 2022, accounts payable and accrued liabilities were $7,653,273 (December 31, 2021 – $4,859,352). The Corporation’s cash and cash equivalents balances as at September 30, 2022 and December 31, 2021 are sufficient to pay these liabilities.
The Corporation currently has no operating revenues and therefore must utilize its funds from financing transactions to maintain its capacity to meet ongoing operating activities.
As of September 30, 2022, December 31, 2021, and to the date of this MD&A, the cash resources of Cardiol are held with one Canadian chartered bank. The Corporation has no variable interest rate debt and its credit and interest rate risk is minimal. Accounts payable and accrued liabilities are short-term and non-interest bearing.
For the 2022 Fiscal Period
Cash and cash equivalents used in operating activities were $18,299,661 for the nine months ended September 30, 2022. Operating activities were affected by a net loss of $23,415,629 and the net change in non-cash working capital balances of $3,809,695, and by other non-cash adjustments of $1,306,273. Non-cash adjustments mainly consisted of $4,065,228 for share-based compensation, $(4,717,559) for change in derivative liability, and $1,355,775 for research and development expenses to be settled through warrant exercise. Non-cash working capital was mainly the result of an increase in accounts payable and accrued liabilities of $2,793,921 and decrease in prepaid expenses of $1,060,722.
Cash and cash equivalents used in investing activities were $26,879 for the nine months ended September 30, 2022 as a result of purchases of property and equipment.
Cash and cash equivalents used in financing activities were $40,090 for the nine months ended September 30, 2022, as a result of lease liability payments.
Use of Working Capital
As of September 30, 2022, Cardiol’s working capital was $58,111,833. Based on current projections, Cardiol believes that this amount is sufficient to fund operations and capital requirements, associated with achieving corporate milestones, into 2026, described in the “Outlook” section above.
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The Corporation has material commitments and obligations for cash resources set out below.
Contractual Obligations | Total ($) | Up to 1 year ($) | 1 – 3 years ($) | 4 – 5 years ($) | After 5 years ($) |
||||||||||||||
| Amounts payable and other liabilities | 7,653,273 | 7,653,273 | Nil | Nil | Nil | ||||||||||||||
| Office lease (1) | 178,703 | 107,222 | 71,481 | Nil | Nil | ||||||||||||||
| Consulting agreements | 260,387 | 260,387 | - | Nil | Nil | ||||||||||||||
| Contract research | 1,835,184 | 1,378,612 | 456,572 | Nil | Nil | ||||||||||||||
| Total | 9,927,547 | 9,399,494 | 528,053 | Nil | Nil | ||||||||||||||
Note:
| (1) | The Corporation has leased premises from third parties. |
Related Party Transactions
| a) | The Corporation entered into the following transactions with related parties: |
| i. | Included in research and development expense is $706,896 and $1,409,428 for the three and nine months ended September 30, 2022 (three and nine months ended September 30, 2021 - $291,844 and $1,072,580) paid to a company, Dalton Chemical Laboratories, Inc. operating as Dalton, that is related to a Director (Peter Pekos). Mr. Pekos is also the CEO of Dalton. As at September 30, 2022, $729,292 (December 31, 2021 - $671,462) was owed to this company and this amount was included in accounts payable and accrued liabilities and $1,500 (December 31, 2021 - $12,402) was paid to this company and was included in prepaid expenses. Cardiol entered into an exclusive master services agreement with Dalton for the exclusive supply of pharmaceutical cannabidiol, and Cardiol has subcontracted the manufacturing of its drug product candidates to Dalton. |
| b) | Key Management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Corporation directly or indirectly, including any Directors (executive and non-executive) of the Corporation. Remuneration of Directors and key Management personnel, except as noted in (a) above, was as follows: |
Three
months ended ($) | Three
months ended ($) | Nine
months ended ($) | Nine
months ended ($) | |||||||||||||
| Salaries and benefits | 497,017 | 559,845 | 1,866,635 | 1,995,733 | ||||||||||||
| Share-based payments | 1,225,099 | 358,126 | 2,072,878 | 811,774 | ||||||||||||
| 1,722,116 | 917,971 | 3,939,513 | 2,807,507 | |||||||||||||
As at September 30, 2022, $125,775 (December 31, 2021 - $46,488) was owed to key Management personnel and this amount was included in accounts payable and accrued liabilities.
Critical Accounting Judgments, Estimates, and Assumptions
The preparation of the Financial Statements requires Management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The Financial Statements include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the Financial Statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions, and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
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Critical accounting estimates
Significant assumptions about the future that Management has made that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:
| • | The inputs used in the Black-Scholes valuation model that were based on unobservable assumptions when the Corporation was private at the time of issuance of the equity instruments (share price and volatility) in accounting for share-based payment transactions; |
| • | The valuation of the derivative liability; |
| • | The estimate of the percentage of completion of certain research and development agreements; |
| • | The valuation of the income tax non-current asset would increase if there was virtual certainty that the tax benefit of net operating losses could be applied to future periods’ taxable income; and |
| • | Intangible assets are comprised of the exclusive global license. Intangible assets are initially stated at cost, less accumulated amortization and accumulated impairment losses. Intangible assets with finite useful lives are amortized over their estimated useful lives. The exclusive global license’s useful life is nine years. |
Critical accounting judgments
| • | Management applied judgment in determining the functional currency of the Corporation as Canadian dollars; |
| • | Management applied judgment in determining the Corporation’s ability to continue as a going concern. The Corporation has incurred significant losses since inception. Management determined that a material going concern uncertainty does not exist due to the sufficient working capital to support their planned expenditure levels. Future financing may come from product sales, licensing arrangements, research and commercial development partnerships, government grants, and/or corporate finance arrangements; |
| • | Management’s assessment that no impairment exists for intangible assets, based on the facts and circumstances that existed during the period; and |
| • | Management’s assessment of the impact the coronavirus (COVID-19) pandemic will have on operations. |
Share Capital
Other than as described below, as of the date of this MD&A, there are no equity or voting securities of the Corporation outstanding, and no securities convertible into, or exercisable or exchangeable for, voting or equity securities of the Corporation.
As of the date of this MD&A, the outstanding capital of the Corporation includes 63,702,982 issued and outstanding common shares, of which 25,000 common shares are subject to vesting on March 29, 2023; 1,020,000 Meros Special Warrants convertible automatically into common shares (upon the Corporation achieving the Meros Milestone) for no additional consideration pursuant to the Meros License Agreement; 400,000 common shares issuable to Dalton if Dalton meets certain performance objectives, and stock options, warrants, performance share units and restricted share units as shown below:
| Warrants | ||||||||
| Exercise | Warrants | |||||||
| Expiry date | price ($) | outstanding | ||||||
| May 12, 2024 | 4.60 | 3,453,178 | ||||||
| November 5, 2024 | 3.75 | (1) | 8,175,000 | |||||
| Total | 11,628,178 | |||||||
| (1) | Exercise price denoted in USD. |
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Stock Options
| Exercise | Options | Options | ||||||||||
| Expiry date | price ($) | outstanding | exercisable | |||||||||
| February 8, 2023 | 4.56 | 300,976 | 300,976 | |||||||||
| February 18, 2023 | 4.80 | 340,000 | 340,000 | |||||||||
| February 22, 2023 | 4.46 | 130,000 | 130,000 | |||||||||
| February 23, 2025 | 3.54 | 20,000 | 20,000 | |||||||||
| August 19, 2025 | 2.12 | 100,000 | 66,667 | |||||||||
| August 30, 2025 | 5.00 | 110,000 | 110,000 | |||||||||
| April 1, 2026 | 5.77 | 60,000 | 60,000 | |||||||||
| December 8, 2026 | 3.59 | 325,000 | - | |||||||||
| January 11, 2027 | 2.18 | 220,000 | - | |||||||||
| March 14, 2027 | 2.07 | 60,000 | - | |||||||||
| May 12, 2027 | 1.46 | 115,000 | - | |||||||||
| September 12, 2027 | 1.61 | 207,500 | - | |||||||||
| Total | 1,988,476 | 1,027,643 | ||||||||||
Performance Share Units
The Corporation has 600,000 outstanding performance share units (“PSUs”) requiring the completion of certain performance criteria specific to each grant.
Restricted Share Units
The Corporation has 2,524,093 outstanding RSUs subject to vesting conditions specific to each grant. Of the outstanding RSUs, 1,458,424 have fully vested as of the date of this MD&A.
Financial Instruments
Recognition
The Corporation recognizes a financial asset or financial liability on the statement of financial position when it becomes party to the contractual provisions of the financial instrument. Financial assets are initially measured at fair value and are derecognized either when the Corporation has transferred substantially all the risks and rewards of ownership of the financial asset, or when cash flows expire. Financial liabilities are initially measured at fair value and are derecognized when the obligation specified in the contract is discharged, cancelled, or has expired.
A write-off of a financial asset (or a portion thereof) constitutes a derecognition event. A write-off occurs when the Corporation has no reasonable expectations of recovering the contractual cash flows on a financial asset.
Classification and Measurement
The Corporation determines the classification of its financial instruments at initial recognition. Financial assets and financial liabilities are classified according to the following measurement categories:
| • | those to be measured subsequently at fair value, either through profit or loss (“FVTPL”) or through other comprehensive income (“FVTOCI”); and, |
| • | those to be measured subsequently at amortized cost. |
The classification and measurement of financial assets after initial recognition at fair value depends on the business model for managing the financial asset and the contractual terms of the cash flows. Financial assets that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding, are generally measured at amortized cost at each subsequent reporting period. All other financial assets are measured at their fair values at each subsequent reporting period, with any changes recorded through profit or loss or through other comprehensive income (which designation is made as an irrevocable election at the time of recognition).
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After initial recognition at fair value, financial liabilities are classified and measured at either:
| • | amortized cost; |
| • | FVTPL, if the Corporation has made an irrevocable election at the time of recognition, or when required (for items such as instruments held for trading or derivatives); or, |
| • | FVTOCI, when the change in fair value is attributable to changes in the Corporation’s credit risk. |
The Corporation reclassifies financial assets when and only when its business model for managing those assets changes. Financial liabilities are not reclassified.
Transaction costs that are directly attributable to the acquisition or issuance of a financial asset or financial liability classified as subsequently measured at amortized cost are included in the fair value of the instrument on initial recognition. Transaction costs for financial assets and financial liabilities classified at fair value through profit or loss are expensed in profit or loss.
The Corporation’s financial asset consists of cash and cash equivalents and accounts receivable, which are classified and measured at amortized cost. The Corporation’s financial liabilities consist of accounts payable and accrued liabilities, and lease liability, which are classified and measured at amortized cost, and derivative liabilities which are classified and measured at FVTPL.
Fair Value
The Corporation provides information about its financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are as follows:
| • | Level 1: | quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| • | Level 2: | inputs other than quotes prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and |
| • | Level 3: | inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
The Corporation’s derivative liabilities are measured at fair value Level 3. No other financial instruments are measured at fair value.
Financial Instrument Risks
The Corporation’s activities expose it to a variety of financial risks: credit risk, liquidity risk, and market risk (including interest rate and foreign currency risk). These financial risks are in addition to the risks set out under “Risk Factors”.
Risk management is carried out by the Corporation’s Management team under policies approved by the Board of Directors. The Board of Directors also provides regular guidance for overall risk management.
There were no changes to credit risk, liquidity risk, or market risk for the 2022 Fiscal Period.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Corporation’s financial instruments that are exposed to concentrations of credit risk relate primarily to cash and cash equivalents and accounts receivable.
The Corporation mitigates its risk by maintaining its funds with large reputable financial institutions, from which Management believes the risk of loss to be minimal. Interest receivable relates to guaranteed investment certificates and cash balances held with large reputable financial institutions as well as receivables. The Corporation’s Management considers that all the above financial assets are of good credit quality.
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Liquidity risk
Liquidity risk is the risk that the Corporation encounters difficulty in meeting its obligations associated with financial liabilities. Liquidity risk includes the risk that, as a result of operational liquidity requirements, the Corporation will not have sufficient funds to settle a transaction on the due date; will be forced to sell financial assets at a value which is less than what they are worth; or may be unable to settle or recover a financial asset. Liquidity risk arises from accounts payable and accrued liabilities and commitments. The Corporation limits its exposure to this risk by closely monitoring its cash flow.
Market risk
Market risk is the risk of loss that may arise from changes in market factors, such as interest rates and foreign exchange rates.
| (a) | Interest rate risk |
The Corporation currently does not have any short-term or long-term debt that is variable interest bearing and, as such, the Corporation’s current exposure to interest rate risk is minimal.
| (b) | Foreign currency risk |
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the foreign exchange rates. The Corporation enters into foreign currency purchase transactions and has assets that are denominated in foreign currencies and thus is exposed to the financial risk of earnings fluctuations arising from changes in foreign exchange rates and the degree of volatility of these rates. The Corporation does not currently use derivative instruments to reduce its exposure to foreign currency risk.
The Corporation holds balances in U.S. dollars which could give rise to exposure to foreign exchange risk. Sensitivity to a plus or minus 10% change in the foreign exchange rate of the U.S. dollar against the Canadian dollar would affect the reported loss and comprehensive loss by approximately $4,796,000 (December 31, 2021 - $5,875,000).
Commitments and Contingency
(i) The Corporation has leased premises from third parties. The minimum committed lease payments as at September 30, 2022, which include the lease liability payments, are as follows:
| Fiscal year | |||||
| 2022 | 26,805 | ||||
| 2023 | 107,222 | ||||
| 2024 | 44,676 | ||||
| Total | $ | 178,703 | |||
(ii) The Corporation has signed various agreements with consultants to provide services. Under the agreements, the Corporation has the following remaining commitments.
| Fiscal year | |||||
| 2022 | 260,387 | ||||
(iii) Pursuant to the terms of agreements with various other contract research organizations, the Corporation is committed for contract research services for 2022 at a cost of approximately $1,378,612, and 2023 at a cost of approximately $456,572.
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Breakdown of Expensed Research and Development
Three
months ended ($) | Three
months ended ($) | Nine
months ended ($) | Nine
months ended ($) | |||||||||||||
| Contract research | 4,423,368 | 2,056,429 | 11,563,771 | 5,913,188 | ||||||||||||
| Wages | 365,905 | 133,745 | 940,965 | 594,365 | ||||||||||||
| Supplies | - | 56,660 | 17,041 | 104,913 | ||||||||||||
| Regulatory | 108,056 | 166,168 | 367,077 | 309,601 | ||||||||||||
| Share-based compensation | 192,094 | 179,092 | 455,278 | 420,520 | ||||||||||||
| 5,089,423 | 2,592,094 | 13,344,132 | 7,342,587 | |||||||||||||
Breakdown of Intangible Assets
As
at ($) | As
at ($) | |||||||
| Exclusive global license agreement | 767,228 | 767,228 | ||||||
| Accumulated amortization | (451,315 | ) | (387,982 | ) | ||||
| Carrying value | 315,913 | 379,246 | ||||||
Internal Controls Over Financial Reporting
In accordance with National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings, Management is responsible for establishing and maintaining adequate Disclosure Controls and Procedures (“DCP”) and Internal Control Over Financial Reporting (“ICFR”). Management has designed DCP and ICFR based on the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), with the objective of providing reasonable assurance that the Corporation’s financial reports and information, including the Corporation’s Financial Statements and MD&A were prepared in accordance with IFRS.
The CEO and CFO have concluded that the design of DCP and ICFR were adequate to provide such assurance as at September 30, 2022.
Limitations of Controls and Procedures
The Corporation’s Management, including the CEO and CFO, believes that any DCP or ICFR, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the control. The design of any control system also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Risk Factors
An investment in the securities of the Corporation is highly speculative and involves numerous and significant risks. Such investment should be undertaken only by investors whose financial resources are sufficient to enable them to assume these risks. Prospective investors should carefully consider the risk factors that have affected, and which in the future are reasonably expected to affect, the Corporation and its financial position. Please refer to the section entitled “Risk Factors” in the Corporation’s MD&A for the financial year ended December 31, 2021 (available on SEDAR at www.sedar.com and EDGAR at www.sec.gov).
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Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, David Elsley, President and Chief Executive Officer of Cardiol Therapeutics Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Cardiol Therapeutics Inc. (the “issuer”) for the interim period ended September 30, 2022. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). |
| 5.2 | N/A |
| 5.3 | N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning July 1, 2022 and ended on September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: November 10, 2022
| “David Elsley” |
David Elsley
President and Chief Executive Officer
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Chris Waddick, Chief Financial Officer of Cardiol Therapeutics Inc., certify the following:
| 1. | Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Cardiol Therapeutics Inc. (the “issuer”) for the interim period ended September 30, 2022. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). |
| 5.2 | N/A |
| 5.3 | N/A |
| 6. | Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning July 1, 2022 and ended on September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
Date: November 10, 2022
| “Chris Waddick” |
Chris Waddick
Chief Financial Officer