Xenon Pharmaceuticals Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of Xenon Pharmaceuticals Inc.
We have audited the accompanying balance sheets of Xenon Pharmaceuticals Inc. as of December 31, 2015 and December 31, 2014
and the related statement of operations and comprehensive income (loss), shareholders’ equity (deficit) and cash flows for each of the
years in the three-year period ended December 31, 2015. These financial statements are the responsibility of Xenon Pharmaceuticals
Inc.’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xenon
Pharmaceuticals Inc. as of December 31, 2015 and December 31, 2014, and its results of operations and its cash flows for each of the
years in the three-year period ended December 31, 2015 in conformity with US generally accepted accounting principles.
/s/ KPMG LLP
Chartered Professional Accountants
March 8, 2016
XENON PHARMACEUTICALS INC. Balance Sheets (Expressed in thousands of U.S. dollars except share amounts)
December 31, 2015
Assets Current assets: Cash and cash equivalents Marketable securities Accounts receivable Prepaid expenses and other current assets Prepaid expenses, long term Property, plant and equipment, net (note 5) Total assets
58,651 — 315 1,900 60,866 1,094 1,989 63,949
2,625 157 2,782 — 133 2,915
Liabilities and shareholders’ equity Current liabilities: Accounts payable and accrued expenses (note 6) Deferred revenue Deferred revenue, less current portion Deferred tenant inducements
Shareholders’ equity: Common shares, without par value; unlimited shares authorized; issued and outstanding: 14,385,336 (December 31, 2014 - 14,181,333) (note 7b) Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss Total liabilities and shareholders’ equity Collaboration agreements (note 9) Commitments and contingencies (note 10) The accompanying notes are an integral part of these financial statements.
148,634 33,083 (119,693) (990) 61,034 63,949
December 31, 2014
72,026 12,015 215 686 84,942 — 2,476 87,418
2,664 11,622 14,286 157 196 14,639
147,157 30,346 (103,734) (990) 72,779 87,418
XENON PHARMACEUTICALS INC. Statements of Operations and Comprehensive Income (Loss) (Expressed in thousands of U.S. dollars except share and per share amounts)
Year Ended December 31, 2014
Revenue: Collaboration revenue (note 9) Royalties
Operating expenses: Research and development General and administrative Income (loss) from operations Other income (expense): Interest income Interest expense Foreign exchange gain (loss) Gain on write-off and disposal of assets Net income (loss) Net income attributable to participating securities Net income (loss) attributable to common shareholders Net income (loss) per common share (note 3m): Basic Diluted Weighted-average shares outstanding (note 3m): Basic Effects of dilutive securities Stock options Subscription rights Diluted Other comprehensive income (loss): Foreign currency translation adjustment Comprehensive income (loss) The accompanying notes are an integral part of these financial statements.
15,573 4 15,577
15,152 9,786 24,938 (9,361)
28,366 4 28,370
27,352 4 27,356
11,768 5,496 17,264 11,106
12,303 5,341 17,644 9,712
542 — (6,933) — (15,752) — (15,752) $
568 — 1,344 — 13,018 — 13,018
338 (64) 2,035 11 12,032 8,199 3,833
(1.10) $ (1.10) $
— — 14,281,837
798,225 — 3,963,797
659,167 12,277 2,009,106
XENON PHARMACEUTICALS INC. Statement of Shareholders’ Equity (Deficit) (Expressed in thousands of U.S. dollars except share amounts)
Series A convertible preferred shares Shares Amount
Series B convertible preferred shares Shares Amount
Series E convertible preferred shares Shares Amount
Common shares Shares Amount
Accumulated Additional other paid-in Accumulated comprehensive capital deficit income (loss)
Balance as of December 31, 1,151,468 $ 2,939 994,885 $ 8,683 4,322,126 $ 90,866 1,330,696 $ 6,008 29,164 $ (128,784) $ 2012 Net income for the year 12,032 Cumulative translation adjustment Stock option compensation 575 expense Issuance of subscription rights 73 Issuance of common shares on conversion of subscription rights 5,602 45 (45) Issued pursuant to exercise of stock options 8,329 94 (45) Balance as of December 31, 2013 1,151,468 $ 2,939 994,885 $ 8,683 4,322,126 $ 90,866 1,344,627 $ 6,147 $ 29,722 $ (116,752) $ Net income for 13,018 the year Conversion of Series A, B and E convertible preferred shares (1,151,468) (2,939) (994,885) (8,683) (4,322,126) (90,866) 7,725,924 102,488 Issuance of common shares, net of issuance costs 5,095,000 38,373
Total shareholder's equity (deficit)
(1,236) 575 73
Series A convertible preferred shares Shares Amount
Cumulative translation adjustment Stock option compensation expense Issuance of common shares on conversion of subscription rights Issued pursuant to exercise of stock options Balance as of December 31, 2014 Net loss for the year Stock option compensation expense Issued pursuant to exercise of stock options Fair value adjustment upon reclassification of stock options (note 3l) Balance as of December 31, 2015
Series B convertible preferred shares Shares Amount
Series E convertible preferred shares Shares Amount
Common shares Shares Amount
Accumulated other Additional Accumulated comprehensive paid-in deficit income (loss) capital
Total shareholder's equity (deficit)
— 14,181,333 $147,157 $ 30,346 $ (103,734) $
— 14,385,336 148,634
At December 31, 2015, our accumulated other comprehensive loss is entirely related to historical cumulative translation adjustments from the application of U.S. dollar reporting when the functional currency of the Company was the Canadian dollar as described in note 3n.
The accompanying notes are an integral part of these financial statements.
XENON PHARMACEUTICALS INC. Statements of Cash Flows (Expressed in thousands of U.S. dollars)
Year Ended December 31, 2014
Operating activities: Net income (loss) Items not involving cash: Depreciation and amortization Gain on write-off of assets Stock-based compensation Non-cash compensation on issuance of subscription rights Deferred tenant inducements Unrealized foreign exchange loss Changes in operating assets and liabilities: Accounts receivable Prepaid expenses, and other current assets Prepaid expenses, long term Accounts payable and accrued expenses Deferred revenue Net cash provided by (used in) operating activities
Investing activities: Purchases of property, plant and equipment Sale of property, plant and equipment Purchase of marketable securities Proceeds from marketable securities Net cash provided by (used in) investing activities Financing activities: Note payable Deferred financing fees Proceeds from issuance of common shares Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosures: Interest paid Interest received Supplemental disclosures of non-cash transactions: Issuance of common shares on conversion of subscription rights Financing fees included in accounts payable and accrued liabilities Fair value of options exercised on a cashless basis Conversion of convertible preferred shares into common shares The accompanying notes are an integral part of these financial statements.
1,038 — 3,729 — (63) 6,902
738 — 760 — (66) 72
705 (11) 575 73 (115) 94
(107) (1,214) (1,094) 80 (11,622) (18,103)
209 (573) — 518 (14,410) 266
(76) (14) — (228) (16,357) (3,322)
(551) — — 10,745 10,194
(1,529) — (15,254) 13,539 (3,244)
(156) 10 (17,876) 6,550 (11,472)
— — 278 278 (5,744) (13,375) 72,026 58,651 $
— (1,533) 42,657 41,124 (4,070) 34,076 37,950 72,026 $
— — 744 —
124 39 — 102,488
(1,701) (2,739) 49 (4,391) (3,027) (22,212) 60,162 37,950
201 279 45 — — —
XENON PHARMACEUTICALS INC. Notes to Financial Statements (Expressed in thousands of U.S. dollars except share and per share amounts)
Nature of the business: Xenon Pharmaceuticals Inc. (the “Company”), incorporated in 1996 under the British Columbia Business Corporations Act and continued federally in 2000 under the Canada Business Corporation Act, is a clinical-stage biopharmaceutical company discovering and developing a pipeline of differentiated therapeutics for orphan indications that it intends to commercialize on its own, and for larger market indications that it intends to partner with global pharmaceutical companies. On October 1, 2014, the Company effected a 1 for 4.86 reverse share split of its common shares and Series A, B and E redeemable convertible preferred shares. At the time of the consolidation, there were no outstanding Series C and D preferred shares and therefore such series were not included in the consolidation. Accordingly, (i) every 4.86 common shares were combined into one common share, (ii) every 4.86 redeemable Series A, B and E convertible preferred shares were combined into one redeemable convertible preferred share, (iii) the number of common shares into which each outstanding subscription right was exchangeable into common shares were proportionately decreased on a 1 for 4.86 basis, (iv) the number of common shares into which each outstanding option to purchase common shares was exercisable were proportionately decreased on a 1 for 4.86 basis, and (v) the exercise price for each such outstanding option to purchase common shares was proportionately increased on a 1 for 4.86 basis. All of the share numbers, share prices, and exercise prices prior to October 1, 2014 have been adjusted, on a retroactive basis, to reflect this 1 for 4.86 reverse share split. On November 10, 2014, the Company completed an initial public offering (“IPO”) of 4,600,000 of its common shares at a price to the public of $9.00 per share. On November 10, 2014, the Company also completed a private placement, in which the Company issued 495,000 of its common shares to an affiliate of Genentech, Inc. (“Genentech”) at a price of $9.00 per share. Immediately prior to the closing of the IPO, all outstanding convertible preferred shares were converted into 7,725,924 common shares and 10,201 outstanding subscription rights were converted into 10,201 common shares (note 7a). Following the IPO, there were no preferred shares or subscription rights outstanding.
Basis of presentation: These financial statements are presented in U.S. dollars. The accompanying audited financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). These audited financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the financial position of the Company as at December 31, 2015 and the result of operations and cash flows for all periods presented.
Significant accounting policies: (a)
Use of estimates: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas of estimates include, but are not limited to, the timing of revenue recognition, the determination of stockbased compensation and the amounts recorded as accrued liabilities. Actual results could differ materially from those estimates. Estimates and assumptions are reviewed quarterly. All revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Cash and cash equivalents: Cash equivalents are highly liquid investments that are readily convertible into cash with terms to maturity of three months or less when acquired. Cash equivalents are recorded at cost plus accrued interest. The carrying value of these cash equivalents approximates their fair value.
Marketable securities: Marketable securities are investments with original maturities exceeding three months, and have remaining maturities within twelve months. Marketable securities accrue interest based on a fixed interest rate for the term. The carrying value of marketable securities is recorded at cost plus accrued interest, which approximates their fair value.
Intellectual Property The costs incurred in establishing and maintaining patents for intellectual property developed internally are expensed in the period incurred.
Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation and/or accumulated impairment losses, if any. Repairs and maintenance costs are expensed during the financial period in which they are incurred. Property, plant and equipment are amortized over their estimated useful lives using the straight-line method based on the following rates: Asset Research equipment Office furniture and equipment Computer equipment Leasehold improvements
Rate 5 years 5 years 3 years Over the lesser of lease term or estimated useful life
Impairment of long-lived assets: The Company monitors its long-lived assets for indicators of impairment. If such indicators are present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets. No impairment of long-lived assets was noted during the years ended December 31, 2015 and 2014.
Concentration of credit risk and of significant customers: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. Cash and cash equivalents were held at two major financial institutions in Canada. Such deposits may be in excess of insured limits in the event of non-performance by the institutions; however, the Company does not anticipate non-performance. Collaborators whose collaboration research and development revenue accounted for 10% or more of total revenues were as follows: 2015
Year ended December 31, 2014
Financial instruments and fair value: We measure certain financial instruments and other items at fair value. To determine the fair value, we use the fair value hierarchy for inputs used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).
Level 1 - Unadjusted quoted prices in active markets for identical instruments.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s Level 1 assets include cash and cash equivalents and marketable securities with quoted prices in active markets. The carrying amount of accounts receivables, accounts payable and accrued expenses approximates fair value due to the nature and short-term of those instruments. (i)
Revenue recognition: The Company recognizes revenue when all of the following criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the Company’s price to the collaborator is fixed or determinable; and (iv) collectability is reasonably assured. The Company generates revenue primarily through collaboration agreements. Under these collaboration agreements, the Company is eligible to receive non-refundable upfront payments, funding for research and development services, milestone payments, other contingent payments and royalties. In assessing the appropriate revenue recognition related to a collaboration agreement, the Company first determines whether an arrangement includes multiple elements, such as the delivery of intellectual property rights and research and development services. Revenues associated with multiple element arrangements are attributed to the various elements based on their relative fair values or are recognized as a single unit of accounting when relative fair values are not determinable. Non-refundable upfront payments are recorded as deferred revenue on the balance sheet and are recognized as collaboration revenue over the estimated period of research performance that is consistent with the terms of the research and development obligations contained in the collaboration agreement. The Company periodically reviews the estimated period of performance based on the progress made under each arrangement. The Company recognizes funding related to full-time equivalent staffing funded through collaboration agreements as revenue on a gross basis as it performs or delivers such related services in accordance with the agreement terms, provided that it will receive payment for such services upon standard payment terms. The Company recognizes revenue contingent upon its achievement of a milestone in its entirety, in the period the milestone is achieved, only if the milestone meets certain criteria and is considered to be substantive. Payments received upon the occurrence of milestones that are non-substantive are deferred and recognized as revenue over the estimated period of performance applicable to the associated collaborative agreement.
Research and development costs: Research and development costs are expensed in the period in which they are incurred.
Certain development activity costs, such as preclinical costs, manufacturing costs and clinical trial costs, are a component of research and development costs and include fees paid to contract research organizations, investigators and other vendors who conduct certain product development activities on behalf of the Company. The amount of expenses recognized in a period related to service agreements is based on estimates of the work performed using an accrual basis of accounting. These estimates are based on patient enrollment, services provided and goods delivered, contractual terms and experience with similar contracts. The Company monitors these factors and adjusts the estimates accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered. (k)
Stock-based compensation: The Company grants stock options to employees, directors, officers and consultants pursuant to a stock option plan described in note 7c. Employee stock-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense, net of estimated forfeitures, over the requisite service period with a corresponding increase in additional paid-in capital. Stock-based compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the vesting period of the award. Any consideration received on exercise of stock options is credited to share capital.
Liability classified stock options: The Company granted stock options with exercise prices denominated in Canadian dollars under its Amended and Restated Stock Option Plan to members of its board of directors and certain consultants prior to the IPO. Following the change in functional currency on January 1, 2015, described in (n) below, the options denominated in Canadian dollars that were granted to members of the Company’s board of directors and certain consultants were subject to liability accounting with fair value calculated using the Black-Scholes option-pricing model. In September 2015, the Company modified certain compensation arrangements to be denominated in Canadian dollars. Following this modification, the options denominated in Canadian dollars that were granted to members of the Company’s board of directors and certain consultants met the criteria for equity classification with fair value at the modification date calculated using the Black-Scholes option-pricing model and reclassified to additional paid-in capital. The modified awards were accounted for as equity awards from the date of modification.
Net income (loss) per common share: Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per common share is computed using the treasury stock method, adjusting net income (loss) attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Prior to the Company’s IPO, net income (loss) per share was calculated under the two-class method as the Company had outstanding shares that met the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. All of the outstanding redeemable convertible preferred shares converted to common shares upon the consummation of the Company’s IPO in November 2014 (note 7a). As the Company reported a net loss attributable to common shareholders for the year ended December 31, 2015, all stock options were anti-dilutive and were excluded from the diluted weighted average shares outstanding for that period. For the year ended December 31, 2014, stock options of 154,057 (December 31, 2013 - 42,592) were excluded from the calculation of net income per common share because their inclusion would be anti-dilutive.
Foreign currency translation: The Company’s reporting currency is the U.S. dollar. The functional currency of the Company changed to U.S. dollars from Canadian dollars on January 1, 2015 based on management’s analysis of the changes in the primary economic environment in which the Company operates. The Company’s reporting currency did not change. The change in functional currency is accounted for prospectively from January 1, 2015 and prior year financial statements have not been restated for the change in functional currency. For all relevant periods, foreign currency revenue and expense transactions were recorded using the exchange rates prevailing at the dates of the transactions.
For periods prior to January 1, 2015, the effects of exchange rate fluctuations on translating foreign currency monetary assets and liabilities into Canadian dollars were included in the statement of operations and comprehensive income (loss) as foreign exchange gain (loss). Revenue and expense transactions were translated into the U.S. dollar reporting currency at the balance sheet date at average exchange rates during the period, and assets and liabilities were translated at end of period exchange rates, except for equity transactions, which were translated at historical exchange rates. Translation gains and losses from the application of the U.S. dollar as the reporting currency while the Canadian dollar was the functional currency are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive income (loss). For periods commencing January 1, 2015, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and nonmonetary assets and nonmonetary liabilities incurred after January 1, 2015 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction. Foreign exchange gains and losses are included in the statement of operations and comprehensive income (loss) as foreign exchange gain (loss). (o)
Income taxes: Deferred income taxes are recognized for the future tax consequences attributable to differences between the carrying amounts of assets and liabilities and their respective tax bases and net operating loss and credit carryforwards. Deferred income tax assets and liabilities are measured at enacted rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the statement of operations and comprehensive income (loss) in the period that includes the enactment date. A valuation allowance is recorded when it is not more likely than not that all, or a portion of deferred income tax assets will be realized.
Deferred tenant inducements: Deferred tenant inducements, which include leasehold improvements paid for by the landlord and free rent, are recorded as liabilities on the balance sheet and recognized as a reduction of rent expense on a straight-line basis over the term of the lease.
Segment and geographic information: Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment.
Future changes in accounting policies: In May 2014, the Financial Accounting Standards Board (“FASB”) issued amendments to clarify the principles of recognizing revenue and to develop a common revenue standard that would remove inconsistencies in revenue requirements, leading to improved comparability of revenue recognition practices across entities and industries. The amendments stipulate that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosure will also be required about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued an update deferring the effective date of the new revenue standard by one year. The new guidance will be effective for public entities for fiscal years beginning after December 15, 2017 instead of the originally contemplated effective date of December 15, 2016. The Company is currently evaluating the new guidance to determine the impact it will have on the Company’s financial position, results of operations and cash flows. In August 2014, the FASB issued amendments requiring management to assess an entity’s ability to continue as a going concern. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. These amendments will be effective for public entities for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of these amendments in fiscal 2017 is not expected to have a material impact on the Company’s financial statements.
Property, plant and equipment: Property, plant and equipment consisted of the following: December 31, 2015
Research equipment Office furniture and equipment Computer equipment Leasehold improvements Less: accumulated depreciation and amortization Net book value 6.
6,925 $ 1,040 2,236 6,370 (14,582) 1,989 $
6,815 980 1,887 6,338 (13,544) 2,476
Accounts payable and accrued expenses: Accounts payable and accrued expenses consisted of the following: December 31, 2015
Trade payables Employee compensation, benefits, and related accruals Consulting and contracted research Professional fees Other Total 7.
1,088 $ 762 506 214 55 2,625 $
553 1,077 774 180 80 2,664
Share capital: (a)
Financing: On November 10, 2014, the Company completed an IPO of 4,600,000 of its common shares at a purchase price of $9.00 per share. On November 10, 2014, the Company also completed a private placement, in which the Company issued 495,000 of its common shares to an affiliate of Genentech at a price of $9.00 per share. The Company received $38.5 million of proceeds, net of underwriting discounts and commissions but before offering expenses, from the IPO and $4.1 million of proceeds, net of underwriters’ fees but before offering expenses, from the concurrent private placement. Immediately prior to the closing of the IPO, all outstanding Series A and B redeemable convertible preferred shares were converted into common shares on a 1:1 basis and Series E redeemable convertible preferred shares were converted into common shares on a 1:1.2 basis, subject to certain adjustments. These adjustments differed for some of the Company’s outstanding Series E preferred shares depending on the date of issue, resulting in different conversion ratios for different Series E preferred shares. All outstanding convertible preferred shares were converted into 7,725,924 common shares and 10,201 outstanding subscription rights were converted into 10,201 common shares. Following the IPO, there were no preferred shares or subscription rights outstanding.
Authorized share capital: Prior to the IPO, the Company had authorized 1,205,761 Series A preferred shares, 1,028,806 Series B preferred shares, 4,620 Series C preferred shares, 9,376 Series D preferred shares and 4,370,920 Series E preferred shares. Holders of Series A, Series B and Series E preferred shares were entitled to receive non-cumulative cash dividends, in preference to any dividend payable on the common shares, at a rate of 8% per annum of the issue price of the preferred share when and as declared by the Board, but only if any dividends were declared on the common shares. In addition, holders of the Series A, Series B and Series E preferred shares would have been entitled to receive, when and as declared by the Board, dividends in an amount equal to any dividend per common share declared by the Board on the common shares multiplied by the number of common shares that would have been issued in exchange for the Series A, Series B and Series E preferred shares upon conversion. No dividends were declared prior to the conversion of the Series A, Series B and Series E preferred shares into common shares in connection with the closing of the IPO. Immediately prior to the closing of the Company’s IPO, the Company’s articles were amended to remove all references to Series A, B, C, D and E preferred shares. As of December 31, 2014, no Series A, B, C, D or E convertible preferred shares were outstanding.
Post IPO, the Company’s authorized share capital consists of an unlimited number of common and preferred shares without par value. (c)
Stock based compensation: The Company’s 2014 Equity Incentive Plan (the “2014 Plan”) permits the grant of stock-based compensation awards to directors, officers, employees and consultants of the Company. The Company’s pre-existing stock option plan (the “Amended and Restated Stock Option Plan”) was limited to the granting of stock options as equity incentive awards whereas the 2014 Plan also allows for the issuance of restricted shares, restricted share units, share appreciation rights and performance shares. The 2014 Plan replaced the Amended and Restated Stock Option Plan. No further options will be granted under the Company’s Amended and Restated Stock Option Plan. The Amended and Restated Stock Option Plan provided for the grant of options for the purchase of common shares to directors, officers, employees and consultants prior to the Company’s IPO. The options granted under the Amended and Restated Stock Option Plan vest on a graduated basis over a four-year period or less and each option’s maximum term is ten years. The Amended and Restated Stock Option Plan will continue to govern the options granted thereunder. Under the 2014 Plan, options granted generally vest on a graduated basis over a four-year period or less. The exercise price of the options is determined by the Board but must at least be equal to the fair market value of the common shares on the date of grant. Options may be exercised over a maximum term of ten years. As of December 31, 2015, a total of 4,742 stock options remain to be granted under the 2014 Plan. The number of common shares available for issuance under the 2014 Plan was increased by 375,000 in January 2016 as approved by the Board in accordance with the terms of the 2014 Plan. Summary of stock option activity is as follows: Number of Options
Outstanding, January 1, 2013 Granted Exercised Forfeited, cancelled or expired Outstanding, December 31, 2013 Granted Exercised Forfeited, cancelled or expired Outstanding, December 31, 2014 Granted Exercised(1) Forfeited, cancelled or expired Outstanding, December 31, 2015 Exercisable, December 31, 2015 (1)
1,128,437 292,418 (8,329) (79,427) 1,333,099 205,170 (2,417) (51,634) 1,484,218 529,288 (270,254) (21,780) 1,721,472 1,034,576
Weighted Average Exercise Price CAD $ U.S. $
4.13 3.74 6.07 4.90 3.98 10.84 6.07 5.96 4.88 18.73 4.66 11.21 9.62 4.42
4.17 3.64 5.88 4.76 3.88 9.35 5.23 5.14 4.20 14.67 3.65 8.78 6.95 3.20
Aggregate Intrinsic Value
37 8,300 23 15,551 2,426 1,880 5,010
During the year ended December 31, 2015, 70,438 stock options were exercised for the same number of common shares in exchange for cash. In the same period, the Company issued 133,565 common shares for the cashless exercise of 199,816 stock options.
The following table summarizes the stock options outstanding and exercisable at December 31, 2015:
Range of Exercise Prices
$1.93 - $2.31 $2.32 - $4.86 $4.87 - $7.72 $7.73 - $7.91 $7.92 - $17.70 $17.71 - $18.23 $18.24 - $21.82
Options Outstanding Options Exercisable Weighted Average Number of Remaining Weighted Average Contractual Weighted Average Options Number of Life Outstanding Exercise Price Options Exercisable Exercise Price (years) CAD $ U.S. $ CAD $ U.S. $
236,759 728,895 179,842 150,173 86,533 338,200 1,070 1,721,472
5.70 3.51 9.41 7.17 8.77 8.60 9.11 6.01
2.67 3.74 10.43 10.78 15.69 24.58 27.58 9.62
1.93 2.70 7.54 7.79 11.34 17.76 19.92 6.95
181,768 728,416 25,732 81,949 16,598 — 113 1,034,576
2.67 3.74 9.76 10.78 13.87 24.58 30.20 4.42
1.93 2.70 7.05 7.79 10.02 17.76 21.82 3.20
At December 31, 2015, there were 1,034,576 options exercisable with a weighted average remaining contractual life as at December 31, 2015 of 4.32 years. A summary of the Company’s non-vested stock option activity and related information for the year ended December 31, 2015 is as follows: Number of Options Weighted Average Grant Date Fair Value CAD $ USD $
Non-vested, January 1, 2015 Granted Vested Forfeited and cancelled Non-vested, December 31, 2015
367,654 529,288 (190,477) (19,569) 686,896
5.64 12.55 6.72 7.90 10.60
4.86 9.83 5.27 6.19 8.54
The aggregate fair value of options vested during the year ended December 31, 2015 was $999 (2014 - $722, 2013 $374). The fair value of stock options at the date of grant is estimated using the Black-Scholes option-pricing model which requires multiple subjective inputs. The risk-free interest rate of the options is based on the U.S. Treasury yield curve in effect at the date of grant for a term similar to the expected term of the option. Prior to the IPO, the Company’s stock did not have a readily available market; therefore, the Company lacks company-specific historical and implied volatility information. Consequently, the expected volatility of stock options was estimated based on a historical volatility analysis of peers that were similar to the Company with respect to industry, stage of life cycle, size, and financial leverage. The expected term of the Company’s stock options has been determined utilizing the “simplified” method. Under this method, the expected term represents the average of the vesting period and the contractual term. The dividend yield is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Forfeitures have been estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ materially from these estimates. The weighted-average option pricing assumptions are as follows: 2015
Average risk-free interest rate Expected volatility Average expected term (in years) Expected dividend yield Weighted average fair value of options granted
Years ended December 31 2014
1.75% 75% 6.23 0.00% 9.83 $
1.94% 73% 6.13 0.00% 6.10 $
1.03% 70% 6.20 0.00% 4.13
Stock-based compensation expense is classified in the statements of operations and comprehensive income (loss) as follows: 2015
Research and development General and administrative
Years ended December 31, 2014 2013
624 3,105 3,729
194 566 760
147 428 575
As of December 31, 2015, the unrecognized stock-based compensation cost related to the non-vested stock options was $4,650, which is expected to be recognized over a weighted-average period of 3.0 years. 8.
Foreign currency risk: At December 31, 2015, the Company had U.S. dollar denominated cash and cash equivalents of $17,836 (December 31, 2014 $46,531) and Canadian denominated cash and cash equivalents and marketable securities of CAD$56,491 (December 31, 2014 CAD$43,516). The Company faces foreign currency exchange rate risk in part, as a result of entering into transactions denominated in currencies other than U.S. dollars, particularly those denominated in Canadian dollars. The Company also holds non-U.S. dollar denominated cash and cash equivalents, marketable securities, accounts receivable and accounts payable, which are denominated in Canadian dollars. Changes in foreign currency exchange rates can create significant foreign exchange gains or losses to the Company. The Company’s current foreign currency risk is with the Canadian dollar, as a majority of non-U.S. dollar denominated expenses are denominated in Canadian dollars and the majority of cash and cash equivalents and marketable securities are held in Canadian dollars. To limit the Company’s exposure to volatility in currency markets, management estimates anticipated expenses that will be denominated in Canadian and U.S. dollars and then purchases a corresponding amount of Canadian or U.S. dollars at the current spot rate. Once these estimated expense amounts are acquired, the Company does not hedge its exposure and thus assumes the risk of future gains or losses on the amounts of Canadian dollars held.
Collaboration agreements: The Company has entered into a number of collaboration agreements with multiple deliverables under which it may have received non-refundable upfront payments. The Company generally recognizes revenue from non-refundable upfront payments ratably over the term of its estimated period of performance of research under its collaboration agreements in the event that such arrangements represent a single unit of accounting. The collaborations may also include contractual milestone payments, which relate to the achievement of pre-specified research, development, regulatory and commercialization events. The milestone events coincide with the progression of product candidates from research and development, to regulatory approval and through to commercialization. The process of successfully discovering a new product candidate, having it selected by the collaborator for development and having it approved and ultimately sold for a profit is highly uncertain. As such, the milestone payments that the Company may earn from its collaborators involve a significant degree of risk to achieve. Research and development milestones in the Company’s collaboration agreements may include the following types of events:
completion of preclinical research and development work leading to selection of product candidates;
initiation of Phase 1, Phase 2 or Phase 3 clinical trials; and
achievement of certain other scientific or development events.
Regulatory milestone payments may include the following types of events:
filing of regulatory applications for marketing approval in the U.S., Europe or Japan, including investigational new drug (“IND”) applications and new drug applications (“NDA”); and
marketing approval in a major market, such as the U.S., Europe or Japan.
Commercialization milestone payments may include payments triggered by annual product sales that achieve pre-specified thresholds.
uniQure Biopharma B.V. (“uniQure”) sublicense and research agreement: Effective August 2000, the Company entered into a sublicense and research agreement with uniQure (formerly Amsterdam Molecular Therapeutics), pursuant to which the Company granted to uniQure an exclusive, worldwide sublicense under certain intellectual property controlled by the Company to develop and commercialize technology and compounds related to a certain variant of lipoprotein lipase (“LPL”). Under its sublicense and research agreement with uniQure, the Company collaborated with uniQure and the University of British Columbia (“UBC”) on preclinical activities, and thereafter uniQure developed an LPL gene therapy product, Glybera, which contains the LPL variant. Glybera was approved in the European Union (“EU”) in October 2012 to treat lipoprotein lipase deficiency (“LPLD”) in patients with severe or multiple pancreatitis attacks, despite dietary fat restrictions. uniQure conducted the clinical trials and is responsible for the commercialization of Glybera. During the year ended December 31, 2013, the Company received milestone payments of CAD$547. No such milestone payments have been recognized in the years ended December 31, 2015 and 2014. Under the terms of the agreement, the Company is eligible to receive certain additional milestone payments of less than CAD$1,000 for Glybera and for each subsequent product, if any, developed pursuant to the agreement with uniQure. The Company, in turn, has certain payment obligations to its licensor, UBC, based on amounts received from uniQure or otherwise based on the exploitation of the licensed intellectual property. The Company believes that all potential milestone payments under this agreement are substantive and at risk at the inception of this agreement, and, as such, expects that future milestone payments will be recognized as revenue in the period that each milestone is achieved. The Company is also eligible to receive mid single-digit royalties on net sales of the licensed products, for sales made by uniQure and its affiliates. The royalty rates for sales made by uniQure and its affiliates are reduced to a low single-digit when the licensed patents expire. In July 2013, uniQure announced that it entered into a partnership with Chiesi Farmaceutici S.p.A. (“Chiesi”) for the commercialization of Glybera in the EU and more than a dozen other countries including Brazil, China, Mexico and Russia. With respect to uniQure’s sublicense to Chiesi, the Company is eligible to receive a percentage in the low twenties of all non-royalty compensation relating to the licensed technology or products that uniQure receives from Chiesi (including, for example, upfront payments and milestone payments), a percentage in the low twenties of any royalties that uniQure receives from Chiesi based on sales of technology or products covered by the licensed patents, plus a mid singledigit percentage of certain further royalties that uniQure receives from Chiesi based on sales of the Company’s licensed technology or products after the expiration of all licensed patents covering the product. If uniQure grants a sublicense to a third party other than to Chiesi, then the Company is eligible to receive a percentage in the low twenties of all non-royalty compensation relating to the licensed technology or products that uniQure receives from such sublicensee (for example, upfront payments and milestone payments) plus a percentage in the low twenties of any royalties that uniQure receives from such sublicensee based on sales of technology or products covered by the licensed patents. Royalties the Company is eligible to receive pursuant to its agreement with uniQure, including royalties related to sales made by Chiesi, are subject to customary royalty stacking deductions in the event that uniQure, or any of its sublicensees, have to license other technologies in order to commercialize Glybera. Pursuant to the terms of the Company’s agreement with UBC, the Company must pay to UBC a single-digit percentage of amounts the Company receives from sales of Glybera.
Teva Pharmaceutical Industries Ltd. (“Teva”) collaborative development and license agreement: In December 2012, the Company entered into a collaborative development and license agreement with Teva, through its subsidiary, Ivax International GmbH, pursuant to which the Company granted Teva an exclusive worldwide license to develop and commercialize certain products, including TV-45070 (formerly XEN402). Under the terms of the agreement, Teva paid the Company an upfront fee of $41,000. The Company is collaborating with Teva to further develop TV-45070, and Teva is funding all development costs with respect to the licensed products. Teva is providing funding to the Company for certain of the Company’s full-time equivalents (“FTEs”) performing the research collaboration plan. The Company identified several deliverables under the agreement with Teva, including exclusive licenses to compounds and non-exclusive licenses to companion diagnostic products, a commitment to participate in a joint steering committee and research and development services to be performed by the Company on behalf of Teva. The Company concluded that the licenses did not have stand-alone value to Teva without the Company’s technical expertise and joint steering committee participation during the initial three-year period. Therefore, the Company has determined that the various deliverables under this agreement should be considered as one single unit of accounting. As such the Company determined that the $41,000 upfront payment should be recognized as revenue ratably over the expected period of performance, being the three-year period ended December 31, 2015.
In addition, the Company is eligible to receive potential milestone payments totaling up to $335,000, comprised of a $20,000 clinical milestone payment, up to $285,000 in regulatory milestone payments, and a $30,000 sales-based milestone payment. If TV-45070 is approved, the Company is also eligible to receive royalties in the low teens to low twenties on net sales of licensed products for the timeframe that such products are covered by the licensed patents and in certain other instances. The Company believes that potential milestone payments for development and regulatory milestones under this agreement are substantive and at risk at the inception of this agreement, and, as such, expects that these future milestone payments will be recognized as revenue in the period that each milestone is achieved. The Company believes that the potential sales-based milestone payments under this agreement are not substantive as the Company does not expect to contribute effort to their achievement and expects such sales-based milestones will generally be achieved after the period of substantial involvement under the collaboration. Therefore, the Company expects that future sales-based contingent consideration milestone payments will be recognized as revenue when such milestones are achieved, assuming all other revenue recognition criteria are met. To date, no such milestone payments have been recognized. Pursuant to the terms of the Company’s agreement with the Memorial University of Newfoundland, the Company must pay to the Memorial University of Newfoundland certain milestone payments, a single-digit percentage of net sales for pain products the Company sells directly and a single-digit percentage of royalties received for sales of pain products by the Company’s third party licensees, such as under the Teva and Genentech agreements. (c)
Genentech collaborative research and license agreement: In December 2011, the Company entered into a collaborative research and license agreement with Genentech and its affiliate, F. Hoffman-La Roche Ltd. (“Roche”) to discover and develop small and large molecules that selectively inhibit the Nav1.7 sodium channel and companion diagnostics for the potential treatment of pain. Pursuant to this agreement, the Company granted Genentech a worldwide exclusive license to develop and commercialize compounds directed to Nav1.7 and products incorporating such compounds for all uses. The Company also granted Genentech a worldwide nonexclusive license to diagnostic products for the purpose of developing or commercializing such compounds. Under the terms of the agreement, Genentech paid the Company an upfront fee of $10,000. Genentech is providing funding to the Company for certain of the Company’s FTEs performing the research collaboration plan. The Company identified several deliverables under the agreement with Genentech, including exclusive licenses to compounds and nonexclusive licenses to diagnostic products, a commitment to participate in a joint steering committee and research and development services to be performed by the Company on behalf of Genentech. The Company concluded that the licenses did not have stand-alone value to Genentech without the Company’s technical expertise and joint steering committee participation during the initial three year period. Therefore, the Company has determined that the various deliverables should be considered as a single unit of accounting. As such the Company determined that the $10,000 upfront payment should be recognized as revenue ratably over the expected period of performance, being the three-year period ended December 22, 2014. The Company is eligible to receive pre-commercial and commercial milestone payments with respect to the licensed products totaling up to an additional $613,000, comprised of up to $45,500 in preclinical and clinical milestone payments, up to $387,500 in regulatory milestone payments, and up to $180,000 in sales-based milestone payments for multiple products and indications. In addition, the Company is eligible to receive royalties based on net sales of the licensed products, which range from a mid single-digit percentage to ten percent for small-molecule inhibitors for the timeframe that such products are covered by the licensed patents and a low single-digit percentage thereafter until the date that is ten years after first commercial sale on a country-by-country basis, plus a low single-digit percentage for large-molecule inhibitors of Nav1.7 for a period of ten years from first commercial sale on a country-by-country basis. The Company believes that the potential milestone payments for preclinical, clinical and regulatory milestones under this agreement are substantive and at risk at inception of this agreement, and, as such, expects that these future milestone payments will be recognized as revenue in the period that each milestone is achieved. In the year ended December 31, 2015, no milestone payments have been recognized (2014 - $8,000; 2013 - $5,000). The Company believes that the potential sales-based milestone payments under this agreement are not substantive as the Company does not expect to contribute effort to their achievement and expects such sales-based milestones will generally be achieved after the period of substantial involvement under the collaboration. Therefore, the Company expects that future sales-based contingent consideration milestone payments will be recognized as revenue when such milestones are achieved, assuming all other revenue recognition criteria are met. To date, no such milestone payments have been recognized.
In March 2014, the Company entered into a new agreement with Genentech for pain genetics, using the Company’s Extreme Genetics discovery platform to focus on identifying genetic targets associated with rare phenotypes where individuals have an inability to perceive pain or where individuals have non-precipitated spontaneous severe pain. Pursuant to the terms of this agreement, any intellectual property arising out of the collaboration will be jointly owned by the Company and Genentech. The Company also granted Genentech a time-limited, exclusive right of first negotiation on a target-by-target basis to form joint drug discovery collaborations. Under the terms of this agreement, Genentech paid an upfront payment of $1,500. The Company is eligible to receive additional milestone payments totaling up to $1,750. At the option of the Company, a Genentech affiliate invested $4,455 in a private placement concurrent with the IPO (note 7a). The Company identified several deliverables under this agreement with Genentech, including non-exclusive licenses to certain intellectual property controlled by the Company, a commitment to participate in a joint steering committee and collaborative research services to be performed by the Company. The Company concluded that the licenses did not have stand-alone value to Genentech without the Company’s technical expertise and joint steering committee participation during the initial two year period. Therefore, the Company has determined that the various deliverables should be considered as a single unit of accounting. As such the Company determined that the $1,500 upfront payment should be recognized as revenue ratably over the expected period of performance, being the two-year period ending March 18, 2016. The Company believes that the potential milestone payments under this agreement are substantive and at risk at inception of this agreement, and, as such, expects that these future milestone payments will be recognized as revenue in the period that each milestone is achieved. In the year ended December 31, 2015, a $250 milestone payment has been recognized (2014 - nil). (d)
Ionis Pharmaceuticals, Inc. (“Ionis”) collaboration and licensing agreement: In November 2010, the Company entered into a collaboration and license agreement with Ionis (formerly Isis Pharmaceuticals, Inc.). The Company issued Ionis a convertible, interest bearing promissory note as payment of the $1,500 upfront fee required by the agreement, which was accounted for as a research and development expense. During 2013, the Company made this payment to Ionis, including accrued interest, pursuant to the terms of the convertible promissory note. Under the terms of this agreement, the Company received an option to obtain from Ionis worldwide exclusive licenses to develop and commercialize antisense products targeting hepcidin and/or hemojuvelin, each of which is a validated target for anemia of chronic disease, which the Company exercised in 2013. The Company paid Ionis an option exercise fee of $2,000, which was accounted for as a research and development expense for the period. In late 2013, the Company discontinued development of product candidates under this program and in 2014, the Company terminated its agreement with Ionis.
Genome BC collaboration agreement: In January 2009, the Company entered into a research funding agreement with Genome BC to co-fund IND-enabling studies for antisense products targeting hepcidin or hemojuvelin. The deliverables of the research activities are to identify development candidates for both hepcidin and hemojuvelin targets. Under the agreement with Genome BC, the Company carried out certain research activities with partial funding that Genome BC provided on a quarterly basis over the term of the research program. This agreement expired at the end of its term on September 30, 2013.
The following table is a summary of the revenue recognized from the Company’s collaborations for each of the years ended December 31, 2015, 2014 and 2013. 2015
uniQure: Milestone payment Teva: Recognition of upfront payment Research funding Genentech: Recognition of upfront payment Research funding Milestone payment Genome BC: Research funding Total collaboration revenue 10.
Year Ended December 31, 2014
725 3,589 250
3,603 4,248 7,913
3,300 4,514 5,062
Commitments and contingencies: (a)
Lease commitments: The Company entered into an amended lease agreement for research laboratories and office space in Burnaby, British Columbia, Canada for a 120-month term from April 1, 2012 to March 31, 2022, which included an element of free rent and tenant inducement that will be amortized over the term of the lease. Lease expense for the year ended December 31, 2015 was $917 (2014 - $915, 2013 - $962). Future minimum annual lease payments under existing operating lease commitments are as follows: Year ending December 31: 2016 2017 2018 2019 2020 2021 and thereafter Total
972 1,071 1,091 1,093 1,094 1,273 6,594
Priority access agreement with Medpace: In August 2015, the Company entered into a priority access agreement with Medpace for the provision of certain clinical development services. Under the terms of the agreement, the Company has committed to using Medpace non-exclusively for clinical development services over the five year term of the agreement. In consideration for priority access to Medpace resources and preferred service rates, the Company has committed to $7,000 of services over the term of the agreement, $3,000 of which was paid in the year ended December 31, 2015. Of the amounts paid by the Company in 2015 in connection with the priority access agreement, $896 has been recorded a expenses for services rendered during the year ended December 31, 2015, $1,010 has been recorded as current prepaid expenses and $1,094 as long-term prepaid expenses for the provision of future services as at December 31, 2015.
Guarantees and indemnifications: The Company has entered into license and research agreements with third parties that include indemnification provisions that are customary in the industry. These indemnification provisions generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party claims or damages arising from these transactions. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds commercial and product liability insurance. This insurance limits the Company’s exposure and may enable it to recover a portion of any future amounts paid. Historically, the Company has not made any indemnification payments under such agreements and the Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations for any period presented.
Income taxes: Income tax (recovery) expense varies from the amounts that would be computed by applying the expected Canadian and provincial statutory income tax rate of 26% (2014 – 26%, 2013- 25.75%) to loss before income taxes as shown in the following table: 2015
Computed taxes (recoveries) at Canadian federal and provincial tax rates Tax attributes expired/utilized Change in valuation allowance Investment tax credits earned Non-deductible expenditures Changes in tax rates Financing fees in equity Other Income tax (recovery) expense
(4,095) $ 2,851 2,482 (1,220) 977 — — (995) — $
3,385 $ 2,011 (2,364) (1,283) (1,053) — (1,945) 1,249 — $
3,098 198 (2,029) (529) (374) (1,019) — 655 —
Deferred income tax assets and liabilities result from the temporary differences between the amount of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the Company’s net deferred income tax assets are as follows: 2015
Deferred income tax assets Investment tax credits Scientific research and experimental development pool Non-capital losses Depreciable assets Deferred financing fees Deferred revenues Other Less - valuation allowance Net deferred income tax assets
21,303 $ 21,088 4,234 3,749 959 41 144 (51,518) — $
20,108 19,648 1,390 2,651 1,318 3,063 858 (49,036) —
The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse. The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criteria changes, the valuation allowance is adjusted accordingly. A full valuation allowance continues to be applied against deferred income tax assets as the Company has assessed that the realization of such assets does not meet the “more likely than not” criteria. At December 31, 2015, the Company has unclaimed tax deductions for scientific research and experimental development expenditures of $81,107 (2014 - $75,571) with no expiry. At December 31, 2015, the Company has $18,875 (2014 - $17,942) of investment tax credits available to offset federal taxes payable and $7,385 (2014 - $6,891) of provincial tax credits available to offset provincial taxes payable in the future. At December 31, 2015, the Company has non-capital losses, net of uncertain tax positions, carried forward for tax purposes, which are available to reduce taxable income of future years of approximately $16,285 (2014 - $5,347). The investment tax credits and loss carry forwards expire over various years to 2035. As of December 31, 2015, the total amount of the Company’s unrecognized tax benefits were $6,350 (2014 - $6,350). If recognized in future periods, the unrecognized tax benefits would affect our effective tax rate. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within the income tax provision. Interest and penalties have not been accrued at December 31, 2015 as none would be owing on the unrecognized tax benefits due to the availability of non-capital losses to shelter any potential taxable income arising thereon. The Company does not currently expect any significant increases or decreases to these unrecognized tax benefits within 12 months of the reporting date.
The Company currently files an income tax return in Canada, the jurisdiction in which it is subject to tax. In jurisdictions in which the Company does not believe it is subject to tax and therefore does not file income tax returns, the Company can provide no certainty that tax authorities in those jurisdictions will not subject one or more tax years (since the inception of the Company) to examination. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire until several years after the loss carry-forwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company claims, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction. Tax years ranging from 2002 to 2014 remain subject to Canadian income tax examinations. 12.
Related parties: Dr. August J. Troendle, an officer and director of Medpace, which provides clinical development services to the Company, is a beneficial owner of more than 5% of the Company’s common shares. The Company incurred $922 of clinical development service fees under its priority access agreement and a master services agreement with Medpace for the year ended December 31, 2015 (2014 – nil, 2013 – nil). Additionally, the Company has recorded $2,314 of prepaid expenses as of December 31, 2015 (December 31, 2014 - nil) for future clinical development services under such agreements with Medpace.
Selected quarterly financial data (unaudited): The following table presents certain unaudited quarterly financial information for the years ended December 31, 2015 and 2014 (in thousands of U.S. dollars except per share amounts). This information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Three Months Ended June 30, September 30, 2015 2015
March 31, 2015
Revenue Income (loss) from operations Net income (loss) attributable to common shareholders Basic net income (loss) per common share Diluted net loss per common share
4,010 $ (6,137) (9,156) (0.64) $ (0.64) $
5,001 1,032 — — —
4,294 $ (820) (3,827) (0.27) $ (0.27) $
Three Months Ended June 30, September 30, 2014 (1) 2014 (1)
March 31, 2014 (1)
Revenue Income from operations Net income attributable to common shareholders Basic net income per common share Diluted net income per common share
4,046 $ 199 1,168 0.08 $ (0.07) $
5,298 1,378 — — —
December 31, 2015
13,193 8,661 3,595 2.67 1.69
3,227 (2,603) (3,937) (0.27) (0.27)
December 31, 2014
4,878 35 1,224 0.14 0.13
The financial data, including per share amounts, for all interim periods prior to and including the three month period ended September 30, 2014, do not reflect the IPO.