Exhibit 99.1
Interim Condensed
Consolidated Financial Statements (unaudited)
Aurinia Pharmaceuticals Inc.
Q3 15
Third Quarter
Ended September 30, 2015
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States (U.S.) dollars)
Third quarter ended September 30, 2015
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Statements of Financial Position
(Unaudited)
(Expressed in thousands of U.S. dollars)
September 30, 2015 $ |
December 31, 2014 $ |
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Assets |
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Current assets |
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Cash and cash equivalents |
10,594 | 22,706 | ||||||
Short term investment (note 4) |
9,989 | 9,998 | ||||||
Accounts receivable |
55 | 92 | ||||||
Prepaid expenses and deposits |
768 | 755 | ||||||
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21,406 | 33,551 | |||||||
Non-current assets |
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Property and equipment |
42 | 52 | ||||||
Acquired intellectual property and other intangible assets |
17,354 | 18,489 | ||||||
Prepaid deposits |
141 | 286 | ||||||
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Total assets |
38,943 | 52,378 | ||||||
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Liabilities and Shareholders Equity |
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Current liabilities |
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Accounts payable and accrued liabilities |
3,617 | 2,464 | ||||||
Current portion of deferred revenue |
193 | 217 | ||||||
Provision for restructuring costs |
155 | 155 | ||||||
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3,965 | 2,836 | |||||||
Non-current liabilities |
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Deferred revenue |
708 | 847 | ||||||
Provision for restructuring costs |
| 116 | ||||||
Contingent consideration (note 5) |
3,771 | 3,473 | ||||||
Derivative warrant liability (note 6) |
6,961 | 11,235 | ||||||
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15,405 | 18,507 | |||||||
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Shareholders equity |
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Share capital |
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Common shares (note 7) |
261,645 | 259,712 | ||||||
Warrants (note 7) |
1,297 | 1,804 | ||||||
Contributed surplus |
15,091 | 12,306 | ||||||
Accumulated other comprehensive loss |
(805 | ) | (805 | ) | ||||
Deficit |
(253,690 | ) | (239,146 | ) | ||||
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Total shareholders equity |
23,538 | 33,871 | ||||||
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Total liabilities and shareholders equity |
38,943 | 52,378 | ||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(Expressed in thousands of U.S. dollars, except per share data)
Three months ended | Nine months ended | |||||||||||||||
September 30, 2015 $ |
September 30, 2014 $ (restated-note 2) |
September 30, 2015 $ |
September 30, 2014 $ (restated-note 2) |
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Revenue |
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Licensing revenue |
29 | 29 | 88 | 88 | ||||||||||||
Research and development revenue |
25 | 25 | 75 | 75 | ||||||||||||
Contract services |
3 | 18 | 15 | 47 | ||||||||||||
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57 | 72 | 178 | 210 | |||||||||||||
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Expenses |
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Research and development |
4,670 | 2,433 | 12,330 | 6,020 | ||||||||||||
Corporate, administration and business development |
1,380 | 1,405 | 4,699 | 5,491 | ||||||||||||
Amortization of acquired intellectual property and other intangible assets |
429 | 359 | 1,179 | 1,077 | ||||||||||||
Amortization of property and equipment |
5 | 14 | 16 | 34 | ||||||||||||
Contract services |
1 | 11 | 10 | 29 | ||||||||||||
Restructuring costs |
| 60 | | 1,032 | ||||||||||||
Other expense (income) (note 8) |
(55 | ) | (1,690 | ) | 126 | (1,745 | ) | |||||||||
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6,430 | 2,592 | 18,360 | 11,938 | |||||||||||||
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Net loss before gain (loss) on derivative warrant liability |
(6,373 | ) | (2,520 | ) | (18,182 | ) | (11,728 | ) | ||||||||
Gain (loss) on derivative warrant liability (notes 2 and 6) |
1,163 | 5,268 | 3,638 | (1,333 | ) | |||||||||||
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Net income (loss) for the period |
(5,210 | ) | 2,748 | (14,544 | ) | (13,061 | ) | |||||||||
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Other comprehensive income (loss) |
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Translation adjustment which will not be reclassified subsequently to loss |
| | | (605 | ) | |||||||||||
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Comprehensive income (loss) for the period |
(5,210 | ) | 2,748 | (14,544 | ) | (13,666 | ) | |||||||||
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Income (loss) per share (note 9) |
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Basic income (loss) per common share |
(0.16 | ) | 0.09 | (0.45 | ) | (0.46 | ) | |||||||||
Diluted income (loss) per common share |
(0.16 | ) | 0.08 | (0.45 | ) | (0.46 | ) | |||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
2
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(Expressed in thousands of U.S. dollars)
Common $ |
Warrants $ |
Contributed surplus $ |
Accumulated $ |
Deficit $ |
Shareholders Equity $ |
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Balance January 1, 2015 |
259,712 | 1,804 | 12,306 | (805 | ) | (239,146 | ) | 33,871 | ||||||||||||||||
Exercise of warrants (note 7) |
1,020 | (335 | ) | | | | 685 | |||||||||||||||||
Exercise of cashless warrants |
636 | | | | | 636 | ||||||||||||||||||
Expiry of warrants |
| (172 | ) | 172 | | | | |||||||||||||||||
Exercise of stock options (note 7) |
277 | | (123 | ) | | | 154 | |||||||||||||||||
Stock-based compensation |
| | 2,736 | | | 2,736 | ||||||||||||||||||
Net loss for the period |
| | | | (14,544 | ) | (14,544 | ) | ||||||||||||||||
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Balance September 30, 2015 |
261,645 | 1,297 | 15,091 | (805 | ) | (253,690 | ) | 23,538 | ||||||||||||||||
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Balance January 1, 2014 |
220,908 | 2,256 | 10,074 | (200 | ) | (219,725 | ) | 13,313 | ||||||||||||||||
Comprehensive loss for the period |
| | | (605 | ) | | (605 | ) | ||||||||||||||||
Issue of units (note 7) |
40,059 | | | | | 40,059 | ||||||||||||||||||
Share issue costs (note 7) |
(2,844 | ) | | | | | (2,844 | ) | ||||||||||||||||
Exercise of warrants (note 7) |
885 | (244 | ) | | | | 641 | |||||||||||||||||
Stock-based compensation |
| | 2,019 | | | 2,019 | ||||||||||||||||||
Net loss for the period |
| | | | (13,061 | ) | (13,061 | ) | ||||||||||||||||
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Balance September 30, 2014 |
259,008 | 2,012 | 12,093 | (805 | ) | (232,786 | ) | 39,522 | ||||||||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
3
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Statements of Cash Flow
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(Expressed in thousands of U.S. dollars)
Three months ended | Nine months ended | |||||||||||||||
September 30, 2015 $ |
September 30, 2014 $ (restated-note 2) |
September 30, 2015 $ |
September 30, 2014 $ (restated-note 2) |
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Cash flow provided by (used in) |
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Operating activities |
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Net income (loss) for the period |
(5,210 | ) | 2,748 | (14,544 | ) | (13,061 | ) | |||||||||
Adjustments for: |
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Amortization of deferred revenue |
(54 | ) | (54 | ) | (163 | ) | (163 | ) | ||||||||
Amortization of property and equipment |
5 | 14 | 16 | 34 | ||||||||||||
Amortization of acquired intellectual property and other intangible assets |
429 | 359 | 1,179 | 1,077 | ||||||||||||
Change in valuation of short-term investment |
(7 | ) | | (18 | ) | | ||||||||||
Revaluation of contingent consideration |
25 | 105 | 298 | 743 | ||||||||||||
Loss (gain) on derivative warrant liability |
(1,163 | ) | (5,268 | ) | (3,638 | ) | 1,333 | |||||||||
Gain on warrant liability |
| (1,750 | ) | | (2,834 | ) | ||||||||||
Stock-based compensation |
679 | 286 | 2,736 | 2,019 | ||||||||||||
Change in provision for restructuring costs |
(39 | ) | 33 | (116 | ) | 310 | ||||||||||
Share issue costs allocated to warrant liability |
| | | 203 | ||||||||||||
Gain on disposal of property and equipment |
| (2 | ) | | (3 | ) | ||||||||||
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(5,335 | ) | (3,529 | ) | (14,250 | ) | (10,342 | ) | |||||||||
Net change in other operating assets and liabilities (note 11) |
137 | (495 | ) | 1,322 | (3,218 | ) | ||||||||||
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Net cash used in operating activities |
(5,198 | ) | (4,024 | ) | (12,928 | ) | (13,560 | ) | ||||||||
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Investing activities |
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Purchase of short-term investment |
(9,984 | ) | (9,994 | ) | (19,983 | ) | (9,994 | ) | ||||||||
Proceeds on maturity of short-term investment |
10,010 | | 20,010 | | ||||||||||||
Purchase of equipment |
| (7 | ) | (6 | ) | (51 | ) | |||||||||
Proceeds on disposal of property and equipment |
| 2 | | 3 | ||||||||||||
Capitalized patent costs |
(18 | ) | (14 | ) | (44 | ) | (18 | ) | ||||||||
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Net cash generated from (used in) investing activities |
8 | (10,013 | ) | (23 | ) | (10,060 | ) | |||||||||
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Financing activities |
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Proceeds from exercise of warrants |
| 477 | 685 | 641 | ||||||||||||
Proceeds from exercise of stock options |
56 | | 154 | | ||||||||||||
Proceeds from issuance of units |
| | | 52,000 | ||||||||||||
Share issue costs related to issuance of units |
| | | (3,693 | ) | |||||||||||
Payment of financing milestone to ILJIN |
| | | (1,600 | ) | |||||||||||
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Net cash generated from financing activities |
56 | 477 | 839 | 47,348 | ||||||||||||
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Effect of exchange rate adjustment on cash and cash equivalents |
| | | (16 | ) | |||||||||||
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Increase (decrease) in cash and cash equivalents |
(5,134 | ) | (13,560 | ) | (12,112 | ) | 23,712 | |||||||||
Cash and cash equivalents beginning of period |
15,728 | 39,093 | 22,706 | 1,821 | ||||||||||||
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Cash and cash equivalents end of period |
10,594 | 25,533 | 10,594 | 25,533 | ||||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
1. | Corporate information |
Aurinia Pharmaceuticals Inc. or the Company is a clinical stage pharmaceutical company with its head office located at #1203-4464 Markham Street, Victoria, British Columbia V8Z 7X8 where clinical, regulatory and business development functions of the Company are conducted. The Company has its registered office located at #201, 17904-105 Avenue, Edmonton, Alberta T5S 2H5 where the finance function is performed.
Aurinia Pharmaceuticals Inc. is organized pursuant to the Business Corporations Act (Alberta). The Companys common shares are currently listed and traded on the NASDAQ Global Market (NASDAQ) under the symbol AUPH and on the Toronto Stock Exchange (TSX) under the symbol AUP. The Companys primary business is the development of a therapeutic drug to treat autoimmune diseases, in particular lupus nephritis.
These interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Aurinia Pharma Corp., Aurinia Pharmaceuticals, Inc. (Delaware incorporated) and Aurinia Pharma Limited (UK incorporated).
These interim condensed consolidated financial statements were authorized for issue by the audit committee of the Board of Directors on November 12, 2015.
2. | Revision of prior period comparatives for correction of accounting for warrants |
As described in note 6, the Offering completed by the Company on February 14, 2014, resulted in the issuance of 4,729,843 warrants, exercisable for a period of five years from the date of issuance at an exercise price of $3.22 per warrant. The holders of the warrants may elect, in lieu of exercising the warrants for cash, a cashless exercise option to receive common shares equal to the fair value of the warrants based on the number of warrants to be exercised multiplied by a five day weighted average market price less the exercise price, with the difference divided by the weighted average market price. If a warrant holder exercises this option, there will be variability in the number of shares issued per warrant.
A review of the application of IFRS to these previously issued warrants has resulted in a revision of prior period comparatives for restatement of our previous accounting for the warrants.
In accordance with IFRS, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the statement of operations and comprehensive loss at each period end. The derivative liability will ultimately be converted to the Companys equity (common shares) when the warrants are exercised, or will be extinguished upon the expiry of the outstanding warrants, and will not result in the outlay of any cash by the Company.
In the original accounting determination, the estimated fair value of the warrants was recorded in equity at $10,418,000, offset by an allocation of issuance costs of $739,000. At initial recognition the Company should have recorded the estimated fair value of the warrants as a derivative warrant liability at $9,107,000, with allocated issuance costs of $646,000 recognized as other expense. In addition, at March 31, 2014, based on the trading price of the Companys shares at that time, the Company should have adjusted the estimated fair value of the derivative warrant liability to $8,045,000, resulting in a gain on revaluation of derivative warrant liability in the statement of comprehensive income (loss) for the three months ended March 31, 2014 of $1,062,000. At June 30, 2014, based on the trading price of the Companys shares at that time, the Company should have adjusted the estimated fair value of the derivative warrant liability to $15,062,000, resulting in a loss on revaluation of derivative warrant liability of $7,017,000 in the statement of comprehensive income (loss) for the three months ended June 30, 2014. At September 30, 2014, based on the trading price of the Companys shares at that time, the Company should have adjusted the estimated fair value of the derivative warrant liability to $9,794,000, resulting in a gain on revaluation of derivative warrant liability of $5,268,000 in the statement of comprehensive income (loss) for the three months ended September 30, 2014.
There was no impact on cash from operating, financing or investing activities.
5
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
The following table illustrates the impact of the correction for the three and nine months ended September 30, 2014:
Balance Sheet:
As at September 30, 2014 | ||||||||||||
As previously $ |
Adjustment $ |
As revised $ |
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Derivative warrant liability |
| 9,794 | 9,794 | |||||||||
Equity |
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Common shares |
257,790 | 1,218 | 259,008 | |||||||||
Warrants |
11,691 | (9,679 | ) | 2,012 | ||||||||
Deficit |
(231,453 | ) | (1,333 | ) | (232,786 | ) |
Comprehensive loss:
Three months ended September 30, 2014 | Nine months ended September 30, 2014 | |||||||||||||||||||||||
As $ |
Adjustment $ |
As revised $ |
As $ |
Adjustment $ |
As revised $ |
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Gain (loss) on revaluation of derivative warrant liability |
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Revaluation adjustment on derivative warrant liability |
| 5,268 | 5,268 | | (687 | ) | (687 | ) | ||||||||||||||||
Share issue costs allocated to derivative warrant liability |
| | | | (646 | ) | (646 | ) | ||||||||||||||||
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| 5,268 | 5,268 | | (1,333 | ) | (1,333 | ) | |||||||||||||||||
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Comprehensive income (loss) |
(2,520 | ) | 5,268 | 2,748 | (12,333 | ) | (1,333 | ) | (13,666 | ) | ||||||||||||||
Basic income (loss) per common share |
(0.08 | ) | 0.17 | 0.09 | (0.41 | ) | (0.05 | ) | (0.46 | ) | ||||||||||||||
Diluted income (loss) per common share |
(0.08 | ) | 0.16 | 0.08 | (0.41 | ) | (0.05 | ) | (0.46 | ) |
3. | Basis of presentation |
These interim condensed consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), as applicable to interim financial reports including IAS 34, Interim Financial Reporting, and should be read in conjunction with the annual restated financial statements of the Company for the year ended December 31, 2014 which have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (IASB).
4. | Short term investment |
The short-term investment, which is recorded initially at fair value and subsequently at amortized cost, using the effective interest method, is a HSBC Bank US denominated discount note with amortized cost of $9,989,000 and initial cost of $9,984,000. The note is due February 10, 2016 and has an effective interest rate of 0.311%.
5. | Contingent consideration |
The Company has recorded the fair value of contingent consideration payable to ILJIN Life Science Co., Ltd. (ILJIN) resulting from the Arrangement Agreement completed on September 20, 2013 between the Company, Aurinia Pharma Corp. and ILJIN.
Contingent consideration includes potential payments of up to $10,000,000 to be paid in five equal tranches according to the achievement of pre-defined clinical and marketing milestones.
The fair value of this portion of contingent consideration at September 30, 2015 was estimated to be $3,771,000 (December 31, 2014 - $3,473,000) and was determined by applying the income approach. The fair value estimates at September 30, 2015 were based on a discount rate of 10% and an assumed probability-adjusted payment range between 35% and 70%. This is a level 3 recurring fair value measurement. There have been no significant changes in the assumptions since December 31, 2014.
6
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
6. | Derivative warrant liability |
On February 14, 2014, the Company completed a $52,000,000 private placement (the Offering). Under the terms of the Offering, the Company issued 18,919,404 units (the Units) at a subscription price per Unit of $2.7485, each Unit consisting of one common share and one-quarter (0.25) of a common share purchase warrant (a Warrant), exercisable for a period of five years from the date of issuance at an exercise price of $3.2204 per common share. The holders of the Warrants may elect, in lieu of exercising the Warrants for cash, a cashless exercise option to receive common shares equal to the fair value of the Warrants based on the number of Warrants to be exercised multiplied by a five day weighted average market price less the exercise price with the difference divided by the weighted average market price. If a Warrant holder exercises this option, there will be variability in the number of shares issued per Warrant.
In accordance with IFRS, a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the statement of operations and comprehensive loss at each period end. The derivative liability will ultimately be converted to the Companys equity (common shares) when the Warrants are exercised, or will be extinguished upon the expiry of the outstanding Warrants, and will not result in the outlay of any cash by the Company.
In the first quarter ended March 31, 2015, a holder of these Warrants elected this option and the Company issued 66,000 common shares upon the cashless exercise of 182,000 Warrants. These Warrants had a fair value of $636,000 at the date of exercise, determined using the Black-Scholes warrant pricing model. This amount was transferred from derivative warrant liability to common shares.
At September 30, 2015 the Company recorded a derivative warrant liability at $6,961,000 (September 30, 2014 - $9,794,000) which resulted in a gain on revaluation of derivative warrant liability for the three months ended September 30, 2015 of $1,163,000 related to the outstanding derivative liability warrants (September 30, 2014 - gain on revaluation of derivative warrant liability of $5,268,000).
The Company considers expected volatility of its common shares in estimating its future stock price volatility. The risk-free interest rate for the expected life of the Warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of the grant. The expected life is based upon the contractual term.
The Company uses the Black-Scholes option pricing model to estimate fair value. The following weighted average assumptions were used to estimate the fair value of the derivative warrant liability on September 30, 2015 and September 30, 2014:
September 30, 2015 |
September 30, 2014 |
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Annualized volatility |
84 | % | 85 | % | ||||
Risk-free interest rate |
0.95 | % | 1.48 | % | ||||
Expected life of warrants in years |
3.38 | 4.38 | ||||||
Dividend rate |
0.0 | % | 0.0 | % | ||||
Market price |
2.84 | 3.24 | ||||||
Fair value per Warrant |
1.53 | 2.07 |
This is a Level 3 recurring fair value measurement. The key level 3 inputs used by management to determine the fair value are the market price and the expected volatility. If the market price were to increase by a factor of 10% this would increase the obligation by approximately $982,000 at September 30, 2015. If the market price were to decrease by a factor of 10% this would decrease the obligation by approximately $956,000. If the volatility were to increase by 10%, this would increase the obligation by approximately $599,000. If the volatility were to decrease by 10%, this would decrease the obligation by approximately $636,000 at September 30, 2015.
7
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
The following table presents the changes in the derivative warrant liability categorized as Level 3:
# of Warrants (in thousands) |
$ | |||||||
Balance at January 1, 2015 |
4,730 | 11,235 | ||||||
Conversion to equity (common shares) upon exercise of warrants |
(182 | ) | (636 | ) | ||||
Loss on revaluation of derivative warrant liability |
| 2,927 | ||||||
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Balance at March 31, 2015 |
4,548 | 13,526 | ||||||
Gain on revaluation of derivative warrant liability |
| (5,402 | ) | |||||
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Balance at June 30, 2015 |
4,548 | 8,124 | ||||||
Gain on revaluation of derivative warrant liability |
| (1,163 | ) | |||||
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Balance at September 30, 2015 |
4,548 | 6,961 | ||||||
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Balance at January 1, 2014 |
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February 14, 2014 issuance of warrants |
4,730 | 9,107 | ||||||
Gain on revaluation of derivative warrant liability |
| (1,062 | ) | |||||
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Balance at March 31, 2014 |
4,730 | 8,045 | ||||||
Loss on revaluation of derivative warrant liability |
| 7,017 | ||||||
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Balance at June 30, 2014 |
4,730 | 15,062 | ||||||
Gain on revaluation of derivative warrant liability |
| (5,268 | ) | |||||
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Balance at September 30, 2014 |
4,730 | 9,794 | ||||||
|
|
|
|
7. | Share Capital |
(a) | Common shares |
Authorized
The Company is authorized to issue an unlimited number of common shares without par value.
Common Shares | ||||||||
Issued | # | $ | ||||||
(in thousands) | (restated- note 2) |
|||||||
Balance at January 1, 2015 |
31,818 | 259,712 | ||||||
Issued pursuant to exercise of stock options |
55 | 277 | ||||||
Issued pursuant to exercise of warrants |
348 | 1,020 | ||||||
Issued pursuant to exercise of derivative liability warrants |
66 | 636 | ||||||
|
|
|
|
|||||
Balance at September 30, 2015 |
32,287 | 261,645 | ||||||
|
|
|
|
|||||
Balance at January 1, 2014 |
12,375 | 220,908 | ||||||
Issued pursuant to February 14, 2014 Private Placement |
18,919 | 40,059 | ||||||
Share issue costs related to Private placement |
| (2,844 | ) | |||||
Issued pursuant to exercise of warrants |
283 | 885 | ||||||
|
|
|
|
|||||
Balance at September 30, 2014 |
31,577 | 259,008 | ||||||
|
|
|
|
8
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
(b) | Warrants |
Warrants | ||||||||
Issued | # | $ | ||||||
(in thousands) | (restated- note 2) |
|||||||
Balance at January 1, 2015 |
1,724 | 1,804 | ||||||
Warrants exercised |
(348 | ) | (335 | ) | ||||
Warrants expired |
(8 | ) | (172 | ) | ||||
|
|
|
|
|||||
Balance September 30, 2015 |
1,368 | 1,297 | ||||||
|
|
|
|
|||||
Balance at January 1, 2014 |
2,318 | 2,256 | ||||||
Warrants exercised |
(283 | ) | (244 | ) | ||||
|
|
|
|
|||||
Balance at September 30, 2014 |
2,035 | 2,012 | ||||||
|
|
|
|
The Company issued 348,000 common shares upon the exercise of 348,000 warrants for proceeds of $685,000. These warrants had a Black-Scholes calculated fair value of $335,000. This amount was transferred from warrants to common shares as a result of the exercise of the warrants.
Warrants outstanding at September 30, 2015
Expiry date: |
# (in thousands) |
Weighted average $ |
||||||
Exercisable in CDN$ |
||||||||
September 20, 2016 (CDN$2.25 and CDN$2.50) |
1,039 | 1.87 | ||||||
June 26, 2018 (CDN$2.25 and CDN$2.50) |
315 | 1.87 | ||||||
December 31, 2018 (CDN$2.00) |
14 | 1.50 | ||||||
|
|
|
|
|||||
1,368 | 1.86 | |||||||
Exercisable in US$ |
||||||||
February 14, 2019 (note 6) |
4,548 | 3.22 | ||||||
|
|
|
|
|||||
5,916 | 2.91 | |||||||
|
|
|
|
(c) | Stock options and compensation expense |
The maximum number of Common Shares issuable under the Stock Option Plan is equal to 10% of the issued and outstanding Common Shares at the time the Common Shares are reserved for issuance. As at September 30, 2015 there were 32,287,000 Common Shares of the Company issued and outstanding, resulting in a maximum of 3,229,000 stock options available for issuance under the Stock Option Plan. An aggregate total of 2,670,000 options are presently outstanding, representing 8.3% of the issued and outstanding Common Shares of the Company.
The Stock Option Plan requires the exercise price of each option to be determined by the Board of Directors and not to be less than the closing market price of the Companys stock on the day immediately prior to the date of grant. Any options which expire may be re-granted. The Board approves the vesting criteria and periods at its discretion. The options issued under the plan are accounted for as equity-settled share-based payments.
9
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
A summary of the status of the Companys stock option plan as of September 30, 2015 and 2014 and changes during the nine month periods ended on those dates is presented below:
September 30, 2015 |
September 30, 2014 |
|||||||||||||||
# | Weighted average exercise price In CDN$ |
# | Weighted average exercise price In CDN$ |
|||||||||||||
Outstanding Beginning of period |
1,376 | 3.68 | 276 | 5.04 | ||||||||||||
Granted |
1,391 | 4.33 | 1,192 | 3.50 | ||||||||||||
Expired |
| | (34 | ) | 7.50 | |||||||||||
Forfeited |
(42 | ) | 4.43 | (78 | ) | 4.06 | ||||||||||
Exercised |
(55 | ) | 3.50 | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Outstanding End of period |
2,670 | 4.01 | 1,356 | 3.68 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options exercisable End of period |
1,694 | 3.92 | 767 | 3.73 | ||||||||||||
|
|
|
|
|
|
|
|
On January 6, 2015, the Company granted 960,000 stock options to directors, officers and employees of the Company at a price of $3.59 (CDN$4.25) per common share. The options vest periodically over a period of one year. The options are exercisable for a term of five years.
On April 7, 2015 the Company granted 48,000 stock options to employees of the Company at a price of $4.15 (CDN$5.19) per common share. The options vest periodically over a period of one year. The options are exercisable for a term of five years.
On June 2, 2015, the Company granted 60,000 stock options to the new directors appointed at the Annual General Meeting of Shareholders held on May 26, 2015, at a price of $3.47 (CDN$4.31) per common share. The options vest periodically over a period of one year. The options are exercisable for a term of five years.
On August 17, 2015, the Company granted 323,000 stock options to certain officers and a new employee of the Company at a price of $3.40 (CDN$4.45) per common share. The options vest periodically over a period of one year. The options are exercisable for a term of five years.
The Company recognized stock-based compensation expense of $679,000 and $2,736,000 for the three and nine months ended September 30, 2015 respectively (2014 $286,000 and $2,019,000) with corresponding credits to contributed surplus. For the three and nine month periods ended September 30, 2015, stock compensation expense has been allocated to research and development expense in the amount of $140,000 and $773,000 respectively, (2014 $Nil and $Nil); corporate administration expense in the amount of $539,000 and $1,963,000 (2014 $286,000 and $1,766,000) and restructuring costs in the amount of $Nil and $Nil (2014 $Nil and $253,000).
The Company used the Black-Scholes option pricing model to estimate the fair value of the options granted to employees, officers and directors.
10
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
The following weighted average assumptions were used to estimate the fair value of the options granted during the nine month periods ended September 30, 2015 and 2014:
September 30, 2015 |
September 30, 2014 |
|||||||
Expected volatility |
85 | % | 85 | % | ||||
Risk-free interest rate |
0.93 | 1.74 | ||||||
Expected life of options in years |
3.9 | 7.1 | ||||||
Estimated forfeiture rate |
11.1 | % | 11.9 | % | ||||
Dividend rate |
0.0 | % | 0.0 | % | ||||
Exercise price |
3.56 | 3.19 | ||||||
Market price on date of grant |
3.56 | 3.19 | ||||||
Fair value per common share option |
2.16 | 2.39 |
The Company considers both historical volatility of its common shares and comparables in estimating its future stock price volatility. The risk-free interest rate was based on the yield available on government benchmark bonds at the time of the grant for the expected life of the options. The expected life is based upon the contractual term, taking into account expected employee exercise and expected post-vesting employment termination behaviour.
Determining the fair value of stock options on grant date, requires judgment related to the choice of a pricing model, the estimation of stock price volatility and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized to determine fair value could result in a significant impact on the Companys reported operating results, liabilities or other components of shareholders equity. The key assumption used by management is the stock price volatility. If the stock price volatility was higher by a factor of 10% on the options granted during the nine months ended September 30, 2015 this would have increased the stock compensation expense on options granted during this period by approximately $146,000. If the stock price volatility was lower by a factor of 10% on grant date this would have decreased the total stock compensation expense for the quarter by approximately $157,000.
8. | Other expense (income) |
Three months ended | Nine months ended | |||||||||||||||
September 30, 2015 $ |
September 30, 2014 $ (restated- note 2) |
September 30, 2015 $ |
September 30, 2014 $ (restated- note 2) |
|||||||||||||
Other expense (income) net composed of: |
||||||||||||||||
Finance income |
||||||||||||||||
Interest income on short-term bank deposits |
(11 | ) | (16 | ) | (40 | ) | (48 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Finance costs |
||||||||||||||||
Interest on drug supply loan |
| | | 30 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other |
||||||||||||||||
Revaluation adjustment on contingent consideration (note 5) |
25 | 105 | 298 | 743 | ||||||||||||
Foreign exchange loss (gain) |
(69 | ) | (27 | ) | (132 | ) | 164 | |||||||||
Share issue costs allocated to warrant liability |
| | | 203 | ||||||||||||
Gain on re-measurement of warrant liability |
| | | (646 | ) | |||||||||||
Gain on extinguishment of warrant liability |
| (1,750 | ) | | (2,188 | ) | ||||||||||
Gain on disposal of equipment |
| (2 | ) | | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
(44 | ) | (1,674 | ) | 166 | (1,727 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
(55 | ) | (1,690 | ) | 126 | (1,745 | ) | ||||||||||
|
|
|
|
|
|
|
|
11
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
9. | Net income (loss) per common share |
Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. In determining diluted net loss per common share, the weighted average number of common shares outstanding is adjusted for stock options and warrants eligible for exercise where the average market price of common shares for the three and nine months ended September 30, 2015 exceeds the exercise price. Common shares that could potentially dilute basic net loss per common share in the future that could be issued from the exercise of outstanding stock options and warrants were not included in the computation of the diluted loss per common share for the three and nine months ended September 30, 2015 and for the nine months ended September 30, 2014 because to do so would be anti-dilutive.
The numerator and denominator used in the calculation of historical basic and diluted net loss amounts per common share are as follows:
Three months ended | Nine months ended | |||||||||||||||
September 30, $ |
September 30, $ (restated- note 2) |
September 30, $ |
September 30, 2014 $ (restated- note 2) |
|||||||||||||
Net income (loss) for the period |
(5,210 | ) | 2,748 | (14,544 | ) | (13,061 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
# | # | # | # | |||||||||||||
In thousands | In thousands | In thousands | In thousands | |||||||||||||
Weighted average number of common shares for basic income (loss) per share |
32,278 | 31,516 | 31,970 | 28,726 | ||||||||||||
Dilutive effect of options |
| 114 | | | ||||||||||||
Dilutive effect of warrants |
| 1,619 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted weighted average number of common shares for diluted income (loss) per share |
32,278 | 33,249 | 31,970 | 28,726 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) per common share |
||||||||||||||||
Basic income (loss) per common share |
(0.16 | ) | 0.09 | (0.45 | ) | (0.46 | ) | |||||||||
Diluted income (loss) per common share |
(0.16 | ) | 0.08 | (0.45 | ) | (0.46 | ) | |||||||||
|
|
|
|
|
|
|
|
The outstanding number and type of securities that would potentially dilute basic loss per common share in the future and which were not included in the computation of diluted loss per share for the three and nine months ended September 30, 2015, and for the nine months ended September 30, 2014 because to do so would have reduced the loss per common share (anti-dilutive) for those periods presented, are as follows:
September 30, # |
September 30, # |
|||||||
In thousands | In thousands | |||||||
Stock options |
2,670 | 1,356 | ||||||
Warrants (derivative liability) |
4,548 | 4,730 | ||||||
Warrants (equity) |
1,368 | 2,035 | ||||||
|
|
|
|
|||||
8,586 | 8,121 | |||||||
|
|
|
|
12
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended September 30, 2015 and 2014
(amounts in tabular columns expressed in thousands of U.S. dollars)
10. | Segment disclosures |
The Companys operations comprise a single reporting segment engaged in the research, development and commercialization of therapeutic drugs. As the operations comprise a single reporting segment, amounts disclosed in the financial statements represent those of the single reporting unit. In addition, all of the Companys long-lived assets are located in Canada.
The following geographic area data reflects revenue based on customer location.
Geographic information
Three months ended | Nine months ended | |||||||||||||||
September 30, 2015 $ |
September 30, 2014 $ |
September 30, 2015 $ |
September 30, 2014 $ |
|||||||||||||
Revenue |
||||||||||||||||
Canada |
28 | 42 | 90 | 122 | ||||||||||||
China |
29 | 30 | 88 | 88 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
57 | 72 | 178 | 210 | |||||||||||||
|
|
|
|
|
|
|
|
11. | Supplementary cash flow information |
Net change in other operating assets and liabilities:
Three months ended | Nine months ended | |||||||||||||||
September 30, 2015 $ |
September 30, 2014 $ (restated- note 2) |
September 30, 2015 $ |
September 30, 2014 $ (restated- note 2) |
|||||||||||||
Accounts receivable |
30 | 64 | 37 | 52 | ||||||||||||
Prepaid expenses and deposits |
(159 | ) | (198 | ) | 132 | (1,581 | ) | |||||||||
Accounts payable and accrued liabilities |
266 | (361 | ) | 1,153 | (492 | ) | ||||||||||
Drug supply loan |
| | | (1,197 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
137 | (495 | ) | 1,322 | (3,218 | ) | |||||||||||
|
|
|
|
|
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|
|
#1203 4464 Markham Street
Victoria, BC V8Z 7X8
13