Acasti Pharma Inc. - Quarter Report: 2020 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                 

Commission file number: 001-35776

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Acasti Pharma Inc.

(Exact name of registrant as specified in its charter)

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3009 boul. de la Concorde East, Suite 102

Laval, Québec, Canada H7E 2B5

(Address of principal executive offices, including zip code)

450-686-4555

(Registrant’s telephone number, including area code)

______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes ☐    No  ☒

The number of outstanding common shares of the registrant, no par value per share, as of February 9, 2021 was 179,495,705.

ACASTI PHARMA INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended December 31, 2020

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains information that may be forward-looking information within the meaning of Canadian securities laws and forward-looking statements within the meaning of U.S. federal securities laws, both of which we refer to in this quarterly report as forward-looking information. Forward-looking information can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not statements about the present or historical facts. Forward-looking information in this quarterly report includes, among other things, information or statements about:

Although the forward-looking information in this quarterly report is based upon what we believe are reasonable assumptions, you should not place undue reliance on that forward-looking information since actual results may vary materially from it. Important assumptions made by us when making forward-looking statements include, among other things, assumptions by us that:

In addition, the forward-looking information in this quarterly report is subject to a number of known and unknown risks, uncertainties and other factors, including those described in this quarterly report under the heading “Item 1A. Risk Factors”, many of which are beyond our control, that could cause our actual results and developments to differ materially from those that are disclosed in or implied by the forward-looking information, including, among others:

All of the forward-looking information in this quarterly report is qualified by this cautionary statement. There can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the consequences or effects on our business, financial condition or results of operations that we anticipate. As a result, you should not place undue reliance on the forward-looking information. Except as required by applicable law, we do not undertake to update or amend any forward-looking information, whether as a result of new information, future events or otherwise. All forward-looking information is made as of the date of this quarterly report.

We express all amounts in this quarterly report in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” or “CAD$” are to Canadian dollars.

Except as otherwise indicated, references in this quarterly report to “Acasti,” “the Corporation,” “we,” “us” and “our” refer to Acasti Pharma Inc. and its consolidated subsidiaries.

PART I. FINANCIAL INFORMATION

Item 1: Financial Information

Unaudited Interim Condensed Consolidated Financial Statements

Interim Consolidated Condensed Financial Statements of
(Unaudited)

Acasti pharma inc.

Three-month and nine-month periods ended December 31, 2020 and 2019

Acasti pharma INC.

Condensed Consolidated Interim Balance sheet

(Unaudited)

See accompanying notes to unaudited Interim financial statements.

Acasti pharma INC.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

(Unaudited)

Three-month and nine-month periods ended December 31, 2020 and 2019

See accompanying notes to unaudited interim financial statements

Acasti pharma INC.

Condensed Consolidated Interim Statements of Changes in Shareholder’s Equity

(Unaudited)

Three-month and nine-month periods ended December 31, 2020 and 2019

Acasti pharma INC.

Condensed Consolidated Interim Statements of Changes in Shareholder’s Equity

(Unaudited)

Three-month and nine-month periods ended December 31, 2020 and 2019

See accompanying notes to unaudited interim financial statements.

Acasti pharma INC.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

Three-month and nine-month periods ended December 31, 2020 and 2019

See accompanying notes to unaudited interim financial statements.

Acasti Pharma inc.

Notes to Consolidated Interim Financial Statements

(Unaudited)

Three-month and nine-month periods ended December 31, 2020 and 2019

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

This management’s discussion and analysis, or MD&A, is presented in order to provide the reader with an overview of the financial results and changes to our balance sheet as at December 31, 2020 and for the three and nine-month periods then ended. This MD&A explains the material variations in our results of operations, balance sheet and cash flows for the three and nine-month periods ended December 31, 2020 and 2019.

Market data, and certain industry data and forecasts included in this MD&A, were obtained from internal corporation surveys and market research and those conducted by third parties hired by us, publicly available information, reports of governmental agencies and industry publications, and independent third party surveys. We have relied upon industry publications as our primary sources for third-party industry data and forecasts. Industry surveys, publications and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. We have not independently verified any of the data from third-party sources or the underlying economic assumptions they have made. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon our management’s or contracted third parties’ knowledge of our industry, have not been independently verified. Our estimates involve risks and uncertainties, including assumptions that may prove not to be accurate, and these estimates and certain industry data are subject to change based on various factors, including those discussed in our most recently filed annual report on Form 10-K.

This MD&A, approved by the Board of Directors on February 9, 2021, should be read in conjunction with our unaudited condensed interim consolidated financial statements for the three and nine-month periods ended December 31, 2020 and 2019 included in this quarterly report. Our interim financial statements were prepared in accordance with generally accepted accounting principles issued by the Financial Accounting Standards Board in the United States, or GAAP. Up to and including the third quarter ended December 31, 2019, we prepared our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board. The comparative information in our financial statements for the three and nine-months ended December 31, 2019, has been adjusted, as necessary, to be compliant with our accounting policies under GAAP. Our financial results are now published in United States dollars. Effective March 31, 2020, the reporting currency used in the consolidated financial statements changed from Canadian dollars to U.S. dollars. This change in reporting currency has been applied in the interim financial statements retrospectively such that all amounts expressed in our consolidated financial statements and the accompanying notes thereto are in U.S. dollars.

All amounts appearing in this MD&A for the period by period discussions are in thousands of U.S. dollars, except share and per share amounts or unless otherwise indicated.

Business Overview

We are a biopharmaceutical innovator that has historically focused on the research, development and commercialization of prescription drugs using OM3 fatty acids delivered both as free fatty acids and bound-to-phospholipid esters, derived from krill oil. OM3 fatty acids have extensive clinical evidence of safety and efficacy in lowering triglycerides in patients with hypertriglyceridemia, or HTG. Our lead product candidate is CaPre, an OM3 phospholipid therapeutic. As a result of disappointing results from our two TRILOGY phase 3 trials, the Corporation has determined that the best way forward for our shareholders is to consider its strategic options, including the sale of the business or other strategic transactions. Please refer to our most recently filed annual report on Form 10-K and our last quarterly report on Form 10-Q for a historical description of our business.

Recent Developments

TRILOGY 1 & 2 Topline Results

Our two Phase 3 clinical trials, designated as TRILOGY 1 &2 randomized a total of 242 and 278 patients respectively, and were designed to evaluate the efficacy, safety and tolerability of CaPre in patients with severe hypertriglyceridemia. The top-line results were announced on January 13, 2020 and August 31, 2020 respectively, and neither TRILOGY 1 nor TRILOGY 2 met their primary endpoint for lowering triglycerides.

As a result, we will not file a New Drug Application (NDA) with the U.S. Food and Drug Administration (FDA) for patients with severe hypertriglyceridemia, and we do not plan to conduct additional clinical trials for CaPre. CaPre was well tolerated in TRILOGY 2, with a safety profile similar to placebo, and consistent with our previously conducted Phase 2 and 3 studies.

Engaged Oppenheimer & Co. Inc. to Assist in Strategic Review

On September 29, 2020 we announced that we had commenced a formal process to explore and evaluate strategic alternatives to enhance shareholder value. Towards this end, we have engaged Oppenheimer & Co., Inc. as our financial advisor to assist in the process. There can be no assurance of a successful outcome from these efforts, or of the form or timing of any such outcome. We expect to devote significant time and resources to identifying and evaluating strategic alternatives; however, there can be no assurance that such activities will result in any agreements or transactions that will enhance shareholder value. We do not intend to make any further disclosures regarding the strategic review process unless and until a specific course of action is approved by our Board of Directors.

Reduction in Headcount and Discontinuation of Substantially all Commercial and R&D Activities

In September 2020 we initiated a plan to reduce personnel and expenses to preserve cash and further reduce our operations consistent with the decision to discontinue substantially all commercialization and research and development activities.

Retention Agreements

In connection with our strategic review process and upon the recommendation of our Governance and Human Resources Committee, in October 2020 we entered into retention incentive agreements with Ms. Jan D’Alvise, our President and Chief Executive Officer, and Mr. Pierre Lemieux, our Chief Operating Officer and Chief Scientific Officer (the “Retention Agreements”).

The Retention Agreements provide that we will pay Ms. D’Alvise an employment retention incentive of $100,000 provided that she remains employed with the Corporation until the earlier of April 30, 2021 or the closing of a merger or like transaction with a third party. This amount is also payable by the Corporation to Ms. D’Alvise in the event of the termination of her employment without cause prior to the achievement of such milestones.

In addition, the Retention Agreements also provide that we will pay each of Ms. D’Alvise and Mr. Lemieux an amount of up to $125,000 in the event that certain milestones are met in relation to the monetization by the Company of its assets relating to CaPre. A minimum amount of $75,000 is also payable by the Corporation to each of Ms. D’Alvise and Mr. Lemieux in the event of the termination of their employment without cause prior to the achievement of such milestones.

We also announce the departure of Mr. Brian Groch, our Chief Commercial Officer, from his position with the Corporation effective December 31, 2020.

COVID-19 Update

To date, the ongoing COVID-19 pandemic has not caused significant disruptions to our business operations and research and development activities. However, in light of our intended evaluation of strategic alternatives, a continuation of the COVID-19 pandemic and any resulting volatility generally in the capital markets could adversely impact the outcome of our strategic process.

The extent to which the COVID-19 pandemic impacts our business and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions to contain the COVID-19 pandemic or treat its impact, among others. 

Basis of Presentation of the Financial Statements

Our consolidated financial statements, which include the accounts of our wholly owned subsidiary, Acasti Innovations AG, have been prepared in accordance with GAAP, and the rules and regulations of the U.S. Securities and Exchange Commission, or the SEC, related to interim reports filed on Form 10-Q. All intercompany transactions and balances are eliminated on consolidation.

The following summarizes the principal conditions or events relevant to the Corporation’s going concern assessment, which primarily considers the period of one year from the issuance date of these financial statements. The Corporation has incurred operating losses and negative cash flows from operations since its inception. Previously, there was uncertainty and risk regarding the Corporation’s ability to realize its assets and discharge its liabilities and commitments in the ordinary course of business. The Corporation has raised net proceeds of $24.8 million under the ATM program during the nine months ended December 31, 2020. The Corporations assets of $30.3 million as at December 31, 2020 include cash and cash equivalents and short-term investments totaling $27.9 million. The Corporation’s current liabilities total $2.3 million at December 31, 2020 and are comprised primarily of amounts due to or accrued for creditors. Due to the Corporations current liquidity profile substantial doubt regarding its ability to continue as a going concern has ceased.

Comparative Financial Information for the Three-Month and Nine-Month Periods Ended December 31, 2020 and 2019

¹ Working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by GAAP requirements, the results may not be comparable to similar measurements presented by other public companies. 

Statement of Net Loss

Results of Operations for the Three-Month and Nine-Month Periods Ended December 31, 2020 and 2019

The net loss of $3,220 or $0.03 per share for the three months ended December 31, 2020 decreased by $8,903 from the net loss of $12,123 or $0.14 per share for the three months ended December 31, 2019.

The reduction in net loss resulted primarily from net financial expenses decreasing by $4,720 to a loss of $1,256 for the three months ended December 31, 2020, as compared to net financial expenses of $5,977 for the three months ended December 31, 2019. This is due mostly to a decrease from the change in fair value of the derivative warrant liability as compared to the comparative fiscal quarter in 2019 caused by a proportionately higher decrease in the quarter over quarter closing share price partly offset by a reduction in the number of warrants outstanding due to exercises during the prior year.

In October 2020, the Corporation entered into an agreement with the Centre Integre Universitaire et des services sociaux de L’Estrie - Centre hospitalier Universitaire de Sherbrooke to start producing and selling viral transport medium tubes to be utilized in testing related to the Covid-19 pandemic.

In addition, a decrease in research and development expenses of $3,234 occurred as the TRILOGY Phase 3 clinical program for CaPre was winding down. General and administrative expenses decreased from the prior period, with the current period being impacted by lower legal and professional fees. Sales and marketing expenses also decreased as a result of the termination of CaPre commercialization activities due to the negative TRILOGY 2 Phase 3 clinical trial results.

The net loss of $14,032 or $0.15 per share for the nine months ended December 31, 2020 decreased by $28,096 from the net loss of $42,128 or $0.51 per share for the nine months ended December 31, 2019.

The decreased net loss resulted primarily from a net financial income of $87 for the nine months ended December 31, 2020 as compared to net financial expenses of $21,721 for the nine months ended December 31, 2019, due mostly to the change in fair value of the warrant derivative liability. In addition, a decrease in research and development expenses of $10,336 occurred as the TRILOGY Phase 3 clinical program for CaPre was winding down.

General and administrative expenses increased from the comparative period due to increased legal fees offset by the reversal of the estimated annual bonus accruals. Sales and marketing expenses also decreased by $1,025, as a result of the termination of any CaPre commercialization activities due to the negative TRILOGY 2 Phase 3 clinical trial results.

Furthermore, operational events related to the TRILOGY results resulted in increased loss related to the impairment of equipment and intangible assets amounting to $5,290.

Two separate derivative warrant liabilities are included in the statement of financial position as at December 31, 2020, and December 31, 2019. These derivative warrant liabilities stem from the financing transactions that took place in May 2018 and December 2017. The derivative warrant liabilities are re-measured to fair value at each reporting date using the Black-Scholes option pricing model. The valuations are mainly driven by the fluctuation in our share price resulting in an increased or decreased loss or gain related to the change in fair value of the warrant liabilities and increasing or decreasing the corresponding liability in the balance sheet.

Breakdown of Major Components of the Statement of Loss and Comprehensive Loss

Three-Months Ended December 31, 2020 Compared to the Three-Months Ended December 31, 2019

During the three months ended September 30, 2020, we released our TRILOGY 2 Phase 3 clinical study results for CaPre. TRILOGY 2 failed to meet the primary endpoint, and consequently we will not be filing a New Drug Application (NDA) with the U.S. Food and Drug Administration. We have significantly reduced our research and development and marketing activities to reduce operating expenses, while we continue to evaluate a range of strategic alternatives. As a result, research and development expenses before depreciation, amortization and stock-based compensation expense for the three months ended December 31, 2020 totaled $620 compared to $3,186 for the three months ended December 31, 2019. The net decrease was mainly attributable to a reduction in research contracts with the reduction in R&D activities as well as a reduction in headcount within the department.

General and administrative expenses totaled $931 before depreciation and stock-based compensation expense for the three-months ended December 31, 2020 and decreased by $262 from $1,193 for the three months ended December 31, 2019. This decrease is mostly a result of a $251 decrease related to legal and professional fees.

Sales and marketing expenses were $488 before stock-based compensation expense for the three months ended December 31, 2020 compared to $561 for the three months ended December 31, 2019. The decrease was mostly due to an increase in salaries related to severances associated to the reduction in headcount in the department of $118, offset by the reduction in professional fees and other sales activities of $192 as a result of an end to planned pre-launch marketing activities for CaPre.

Stock-based compensation expense decreased to a gain of $30 for the three-month period ended December 31, 2020, as compared to a loss of $611 for the three-month period ended December 31, 2019. The decrease in expense of $641 is due to forfeited options as well as the fact that no options have been granted in the current period.

The depreciation expense decreased by $110 for the three-month period ended December 31, 2020, as compared to $110 for the three-month period ended December 31, 2019. This is due to the impact of the equipment being classified as held for resale and no additional depreciation recognized.

Nine-Months Ended December 31, 2020 Compared to the Nine-Months Ended December 31, 2019

During the three months ended September 30, 2020, we released our TRILOGY 2 Phase 3 clinical study results for our lead product in development, CaPre. TRILOGY 2 failed to meet the primary endpoint, and consequently we will not be filing a New Drug Application (NDA) with the U.S. Food and Drug Administration. We have significantly reduced our research and development and marketing activities to reduce operating expenses, while we continue to evaluate a range of strategic opportunities. As a result, research and development expenses before depreciation, amortization and stock-based compensation expense for the nine-months ended December 31, 2020 totaled $2,500 compared to $11,987 for the nine-months ended December 31, 2019. The net decrease was mainly attributable to a reduction in R&D activities primarily for clinical research and regulatory contracts as well as a reduction in headcount within the department.

General and administrative expenses totaled $3,364 before depreciation and stock-based compensation expense for the nine-months ended December 31, 2020 and increased by $73 from $3,291 for the nine-months ended December 31, 2019. This increase was mainly attributable to a $100 increase associated with our insurance policies, as well as an increase of $206 in legal fees, which was offset by a $233 decrease in salaries related to a reversal in bonus amounts accrued.

Sales and marketing expenses were $1,083 before stock-based compensation expense for the nine-months ended December 31, 2020 compared to $1,902 for the nine-months ended December 31, 2019. The decrease was mostly due to an increase in salaries related to severances associated to the reduction in headcount in the department of $168, offset by the reduction in professional fees and other sales activities of $987 as a result of an end to planned pre-launch marketing activities for CaPre.

Stock-based compensation expense increased to $1,003 for the nine-month period ended December 31, 2020, as compared to $1,508 for the nine-month period ended December 31, 2019. The decrease in expense of $505 is due to forfeited options as well as the fact that no options have been granted in the current period.

The depreciation expense decreased by $129 for the nine-month period ended December 31, 2020, as compared to $1,449 for the nine-month period ended December 31, 2019. This is due to the impact of the decreased values of equipment and due to the impact of the equipment being classified as held for resale and no additional depreciation recognized.

Liquidity and Capital Resources

Share Capital Structure

Our authorized share capital consists of an unlimited number of Class A, Class B, Class C, Class D and Class E shares, without par value. Issued and outstanding fully paid shares, stock options, restricted shares units and warrants, were as follows for the periods ended:

Cash Flows and Financial Condition Between the Three and Nine-Months Ended December 31, 2020 and 2019

Summary

As at December 31, 2020, cash and cash equivalents totaled $26,546, a net increase of $6,779 compared to cash and cash equivalents totaling $19,767 at December 31, 2019.

Operating activities

During the three months ended December 31, 2020 and December 31, 2019, the Corporation’s operating activities used cash of $4,214 and $7,104, respectively, and during the nine-months periods ended December 31, 2020 and December 31, 2019, the Corporation’s operating activities used cash of $12,559 and $20,049, respectively further modified by changes in working capital, excluding cash.

Investing activities

During the three-months ended December 31, 2020, the Corporation’s investing activities used cash of $1,372, compared to cash used of $347 for the three months ended December 31, 2019. The increase in cash used of $1,025 is due to the increase in investments held and invested.

During the nine-months ended December 31, 2020, the Corporation’s investing activities used cash of $1,441, compared to providing cash of $8,537 for the nine-months ended December 31, 2019. The reduction in cash provided of $9,978 is due to the decrease in marketable securities held and invested.

Financing activities

During the three-months ended December 31, 2020, the Corporation’s financing activities provided cash totaling $19,745 due to proceeds from the sale of shares under the “at-the-market”, or ATM, program, compared to cash generated of $7,117 due to proceeds from the sale of shares under the “at-the-market” and the exercise of warrants during the three months ended December 31, 2019.

During the nine-months ended December 31, 2020, the Corporation’s financing activities provided cash totaling $24,812 due to proceeds from the sale of shares under the “at-the-market”, or ATM, program, compared to cash generated of $13,713 due to proceeds from the sale of shares under the “at-the-market” and due to the proceeds from due to exercise of warrants during the nine months ended December 31, 2019.

On June 29, 2020, we filed a registration statement on Form S-3 with the SEC to register up to US $200 million of common shares, warrants and units that may be offered and sold by us from time to time. The Registration Statement was declared effective by the SEC on July 7, 2020.

ATM program 

On February 14, 2019, the Corporation entered into an “at-the-market” (ATM) sales agreement with B. Riley FBR, Inc. (“B. Riley”) pursuant to which the common shares may be sold from time to time for aggregate gross proceeds of up to $30 million, with sales only being made on the NASDAQ Stock Market. The common shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 3-year term and requires the Corporation to pay between 3% and 4% commission to B. Riley based on volume of sales made. On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the Sales Agreement) with B. Riley, Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the existing ATM program. Under the terms of the Sales Agreement, the Corporation may issue and sell from time to time its common shares having an aggregate offering price of up to US $75,000,000 through the Agents. Subject to the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell the common shares from time to time, based upon the Corporation’s instructions. The Corporation has no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. The Corporation and the Agents may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Corporation has provided the Agents with customary indemnification rights and the Agents will be entitled to compensation, at a commission rate equal to 3.0% of the gross proceeds from each sale of the common shares.

During the nine-month period ended December 31, 2020, a total of 65.9 million common shares were sold for total net proceeds of approximately $24.8 million under the ATM program. Commission, legal and costs related to share sale amounted to $903. The shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.39 per share. Accordingly, proportional costs of $18 related to the common shares sold, have been reclassified from deferred financings costs to equity. Total costs incurred to register the Sales Agreements were initially recorded as deferred financing costs in the Consolidated Balance Sheet. During the nine-month period ended December 31, 2020, the remaining balance of the costs incurred of $264 were written off to financing expenses.

Financial Position

The following table details the significant changes to the statements of financial position as at December 31, 2020 compared to the prior fiscal year end at March 31, 2020:

See the statement of changes in equity in our financial statements for details of changes to the equity accounts during the three and nine-months periods ended December 31, 2020 and 2019.

Treasury Operations

Our treasury policy is to invest cash that is not required immediately into instruments with an investment strategy based on capital preservation. Cash equivalents and marketable securities are primarily made in guaranteed investment certificates, term deposits and high-interest savings accounts, which are issued and held with Canadian chartered banks, highly rated promissory notes issued by government bodies and commercial paper. We hold cash denominated in both U.S. and CAD dollars. Funds received in U.S. dollars from equity financings are invested as per our treasury policy in U.S. dollar investments and converted to CAD dollars as needed to fulfill operational requirements and funding.

Impairment loss Intangible assets:

We test intangible assets for impairment should circumstances change or events occur that would indicate that the fair value of an asset may be below its carrying value. During the second quarter of 2021, we released our Phase 3 clinical programs data and its failure to meet its primary endpoints, and the resulting decision to not file an NDA to obtain FDA approval for CaPre. Due to these indicators of impairment under ASC 350, the Corporation undertook an analysis to determine the fair value of its intangible asset this quarter.

In prior years, we entered into agreements with Neptune pursuant to which we obtained a license and exercised our option under this license agreement to pay in advance all of the future royalties payable to Neptune. This license allows us to exploit the intellectual property rights in order to develop novel active pharmaceutical ingredients into commercial products for the prescription drugs market. In assessing the magnitude of any impairment of the license, we considered all available evidence including (i) significant adverse impact from business climate due to Phase 3 clinical program’s failure to meet its primary endpoints, and the resulting decision to not file an NDA to obtain FDA approval for CaPre, and the resulting internal forecasts that no cash flows from the use of the license was possible, and (ii) management’s estimate that a market place participant would place minimal to no value on the license if it were to be sold on its own or in combination with other assets, recognized or not, which is a level 3 measurement in the fair value hierarchy which included unobservable inputs. Accordingly, an impairment loss of $3,706 was recognized for the three and nine-months ended December 31, 2020, which represents the totality of the intangible assets net book value prior to the impairment trigger.