Milestone Pharmaceuticals Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

☐	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: 001-38899

Milestone Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)

Québec		Not applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1111 Dr. Frederik-Philips Boulevard, Suite 420

Montréal, Québec CA H4M 2X6

(514) 336-0444

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Shares		MIST		The Nasdaq Stock Market LLC

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

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 Exchange Act). Yes ☐ No ☒

As of November 10^th, 2022, the registrant had 34,286,002 common shares, no par value per share, outstanding.

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		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		1

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Loss	4
	Condensed Consolidated Statements of Shareholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION	27

Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30

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“Milestone Pharmaceuticals” and the Milestone logo appearing in this Quarterly Report on Form 10-Q are unregistered trademarks of Milestone Pharmaceuticals Inc. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Quarterly Report on Form 10-Q may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.

This Quarterly Report on Form 10-Q contains references to United States dollars and Canadian dollars. All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars. References to “$” are to United States dollars and references to “C$” are to Canadian dollars.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "aim," "anticipate," "assume," "believe," "contemplate," "continue," "could," "design," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "positioned," "potential," "seek," "should," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:

●

the initiation, timing, progress and results of our current and future clinical trials of etripamil, including our Phase 3 clinical trials of etripamil for the treatment of paroxysmal supraventricular tachycardia, our Phase 2 clinical trial of etripamil for the treatment of atrial fibrillation with rapid ventricular rate, and of our research and development programs;

●

uncertain impacts that the COVID-19 pandemic may have on our business, strategy, clinical trial progress and research and development efforts;

●

our plans to develop and commercialize etripamil and any future product candidates;

●

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

●

our ability to develop and, if approved by regulatory authorities, commercialize etripamil in China and Taiwan through our license agreement with Ji Xing Pharmaceuticals;

●

our ability to establish collaborations or obtain additional funding;

●

our ability to obtain regulatory approval of our current and future product candidates;

●

our expectations regarding the potential market size and the rate and degree of market acceptance of etripamil and any future product candidates;

●

our ability to fund our working capital requirements and expectations regarding the sufficiency of our capital resources;

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●

the implementation of our business model and strategic plans for our business, etripamil and any future product candidates;

●

our intellectual property position and the duration of our patent rights;

●

developments or disputes concerning our intellectual property or other proprietary rights;

●

our expectations regarding government and third-party payer coverage and reimbursement;

●

our ability to compete in the markets we serve;

●

the impact of government laws and regulations;

●

developments relating to our competitors and our industry; and

●

other factors that may impact our financial results.

The foregoing list of risks is not exhaustive. Other sections of this Quarterly Report on Form 10-Q and the section titled "Risk Factors" previously disclosed in Part I, Item 1A. in our Annual Report on Form 10-K may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the section titled "Risk Factors" previously disclosed in Part I, Item 1A. in our Annual Report on Form 10-K, filed with the SEC and under Milestone’s SEDAR profile at www.sedar.com on March 24, 2022, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Milestone Pharmaceuticals Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands of US dollars, except share data)



	September 30, 2022		December 31, 2021
Assets

Current assets
Cash and cash equivalents	$	37,286	$	114,141
Short-term investments		39,947		—
Research and development tax credits receivable		195		356
Prepaid expenses		5,058		4,299
Other receivables		435		127
Total current assets		82,921		118,923
Operating lease assets		2,545		711
Property and equipment		303		215
Total assets	$	85,769	$	119,849

Liabilities, and Shareholders' Equity

Current liabilities
Accounts payable and accrued liabilities	$	6,035	$	6,551
Operating lease liabilities		487		224
Total current liabilities		6,522		6,775
Operating lease liabilities (net of current portion)		2,092		474
Total liabilities		8,614		7,249


Shareholders’ Equity
Common shares, no par value, unlimited shares authorized 30,388,109 shares issued and outstanding as of September 30, 2022, 29,897,559 shares issued and outstanding as of December 31, 2021		254,937		251,901
Pre-funded warrants - 12,327,780 issued and outstanding as of September 30, 2022 and 12,327,780 as of December 31, 2021		52,941		52,941
Additional paid-in capital		22,441		15,711
Cumulative translation adjustment		(1,634)		(1,634)
Accumulated deficit		(251,530)		(206,319)

Total shareholders’ equity		77,155		112,600

Total liabilities and shareholders’ equity	$	85,769	$	119,849

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Loss (Unaudited)

(in thousands of US dollars, except share and per share data)



	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

Revenue	$	1,500	$	—	$	1,500	$	15,000

Operating expenses
Research and development, net of tax credits		9,826		9,733		29,251		27,755
General and administrative		4,034		2,961		11,595		8,612
Commercial		2,670		1,579		6,537		4,788

Loss from operations		(15,030)		(14,273)		(45,883)		(26,155)

Interest income, net		474		48		672		186

Net loss	$	(14,556)	$	(14,225)	$	(45,211)	$	(25,969)

Weighted average number of shares and pre-funded warrants outstanding, basic and diluted		42,491,787		42,187,887		42,339,123		41,707,563

Net loss per share, basic and diluted	$	(0.34)	$	(0.34)	$	(1.07)	$	(0.62)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands of US dollars, except share data)



	Common Shares			Pre-funded warrants
	Number of shares	Amount		Number of warrants	Amount		Additional paid-in capital		Cumulative translation adjustment		Accumulated deficit		Total
Balance as of June 30, 2021	29,846,000	$	251,716	12,327,780	$	52,927	$	11,795	$	(1,634)	$	(175,210)	$	139,594
Transactions in three-month period ended September 30, 2021
Net income	—		—	—		—		—		—		(14,225)		(14,225)
Exercise of stock options	23,785		50	—		—		(26)		—		—		24
Share-based compensation	—		—	—		—		—		—		—		—
Private Placement	—		—	—		—		2,024		—		—		2,024
Issuance of common shares, net of issuance costs	—		—	—		—		—		—		—		—
Balance as of September 30, 2021	29,869,785	$	251,766	12,327,780	$	52,927	$	13,793	$	(1,634)	$	(189,435)	$	127,417

Balance as of June 30, 2022	30,005,884	$	252,236	12,327,780	$	52,941	$	20,090	$	(1,634)	$	(236,974)	$	86,659
Transactions in three-month period ended September 30, 2022
Net loss	—		—	—		—		—		—		(14,556)		(14,556)
Exercise of stock options	20,989		57	—		—		(29)		—		—		28
Private Placement	—		—	—		—		—		—		—		—
Share-based compensation	—		—	—		—		2,380		—		—		2,380
Issuance of common shares, net of issuance costs	361,236		2,644	—		—		—		—		—		2,644
Balance as of September 30, 2022	30,388,109	$	254,937	12,327,780	$	52,941	$	22,441	$	(1,634)	$	(251,530)	$	77,155


Balance as of December 31, 2020	29,827,997	$	251,682	11,417,034	$	48,007	$	8,530	$	(1,634)	$	(163,466)	$	143,119
Transactions in nine-month period ended September 30, 2021
Net loss	—		—	—		—		—		—		(25,969)		(25,969)
Exercise of stock options	41,788		84	—		—		(41)		—		—		43
Private Placement	—		—	910,746		4,920		—		—		—		4,920
Share-based compensation	—		—	—		—		5,304		—		—		5,304
Issuance of common shares, net of issuance costs	—		—	—		—		—		—		—		—
Balance as of September 30, 2021	29,869,785	$	251,766	12,327,780	$	52,927	$	13,793	$	(1,634)	$	(189,435)	$	127,417

Balance as of December 31, 2021	29,897,559	$	251,901	12,327,780	$	52,941	$	15,711	$	(1,634)	$	(206,319)	$	112,600
Transactions in nine-month period ended September 30, 2022
Net loss	—		—	—		—		—		—		(45,211)		(45,211)
Exercise of stock options	129,314		392	—		—		(175)		—		—		217
Share-based compensation	—		—	—		—		6,905		—		—		6,905
Issuance of common shares, net of issuance costs	361,236		2,644	—		—		—		—		—		2,644
Balance as of September 30, 2022	30,388,109	$	254,937	12,327,780	$	52,941	$	22,441	$	(1,634)	$	(251,530)	$	77,155

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands of US dollars)


	Nine months ended September 30,
	2022		2021
Cash flows used in operating activities
Net loss	$	(45,211)	$	(25,969)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment		74		70
Share-based compensation expense		6,905		5,304
Changes in operating assets and liabilities:
Other receivables		(308)		134
Research and development tax credits receivable		161		450
Prepaid expenses		(759)		(540)
Operating lease assets and liabilities		47		25
Accounts payable and accrued liabilities		(516)		(321)

Net cash used in operating activities		(39,607)		(20,847)

Cash provided by (used in) investing activities
Acquisition of PP&E		(162)		—
Acquisition of short-term investments		(62,947)		(15,000)
Redemption of short-term investments		23,000		70,000

Net cash provided by (used in) investing activities		(40,109)		55,000

Cash provided by financing activities
Issuance of common shares, net of issuance costs		2,644		—
Proceeds from exercise of options		217		43
Net Proceeds from issuance of pre-funded warrants in a private placement (note 6)		—		4,920

Cash provided by financing activities		2,861		4,963

Net decrease in cash and cash equivalents		(76,855)		39,116

Cash and cash equivalents – Beginning of period		114,141		72,310

Cash and cash equivalents – End of period	$	37,286	$	111,426

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

1 Organization and Nature of Operations

Milestone Pharmaceuticals Inc. (Milestone or the Company) is a biopharmaceutical company incorporated under the Business Corporations Act (Québec). Milestone is focused on the development and commercialization of cardiovascular medicines. Milestone’s lead product candidate, etripamil, is a novel, potent short-acting calcium channel blocker that the Company designed and is developing as a rapid-onset nasal spray to be administered by patients. The Company is developing etripamil to treat paroxysmal supraventricular tachycardia, atrial fibrillation, and other cardiovascular indications.

2 Summary of Significant Accounting Policies

a) Basis of Consolidation

The consolidated financial statements include the accounts of the Company and Milestone Pharmaceuticals USA, Inc. All intercompany transactions and balances have been eliminated.

b) Basis of Presentation and Use of Accounting Estimates and Significant Accounting Policies

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and on a basis consistent with those accounting principles followed by the Company and disclosed in Note 2 of its most recent annual consolidated financial statements. Certain information, in particular the accompanying notes normally included in the annual financial statements prepared in accordance with US GAAP have been omitted or condensed. Accordingly, the unaudited interim condensed consolidated financial statements do not include all the information required for full annual financial statements, and therefore, should be read in conjunction with the annual consolidated financial statements and the notes thereto for the year ended December 31, 2021.

In the opinion of the Company's management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its balance sheet as of September 30, 2022, and its statements of loss, shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 and its statement of cash flows for the nine months ended September 30, 2022 and 2021.

The condensed consolidated balance sheet as of December 31, 2021, was derived from audited annual consolidated financial statements, but does not contain all the footnote disclosures required by accounting principles generally accepted in the United States of America.

These unaudited interim condensed consolidated financial statements are presented in US dollars, which is the Company’s functional currency.

The preparation of unaudited interim condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to,

●

Estimates of the percentage of work completed of the total work over the life of an individual clinical trial in accordance with agreements established with contracted research organizations (“CRO”), contracted

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

manufacturing organizations (“CMO”) and clinical trial sites which in turn impact the research & development expenses.

●

Estimate of the grant date fair value share options granted to employees, consultants and directors, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model.

c) Significant Risks and Uncertainties

The ongoing COVID-19 pandemic has had an impact on the Company’s business, operations and clinical development timelines. The pandemic has resulted in many state, local and foreign governments implementing and making adjustments to various orders and restrictions in order to control the spread of the disease, which have impacted patient recruitment, enrollment and follow-up visits at clinical sites The Company will continue to evaluate the COVID-19 pandemic impact on the development timelines of its clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s unaudited interim condensed consolidated financial statements.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidate; delays or problems in the supply of its study drug or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing its intellectual property rights; and complying with applicable regulatory requirements.

d) Recent Accounting Pronouncements

The Company has considered recent accounting pronouncements and concluded that they are either not applicable to the business or that the effect is not expected to be material to the unaudited condensed consolidated financial statements as a result of future adoption.

e) Sources of Liquidity and Funding Requirements

The Company incurred operating losses and has experienced negative operating cash flows since its inception and anticipates to continue to incur losses for at least the next several years. As of September 30, 2022, the Company had cash, cash equivalents and short-term investments of $77.2 million and an accumulated deficit of $251.5 million. Management has evaluated the Company’s current operating plan against our existing cash and cash equivalents and determined that we expect to be able to support our ongoing operations through 2023.

3 Revenues

We generated revenue of $1.5 million from milestone payments under the License Agreement for the three months and nine months ended September 30, 2022 compared to no revenue in the three months ended September 30, 2021 and revenue of $15 million from upfront payments under the License Agreement during the nine months ended September 30, 2021.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

4 Short-term Investments

Short term investments are classified as held-to-maturity, are initially recognized at fair value and are subsequently accounted for at amortized cost. They are comprised of guaranteed investment certificates with a maturity greater than 90 days but less than one year and, as such, are classified as current assets.

5 Leases

On May 20, 2022, the Company entered into a new lease arrangement for a 62-month term for new office space located in Charlotte, NC. The Company recognized the operating lease right-of-use asset and operating lease liabilities at the lease commencement date on August 1, 2022. The interest rate implicit in lease contracts is not readily determinable and the Company does not have a public credit rating and carries no debt. As such, several factors were considered in the determination of the Company’s incremental borrowing rate used in determining the present value of lease payments. The Company’s examined credit ratings for similar companies, assumed equivalency between the Canadian and U.S. markets for collateralized debt and used rates near the 62-month period. This resulted in an incremental borrowing rate of 7.55%. Lease expenses are recognized on a straight-line basis over the lease term, which is accomplished by increasing the amortization of the right-of-use asset as interest expense on the lease liability declines over the lease term.

6 Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are comprised of the following:


	September 30, 2022		December 31, 2021
Trade accounts payable	$	2,853	$	4,384
Accrued compensation and benefits payable		1,851		1,458
Accrued research and development liabilities		571		272
Other accrued liabilities		760		437
Total	$	6,035	$	6,551

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

7 Shareholders’ Equity

Authorized Share Capital

The Company has authorized and issued common shares, voting and participating, without par value, of which unlimited shares were authorized and 30,388,109 shares were issued and outstanding as of September 30, 2022.

As of September 30, 2022, there were 1,121,076 common shares available for issuance under the Employee Stock Purchase Plan (“ESPP”) and no common shares have been issued under such plan.

In August 2022, the Company issued and sold 361,236 common shares under the Open Market Sale Agreement^SM, or the Sales Agreement, with Jefferies LLC with respect to an at-the-market offering program, or the ATM Program, for proceeds of $2.6 million (net of issuance costs of $0.1 million).

Additional Paid-in Capital

The additional paid-in capital balances were as follows:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Opening balance	$	20,090	$	11,795	$	15,711	$	8,530
Share-based compensation expense		2,380		2,024		6,905		5,304
Exercise of stock options		(29)		(26)		(175)		(41)
Closing balance	$	22,441	$	13,793	$	22,441	$	13,793

8 Share Based Compensation

Under the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) and the Company’s Stock Option Plan (the “2011 Plan”), unless otherwise decided by the Board of Directors, options vest and are exercisable as follows: 25% vest and are exercisable on the one year anniversary of the grant date and one thirty-sixth (1/36^th) of the remaining options vest and are exercisable each month thereafter, such that options are vested in full on four-year anniversary of the grant date.

On January 1, 2022, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,195,902 common shares. In addition, 125,127 options have been forfeited under the 2011 Plan since the adoption of the 2019 Plan and have become available for issuance under the 2019 Plan. As of September 30, 2022, there were 5,811,310 common shares available for issuance under the 2019 Plan, of which 664,726 common shares were available for future grants.

On November 10, 2021, the Company established a 2021 Inducement Plan through the granting of awards. This 2021 Inducement Plan is intended to help the Company provide an inducement material for certain individuals to enter into employment with the Company, incentives for such persons to exert maximum efforts for the success of the Company and provide a means by which employees may benefit from increases in value of the common shares. There were 523,000 options granted and outstanding under the 2021 Inducement Plan during the nine-month period ended September 30, 2022. The options were granted at a weighted average exercise price of $6.37.

On July 15, 2022, the Company offered an ESPP, in which participation is available to substantially all of our employees in the United States and Canada who meet certain service eligibility requirements. As of September 30, 2022, the Company has 1,121,076 common shares available under the ESPP with no common shares issued under this plan.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

The total outstanding and exercisable options from the 2011 Plan, 2019 Plan and Inducement Plan as of September 30 were as follows:


	2022
							Weighted
	Number						average
	of shares						exercise
	2019 Plan		Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan	$	—	—	$	1,995,971	1,995,971	$	2.07
Outstanding at beginning of year - 2019 Plan		3,759,834	—		—	3,759,834		9.51
Granted - 2019 Plan		1,748,700	—		—	1,748,700		5.78
Granted - Inducement Plan		—	523,000		—	523,000		6.37
Expired - 2011 Plan		—	—		(1,121)	(1,121)		0.96
Exercised - 2011 Plan		—	—		(114,225)	(114,225)		1.38
Exercised - 2019 Plan		(15,089)	—		—	(15,089)		3.92
Forfeited - 2019 Plan		—	—		—	—		8.56
Cancelled - 2011 Plan		—	—		(19,387)	(19,387)		9.42
Cancelled - 2019 Plan		(17,950)	—		—	(17,950)		14.31
Outstanding at end of period	$	5,475,495	523,000		1,861,238	7,859,733	$	6.70
Outstanding at end of period - Weighted average exercise price	$	8.32	6.37	$	2.04
Exercisable at end of period		2,219,125	—		1,831,482	4,050,607	$	6.28
Exercisable at end of period - Weighted average exercise price	$	9.79	—	$	2.01


	2021
							Weighted
	Number						average
	of shares						exercise
	2019 Plan		Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan	$	—	—	$	2,080,097	2,080,097	$	2.15
Outstanding at beginning of year - 2019 Plan		1,706,190	—		—	1,706,190		13.55
Granted - 2019 Plan		2,065,200	—		—	2,065,200		6.24
Forefeited - 2019 Plan		(13,882)	—		—	(13,882)		12.81
Cancelled - 2019 Plan		(1,167)	—		—	(1,167)		21.48
Exercised - 2011 Plan		—	—		(40,538)	(40,538)		0.97
Exercised - 2019 Plan		(1,250)	—		—	(1,250)		3.74
Outstanding at end of period		3,755,091	—		2,039,559	5,794,650	$	6.94
Outstanding at end of period - Weighted average exercise price	$	9.53	—	$	2.18
Exercisable at end of period		938,433	—		1,764,146	2,702,579	$	5.39
Exercisable at end of period - Weighted average exercise price	$	11.61	—	$	2.08

The weighted average remaining contractual life was 7.8 and 8.0 years for outstanding options as of September 30, 2022 and 2021, respectively. The weighted average remaining contractual life was 6.7 and 6.9 years for vested options, as of September 30, 2022 and 2021, respectively.

There was $18.6 million and $17.3 million total unrecognized compensation cost related to non-vested share options as of September 30, 2022 and 2021, respectively. The share options are expected to be recognized over a remaining weighted average vesting period of 2.5 years and 2.6 years as of September 30, 2022 and 2021, respectively.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

Options granted are valued using the Black-Scholes option pricing model. Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ equity.

The non-vested options as of September 30 were as follows:


	2022
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		200,639	200,639	$	1.86
Non-vested share options at beginning of year - 2019 Plan		2,665,518		—		—	2,665,518		6.39
Granted - 2019 Plan		1,748,700		—		—	1,748,700		4.37
Granted - Inducement Plan		—		523,000		—	523,000		4.81
Vested, outstanding 2011 Plan		—		—		(170,883)	(170,883)		1.76
Vested, outstanding 2019 Plan		(1,149,117)		—		—	(1,149,117)		5.99
Forfeited - 2019 Plan		(8,731)		—		—	(8,731)		6.27
Non-vested share options at end of period		3,256,370		523,000		29,756	3,809,126	$	5.34
Non-vested share options at end of period - Weighted average fair value	$	5.45	$	—	$	2.44


	2021
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		543,192	543,192	$	1.81
Non-vested share options at beginning of year - 2019 Plan		1,438,026		—		—	1,438,026		10.28
Granted - 2019 Plan		2,065,200		—		—	2,065,200		4.71
Vested, outstanding 2011 Plan		—		—		(267,789)	(267,789)		1.64
Forfeited - 2019 Plan		(13,882)		—			(13,882)		9.18
Vested, outstanding 2019 Plan		(672,686)		—		—	(672,686)		9.17
Non-vested share options at end of period		2,816,658		—		275,403	3,092,061	$	6.07
Non-vested share options at end of period - Weighted average fair value	$	6.47	$	—	$	1.98

There were 523,000 options granted, outstanding and non-vested under the 2021 Inducement Plan during the nine month period ended September 30, 2022. The options were granted at a weighted average fair value price of $4.81.

The fair value of share-based payment transaction is measured using Black-Scholes valuation model. This model also requires assumptions, including expected option life, volatility, risk-free interest rate and dividend yield, which greatly affect the calculated values.

The fair value of options granted for the 2011 Plan, 2019 Plan and 2021 Inducement Plan were estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for the options granted:


	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Exercise price	$	6.94		$	5.96		$	5.91		$	6.24
Share price	$	6.94		$	5.96		$	5.91		$	6.24
Volatility		93	%		94	%		91	%		94	%
Risk-free interest rate		2.94	%		0.94	%		2.41	%		1.04	%
Expected life		5.75			6.08			6.03			6.01
Dividend		0	%		—	%		0	%		0	%

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For The Nine Months Ended September 30, 2022 and 2021 (Unaudited)

(in thousands of US dollars, except where noted and for share and per share data)

Expected volatility is determined using comparable companies for which the information is publicly available. The risk-free interest rate is determined based on the U.S. sovereign rates benchmark in effect at the time of grant with a remaining term equal to the expected life of the option. Expected option life is determined based on the simplified method as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The simplified method is an average of the contractual term of the options and its ordinary vesting period. Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

The Company recognized share-based compensation expense as follows:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Administration	$	1,891	$	863	$	3,683	$	2,186
Research and development		349		821		2,302		2,226
Commercial activities		140		340		920		892
Total	$	2,380	$	2,024	$	6,905	$	5,304

9 Net Loss Per Share

Basic net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and pre-funded warrants outstanding during the period.

For the nine months ended September 30, 2022 and 2021, the Company was in a net loss position. Dilutive net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares and shares issuable upon exercise of pre-funded warrants outstanding during the period. The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of September 30, as they would be anti-dilutive:


	2022	2021
Share options	7,859,733	5,794,640

Amounts above reflect the common share equivalents of the noted instruments.

10 Subsequent Events

On October 17, 2022, the Company announced positive of topline results from its second phase 3 clinical trial, which the Company refers to as the RAPID trial, of intranasally administered etripamil in the conversion of the cardiac arrythmia paroxysmal supraventricular tachycardia to normal sinus rhythm. With the positive results from the RAPID clinical trial, the Company has earned a payment of $3.5 million related to the License Agreement. This revenue will be recorded in the quarter ending December 31, 2022.

In mid-October 3,809,523 pre-funded warrants were exercised at an exercise price of $0.01 per share.

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

The following information should be read in conjunction with the unaudited interim condensed consolidated statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited annual consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission, or SEC, on March 24, 2022. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company focused on the development and commercialization of innovative cardiovascular medicines. Our lead product candidate etripamil is a novel, potent and short-acting calcium channel blocker that we designed as a rapid-onset nasal spray to be self-administered by patients. We are developing etripamil for the treatment of arrhythmias with a lead indication to treat paroxysmal supraventricular tachycardia, or PSVT, with a subsequent indication to treat atrial fibrillation with rapid ventricular rate, or AFib-RVR, and other cardiovascular indications. In October 2022, we announced positive topline results from our second phase 3 clinical trial in PSVT, which we refer to as our RAPID trial. We believe with the safety and tolerability experience from the PSVT program that etripamil can be expanded to the AFib-RVR indication, for which we currently are in a phase 2 clinical trial in the emergency department setting.

Etripamil - Phase III Clinical Program in PSVT

PSVT is a rapid heart rate condition affecting approximately two million Americans that is characterized by episodes of supraventricular tachycardia, or SVT, that start and stop without warning. Episodes of SVT are experienced by patients with symptoms such as palpitations, sweating, chest pressure or pain, shortness of breath, sudden onset of fatigue, lightheadedness or dizziness, fainting and anxiety. Calcium channel blockers have long been approved for the treatment of PSVT as well as other cardiac conditions. Calcium channel blockers available in oral form are used prophylactically to control the frequency and duration of future episodes of SVT. For treatment of acute episodes of SVT, approved calcium channel blockers are administered intravenously under medical supervision, usually in the emergency department, or ED. The combination of convenient nasal-spray delivery, rapid-onset and short duration of action of etripamil has the potential to shift the current treatment paradigm for episodes of SVT away from the burdensome and costly ED setting. If approved, we believe that etripamil will be the first self-administered therapy for the rapid termination of episodes of SVT wherever and whenever they occur.

Atrial Fibrillation, or AFib, is a common form of arrhythmia with an irregular and often rapid heart rate that can increase the risk of stroke, heart failure, and other heart-related complications. Acommon complication of AFib is rapid ventricular rate, or AFib-RVR, which is frequently defined as a heart rate ≥ 110 beats per minute. While AFib can occur with or without symptoms, the occurrence of rapid ventricular rate increases the likelihood of symptoms including heart palpitations, shortness of breath and weakness. There are currently two pharmacological approaches to managing AFib: rate control to lower a rapid heart rate and rhythm control to restore and maintain a regular (sinus) rhythm and prevent recurrent AFib episodes. Either of these pharmacological management approaches may be administered chronically or acutely, depending on patient preference and episode frequency and/or severity. For rate control, the rapid heart rate of AFib is typically treated with AV nodal blocking drugs, such as calcium channel blockers, beta blockers, or less commonly, digoxin, to control symptoms and improve cardiac function and hemodynamic stability. Oral rate control drugs used acutely do not provide immediate ventricular rate control due to a 30- to 60-minute delayed onset of action. Breakthrough episodes of symptomatic AFib often require urgent medical treatment with intravenous calcium channel blockers and beta-blockers under medical supervision, usually in the ED to quickly reduce heart rate before transitioning a patient back to oral therapy. The combination of convenient nasal-spray delivery, rapid-onset and short duration of action of etripamil has the potential to shift the setting of care for rapid rate control away from the burdensome and costly

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ED setting. If approved, we believe that etripamil will be the first self-administered therapy for the rapid rate reduction of episodes of Afib-RVR wherever and whenever they occur.

Clinical Program for the Treatment of Paroxysmal Supraventricular Tachycardia

Completed Phase 3 RAPID, NODE-301 and NODE-302 Clinical Trials

RAPID, our multi-center, randomized, double-blind, placebo-controlled phase 3 trial, enrolled a total of 706 patients across clinical sites in North America and Europe. Patients were randomized 1:1 to a regimen of self-administering a first dose etripamil nasal spray, with a repeat dose 10 minutes later if symptoms persisted, or a matching placebo regimen. Self-administration was prompted by a patient’s customary symptoms and was performed in the at-home setting without medical monitoring. A repeat dose regimen was tested such that, patients who did not experience symptom relief within 10 minutes were directed to self-administer a repeat dose of study drug. The RAPID trial achieved its primary endpoint, with patients taking the etripamil regimen demonstrating a highly statistically significant and clinically meaningful difference in time to SVT conversion as compared to placebo. A Kaplan Meier analysis demonstrated a significantly greater proportion of patients who took etripamil converted within thirty minutes compared to placebo (64.3% vs. 31.2%; hazard ratio, or HR, = 2.62; [95% CI 1.66; 4.15]; p<0.001). By 90 minutes post-study drug administration, 80.6% of etripamil patients converted versus 60.7% of placebo patients (HR = 1.93; 95% CI 1.349, 2.752; p<0.001) and statistical significance was maintained throughout the 5-hour observation window. Statistically significant reductions in time to conversion in patients who took etripamil were evident early and persisted throughout the observation window of the study compared to placebo. The median time to conversion for patients in RAPID who self-administered etripamil was 17.2 minutes compared to 53.3 minutes for patients on placebo.The safety and tolerability data from the RAPID trial continue to support the potential self use of etripamil, with findings consistent with those observed in prior trials. The most common randomized treatment emergent adverse events, or RTEAEs, adverse events, or AEs, which occurred within 24 hours of etripamil administration, were related to the nasal local administration site. Overall, the majority of RTEAEs were reported as mild (68%) to moderate (31%). There were no reported serious AEs related to etripamil. To date, the Company’s overall PSVT clinical program has resulted in more than 1,600 unique subject exposures of etripamil doses ≥70 mg.

In the RAPID study, patients who self-administered etripamil sought additional medical interventions less frequently (25% vs. 15%; p=0.103) and had fewer emergency department visits (21% vs. 14%; p=0.209) than patients in the placebo arm. These findings were consistent with the Company’s previously completed Phase 3 NODE-301 study, in which patients who self-administered etripamil sought additional medical interventions less frequently (27% vs. 14%; p=0.119) and saw a reduction in emergency department visits (25% vs. 13%; p=0.076) than patients in the placebo arm. Neither study individually was powered to show statistical significance for these analyses. Notably, predefined analyses of pooled data from the NODE-301 and RAPID trials show that etripamil treatment provided a statistically significant reduction in both the use of additional medical interventions and visits to the emergency department.

The Company believes results from the RAPID trial together with the data from the already completed NODE-301 trial could fulfill the efficacy requirement for a New Drug Application (NDA) submission for etripamil in patients with PSVT. The Company believes they now have the required exposures to fulfill the safety dataset for the NDA and has initiated closure of the open label NODE-303 safety trial. We plan to submit an NDA application in mid-2023, pending agency feedback.

In March 2020, we reported topline results of the NODE-301 pivotal trial of etripamil for the treatment of PSVT, which was a placebo-controlled phase 3 safety and efficacy trial. NODE-301, which enrolled a total of 431 patients across 65 sites in the United States and Canada, did not meet its primary endpoint of time to conversion of SVT to sinus rhythm compared to placebo over the five-hour period in which patients wore a cardiac monitor following study drug administration. However, important findings included: the median time to conversion for etripamil was 25 minutes (95% CI: 16, 43) compared to 50 minutes (95% CI: 31,101) for placebo (p=0.12). Moreover, early efficacy activity was observed, including the conversion of 61% of etripamil patients compared to 45% of placebo patients within 45 minutes after study drug administration (p=0.02), a time period consistent with etripamil’s pharmacological activity, results from the latter

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part of the observation window confounded the statistical analysis of the primary endpoint. Patients were monitored during the five-hour period after study drug administration.

After reviewing the data from NODE-301 with the FDA in July 2020, the agency indicated that an analysis period shorter than 5 hours would be appropriate to measure the efficacy of etripamil. The FDA indicated that two trials, the RAPID and NODE-301 trials could potentially fulfill the efficacy requirement for our planned NDA for etripamil in patients with PSVT, both using time to conversion over the first 30 minutes with a target p-value of less than 0.05 as the primary endpoint. When employing the updated analysis to the NODE-301 data, 54% of etripamil patients vs. 35% of placebo patients converted within 30 minutes (HR 1.87, p=0.02).

NODE-302 was a phase 3 open-label safety extension of the NODE-301 trial. Patients who completed NODE-301 and enrolled in NODE-302 could receive up to an additional 11 doses of etripamil. NODE-302 is a multi-center, open label trial primarily designed to evaluate the safety of etripamil nasal spray when self-administered by patients without medical supervision for spontaneous episodes of SVT in an outpatient setting over multiple episodes. While the primary purpose of the trial is safety, efficacy assessments were also performed. We presented data from the NODE-302 study at a late-breaking session of the Heart Rhythm Society’s Heart Rhythm 2022 Annual conference. Of 198 eligible NODE-301 patients, 169 (85%) enrolled in NODE-302 and 105 (62%) experienced a perceived episode of PSVT, self-administered etripamil and were included in the safety population. Overall, the rate of conversion of PSVT to normal sinus rhythm at 30 minutes following etripamil administration was 60.2% with a median time to conversion of 15.5 minutes (95% CI, 11.3-22.1 minutes). Among 40 patients who self-treated two separate episodes, 21 of 26 (81%) who converted on their first episode were also successfully converted on their second episode. Moreover, the need for an external medical intervention (e.g., an intravenous therapy administered in an emergency department) to terminate a PSVT episode was low (13% of patients and 8.5% of positively adjudicated PSVT episodes). Etripamil was generally well-tolerated, with adverse events consistent with those observed in previous trials; most adverse events related to treatment were localized to the nasal administration site and were mild and transient.

Other Clinical Trials in PSVT

NODE-303 is a phase 3, multi-center, open-label safety trial, evaluating the safety of etripamil when self administered without medical supervision over multiple, separate SVT episodes. Unique to the NODE-303 trial is the elimination of a test dose procedure present in the RAPID and NODE-301 trials. (The test dose procedure employed in the other phase 3 studies requires patients to first self-administer etripamil in the controlled setting of the clinic while in normal sinus rhythm before determining if the patient should be entered into the at-home self-administered dosing portion of the trial.) The NODE-303 trial was initiated with an etripamil 70 mg single dose regimen and the 70 mg optional repeat dose regimen was introduced into the trial starting in the second half of 2021 following FDA acceptance of the protocol amendment. The trial is designed to add to the safety data from the remainder of the development program, including those data already obtained from the RAPID, NODE-301 and NODE-302 trials, in order to fulfill the safety data set needed for NDA filing. Following, the results from the RAPID study in October 2022, and the assessment of the total exposures to etripamil in the development program to date, we believe we have the safety dataset needed for review of the NDA for PSVT and have moved to the closure phase of the NODE-303 study.

We are conducting patient access programs to provide further access to etripamil to patients who have participated in the clinical development registration trials to treat future SVT episodes. These programs are tailored to meet the regulatory requirements in the territories in which the clinical sites are located.

Recent Developments

On July 1, 2022 our partner Ji Xing Pharmaceuticals Limited or Ji Xing, a clinical-stage biopharmaceutical company committed to bringing innovative medicines to underserved Chinese patients with serious and life-threatening diseases, announced the first patient enrollment at Nanfang Hospital of Southern Medical University in its phase 3 trial. The trial is currently being carried out in more than 40 clinical centers across China and has a similar design and size as those of the RAPID trial.

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Clinical Trial in AFib

In addition to our PSVT clinical program, we began enrollment of patients in a phase 2 proof-of concept clinical trial in patients with AFib, which we refer to as our ReVeRA trial in the first quarter of 2021 to evaluate the potential effectiveness of etripamil to reduce ventricular rate during AFib- RVR episodes. The phase 2 double blind, placebo controlled, proof-of-concept, trial which is being conducted in Canada in collaboration with the Montreal Heart Institute and other research centers, is expected to enroll approximately 50 patients randomized 1:1 to receive either 70 mg of etripamil nasal spray or placebo. The primary endpoint will assess maximum reduction in ventricular rate, with key secondary endpoints including the time to achieve maximum reduction in ventricular rate and the duration of the effect. The trial is being conducted in the hospital or ED, setting under medical supervision, which is the same concept applied to the PSVT program. The ED setting, especially since the onset of the COVID-19 pandemic, has proven to be a very difficult environment in which to conduct the trial and enrollment is very slow. We are expanding this trial into other regions and clinical sites that we believe have the opportunity to overcome some of the current enrollment challenges.

Operations Overview

Since the commencement of our operations in 2003, we have devoted substantially all of our resources to performing research and development activities in support of our product development efforts, hiring personnel, raising capital to support and expand such activities, providing general and administrative support for these operations and, more recently preparing for commercialization. We operate our business using a significant outsourcing model. As such, our team is composed of a relatively smaller core of employees who direct a significantly larger number of team members who are outsourced in the forms of vendors and consultants to enable execution of our operational plans. We do not currently have any products approved for sale, and we continue to incur significant research and development and general administrative expenses related to our operations.

Since inception, we have incurred significant operating losses. For the three months ended September 30, 2022 and 2021 we recorded net loss of $14.6 million and $14.2 million, respectively. For the nine months ended September 30, 2022 and 2021, we recorded net losses of $45.2 million and $26.0 million, respectively. As of September 30, 2022, we had an accumulated deficit of $251.5 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development activities required for obtaining regulatory approval and preparing for potential commercialization of our product candidates. We had $77.2 million of cash, cash equivalents and short-term investments at September 30, 2022.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on other research and development activities. We expect our expenses will increase substantially over time as we:

●

continue our ongoing and planned development of etripamil, as we close out our Phase 3 clinical trials of etripamil for the treatment of PSVT and begin our future clinical trials of etripamil for the treatment of AFib-RVR ;

●

seek marketing approvals for etripamil for the treatment of PSVT, AFib-RVR and other cardiovascular indications;

●

establish a sales, marketing, manufacturing and distribution capability, either directly or indirectly through third parties, to commercialize etripamil or any future product candidate for which we may obtain marketing approval;

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●

build a portfolio of product candidates through development, or the acquisition or in-license of drugs, product candidates or technologies;

●

initiate preclinical studies and clinical trials for etripamil for any additional indications we may pursue, including the clinical trials for the treatment of AFib and AFib-RVR as well as other areas of unmet medical need, and for any additional product candidates that we may pursue in the future;

●

maintain, protect and expand our intellectual property portfolio;

●

hire additional clinical, commercial, regulatory and scientific personnel;

●

add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and

●

incur additional legal, accounting, insurance and other expenses associated with operating as a public company.

COVID-19 Business Update

The periods of reduced global economic activity and volatility, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospectsWe continue to monitor the pandemic as we evolve our business continuity plans and response strategy.

Clinical Development

With respect to clinical development, we have taken measures to maintain patient safety and trial continuity and to preserve study integrity. While COVID-19 resurgences around the world impact different geographies and clinical sites to varying degrees and at different times, the PSVT clinical program average overall enrollment rate displayed clear forward momentum, compared to 2020. Enrollment rates had slowed as a result of COVID-19, but largely recovered due to operational actions by Milestone, as evidenced by the recent completion and plans to close the phase 3 studies, RAPID and NODE 303. During 2021 and 2020, the COVID-19 pandemic delayed the initiation of many proposed RAPID clinical trial sites as some health care institutions prioritized their resources for pandemic related activities with some precluding the initiation of new clinical trials or conduct of existing trials. It also delayed the initiation of clinical trial sites and the enrollment of patients into our ReVeRA trial of etripamil for AFib-RVR performed in the acute care hospital setting in Canada, due to closures of clinical sites as well as to the increased stress that COVID-19 places on ED logistics and staff. Given the uncertainty and differing and evolving restrictions applicable to clinical trial sites and participants, additional disruptions and delays are possible. To be precautionary, we will continue to monitor the impact of COVID-19 on our planned clinical sites and patient enrollment activities. We could also see an impact on the ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. If the COVID-19 pandemic continues and persists for an extended period of time, we could experience further significant disruptions to our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Other Financial and Corporate Impacts

While we expect the COVID-19 pandemic to continue to affect our business operations and financial results, the extent of the impact on our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common shares, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, business closure requirements in

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the United States, Canada, Europe and other countries, the timing and unpredictability of achieving widespread vaccination rates, the effectiveness of any vaccines against new variants, and the timing of the return of the global economy to pre-pandemic levels. In addition, we may be impacted by general economic, political, and market conditions, including deteriorating market conditions due to investor concerns regarding inflation and Russian hostilities in Ukraine and overall fluctuations in the financial markets in the United States and abroad.

Components of Results of Operations

Revenues

We have not generated any revenues from product sales to date and we do not expect to generate revenues from product sales in the near future. Our revenues for the nine months ended September 30, 2022 and September 30, 2021 are from the license agreement with Ji Xing and are comprised of upfront and milestone payments.

Research and Development

Research and development expenses consist primarily of salaries and fees paid to external service providers and also include personnel costs, including share-based compensation expense and other related compensation expenses. We expense research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers.

To date, substantially all of our research and development expenses have been related to the preclinical and clinical development of etripamil. As we advance etripamil or other product candidates for other indications, we expect to allocate our direct external research and development costs across each of the indications or product candidates. Further, while we expect our research and development costs for the development of etripamil in AFib-RVR to increase for the ReVeRA clinical trial as we continue to expand this trial, we expect our research and development expenses related to the development of etripamil for PSVT to remain a very large majority of our total research and development expenses.

We expect our research and development expenses to increase as we continue the development of etripamil and prepare to pursue regulatory approval. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming and is subject to uncertainties and delays, including as a result of the ongoing COVID-19 pandemic. COVID-19 has adversely affected enrollment rates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if at all.

We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits.

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General and Administrative

General and administrative expenses include personnel and related compensation costs, expenses for outside professional services, lease expense, insurance expense and other general administrative expenses. Personnel costs consist of salaries, bonuses, benefits, related payroll taxes and share-based compensation. Outside professional services consist of legal, accounting and audit services and other consulting fees.

We expect to continue to incur expenses as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities, and other administrative and professional services.

Commercial

Commercial expenses consist primarily of personnel and related compensation costs, market and health economic research, and market development activities for PSVT and, to a lesser extent, AFib-RVR. The focus of these expenses is three-fold: first, we want to leverage rigorous primary and secondary research to fully understand our target disease states from the perspective of the patient, healthcare provider, and payer; second, we want to understand and document the burden of disease posed by PSVT and AFib-RVR from an epidemiology, healthcare resource use, and cost perspective; and third, we want to engage our target patient, physician, and payer stakeholders with evidence-based and compliant educational materials that serve to increase the awareness and understanding of the impact of PSVT and AFib-RVR on patients and the overall healthcare system.

Starting approximately six months to one year before we file our new drug application, or NDA with the FDA, we anticipate our commercial expenses will increase substantially as we invest in the infrastructure, personnel, and operational expenses required to launch our first product in the United States, if approved.

Interest Income

Interest income primarily consists of interest income from our cash equivalents and short-term investments.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations and changes:


	Three months ended September 30,
(in thousands)	2022		2021		$ Change		% Change

Revenue	$	1,500	$	-		1,500	100.0%

Operating expenses
Research and development, net of tax credits	$	9,826	$	9,733	$	93	1.0%
General and administrative		4,034		2,961		1,073	36.2%
Commercial		2,670		1,579		1,091	69.1%
Total operating expenses		16,530		14,273		2,257	15.8%
Loss from operations		(15,030)		(14,273)		(757)	5.3%
Interest income, net		474		48		426	887.5%
Net loss	$	(14,556)	$	(14,225)	$	(331)	2.3%

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	Nine months ended September 30,
(in thousands)	2022		2021		$ Change		% Change

Revenue	$	1,500	$	15,000	$	(13,500)	(90.0)%

Operating expenses
Research and development, net of tax credits		29,251		27,755		1,496	5.4%
General and administrative		11,595		8,612		2,983	34.6%
Commercial		6,537		4,788		1,749	36.5%
Total operating expenses		47,383		41,155		6,228	15.1%
Loss from operations		(45,883)		(26,155)		(19,728)	75.4%
Interest income, net		672		186		486	261.3%
Net loss		(45,211)		(25,969)		(19,242)	74.1%

Revenue

Research and Development Expenses

The following table shows our research and development expenses by type of activity for the three and nine months ended September 30, 2022 and 2021, respectively.



	Three months ended September 30,							Nine months ended September 30,
(in thousands)	2022		2021		$ Change		% Change	2022		2021		$ Change		% Change
Clinical	$	7,886	$	8,081	$	(195)	(2.4)%	$	23,704	$	22,545	$	1,159	5.1%
Drug manufacturing and formulation		1,389		1,272		117	9.2%		3,564		3,926		(362)	(9.2)%
Regulatory and other costs		688		580		108	18.6%		2,303		1,662		641	38.6%
Less: R&D tax credits		(137)		(200)		63	(31.5)%		(320)		(378)		58	(15.3)%
Total R&D expenses	$	9,826	$	9,733	$	93	1.0%	$	29,251	$	27,755	$	1,496	5.4%

Research and development expenses were consistent for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Research and development expenses increased by $1.5 million, or 5.4% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The increase was due to clinical personnel related costs and clinical consulting fees. Regulatory costs increased due to personnel related costs.

We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits.

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General and Administrative

General and administrative expenses increased by $1.1 million, or 36.2% for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The primary contributor was an increase in personnel-related costs and consulting fees for general and administrative expenses.

General and administrative expenses increased by $3.0 million, or 34.6% for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The primary contributor was an increase in personnel-related costs and consulting fees for general and administrative expenses.

Commercial

For the three months ended September 30, 2022, commercial expenses increased by $1.1 million, or 69.1%, compared to the three months ended September 30, 2021. The increase is due to consulting and marketing analytics.

Commercial expenses increased by $1.7 million, or 36.5%, for the nine months ended September 30, 2022, compared to the same period in 2021. The increase is due to personnel related costs and consulting fees.

Starting approximately six months to one year before we file our new drug application, or NDA with the FDA, we anticipate our commercial expenses will increase substantially as we invest in the infrastructure, personnel and operational expenses required to launch our first product in the United States, if approved.

Interest Income, net

Interest income, net, was $0.5 million and $0.05 million for the three months ended September 30, 2022 and 2021, respectively. Interest income, net of bank charges, was $0.7 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in interest income was due to higher interest rates earned on investments in 2022 when compared to 2021.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred operating losses and experienced negative operating cash flows since our inception, and we anticipate continuing to incur losses for at least the next several years. As of September 30, 2022, we had cash, cash equivalents and short-term investments of $77.2 million and an accumulated deficit of $251.5 million.

On July 29, 2020, we entered into an Open Market Sale Agreement^SM, or the Sales Agreement, with Jefferies LLC with respect to an at-the-market offering program, or the ATM Program, under which the Company may issue and sell its common shares having an aggregate offering price of up to $50 million through Jefferies as its sales agent or principal. The common shares to be sold under the Sales Agreement, are offered and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-239318), which was declared effective by the SEC on July 6, 2020. During the nine months ended September 30, 2022, we issued 361,236 shares under the Sales Agreement, resulting in net proceeds of $2.6 million (net of issuance costs of $0.1 million).

Based on our cash and cash equivalents as of September 30, 2022, we expect to be able to support our current operating plan through 2023.

Funding Requirements

We use our cash primarily to fund research and development expenditures. We expect our total research and development expenses to increase as we continue the development of etripamil and prepare to pursue regulatory approval. We expect to incur an increase in general and administrative expenses, and a continued increase in expenses related to commercial activities in 2022 as we focus our efforts on the clinical pathway and potential commercialization of etripamil. We expect

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to incur increasing operating losses for the foreseeable future as we continue the clinical development of our product candidate. At this time, due to the inherently unpredictable nature of clinical development, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval, and commercialize etripamil or any future product candidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations.

In addition, we have exclusive development and commercialization rights for etripamil for all indications that we may pursue and as such have the potential to license development and or commercialization rights for etripamil to a potential partner. We plan to establish commercialization and marketing capabilities using a direct sales force to commercialize etripamil in the United States. Outside of the United States, we are considering commercialization strategies that may include collaborations with other companies.

For other new product candidates, our efforts are focused on licensing development and/or commercialization rights from potential partners. In the case of either in-licensing or out-licensing, we cannot forecast when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development and commercialization plans and capital requirements.

The timing and amount of our operating expenditures will depend largely on:

●

the timing, progress and results of our ongoing and planned clinical trials and other development activities of etripamil in PSVT, AFib-RVR and in other cardiovascular indications;

●

the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of etripamil for additional indications or any future product candidates that we may pursue;

●

our ability to establish collaborations on favorable terms, if at all;

●

the ability of vendors and third-party service providers to accurately forecast expenses and deliver on expectations;

●

the costs, timing and outcome of regulatory review of etripamil and any future product candidates;

●

the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for etripamil and any future product candidates for which we receive marketing approval;

●

the revenue, if any, received from commercial sales of etripamil and any future product candidates for which we receive marketing approval;

●

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and

●

the extent to which we acquire or in-license other product candidates and technologies.

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into arrangements, similar to the agreement entered into with Ji Xing, or selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. In addition, the COVID-19 pandemic, the Russian invasion of Ukraine and the implementation of a tightening monetary

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policy has contributed to periods of reduced global economic activity and volatility. If these and other events contributes to future periods of disruption of the global financial markets, we could experience an inability to access additional capital, which could in the future negatively affect our operations. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition and results of operations.

Discussion of Cash Flows

The following table summarizes our cash flows for the periods indicated:


	Nine months ended September 30,
(in thousands)	2022		2021		$ Change	% Change
Net cash (used in) provided by:
Operating activities	$	(39,607)	$	(20,847)	(18,760)	90.0%
Investing activities		(40,109)		55,000	(95,109)	(172.9)%
Financing activities		2,861		4,963	(2,102)	(42.4)%
Net decrease in cash and cash equivalents during the period	$	(76,855)	$	39,116	(115,971)

Operating Activities

Net cash used in operating activities during the nine months ended September 30, 2022 was $39.6 million, which consisted of a net loss of $45.2 million and a net decrease of $1.4 million in our operating assets and liabilities due to increases in prepaid expenses and other receivables and a decrease in accounts payable offset by non-cash charges of $7.0 million related to share-based compensation and depreciation expenses.

Net cash used in operating activities during the nine months ended September 30, 2021 was $20.5 million, which consisted of a net loss of $26.0 million and a net decrease of $0.3 million in our operating assets and liabilities offset by non-cash charges of $5.4 million related to share-based compensation and depreciation expenses.

Investing Activities

In the nine months ended September 30, 2022 we acquired $63.0 million of short-term investments while we divested of $23.0 million. In the nine months ended September 30, 2021 we acquired $15.0 million of short-term investments while we divested of $70.0 million during the same period.

Financing Activities

In the nine months ended September 30, 2022, our financing activities provided a de minimis amount of proceeds from the exercise of share options. In August 2022, the Company issued and sold 361,236 common shares under the Sales Agreement for proceeds of $2.6 million (net of issuance costs of $0.1 million). During the nine months ended September 30, 2021, our financing activities provided $5.0 million, consisting of net proceeds from the Private Placement and a de minimis amount of proceeds from the exercise of share options.

We have not entered into off-balance sheet arrangements.

Contractual Obligations

During the nine months ended September 30, 2022, there were no material changes to our contractual obligations and commitments described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, filed with the SEC on March 24, 2022.

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Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited interim consolidated financial statements as of September 30, 2022, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP and on a basis consistent with those accounting principles followed by us. The preparation of these consolidated financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to:

●

Estimates of the percentage of work completed of the total work over the life of the individual trial in accordance with agreements established with CROs, CMOs and clinical trial sites which in turn impact the research & development expenses.

●

Estimate of the grant date fair value share options granted to employees, consultants and directors, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model.

Accordingly, actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

a) Research & Development Expenses — Accruals

Research and development costs are charged against income in the period of expenditure. Our research and development costs consist primarily of salaries and fees paid to CROs and to CMOs.

Clinical trial expenses include direct costs associated with CROs, direct CMO costs for the formulation and packaging of clinical trial material, as well as investigator and patient-related costs at sites at which our trials are being conducted. Direct costs associated with our CROs and CMOs are generally payable on a time-and-materials basis, or when milestones are achieved. The invoicing from clinical trial sites can lag several months. We record expenses for our clinical trial activities performed by third parties based upon estimates of the percentage of work completed of the total work over the life of the individual trial in accordance with agreements established with CROs and clinical trial sites. We determine the estimates through discussions with internal clinical personnel, CROs and CMOs as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services based on facts and circumstances known to us as of each consolidated balance sheet date. The actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. If the actual timing of the performance of services of the level of effort varies from the estimate, we will adjust the accrual accordingly. Adjustments to prior period estimates have not been material. We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits and as a reduction of income taxes for investment tax credits that can only be claimed against income taxes payable when there is reasonable assurance that the claim will be recovered.

b) Share-Based Compensation

We recognize compensation costs related to share options granted to employees, consultants and directors based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model. This Black-Scholes option pricing model uses various inputs to measure fair value, including estimated fair value of our underlying common shares at the grant date, expected term, estimated volatility, risk-free interest rate and expected dividend yields of our common shares. The estimated volatility creates a critical estimate because we have not been a public company long enough to demonstrate our

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own historical volatility. The grant date fair value of the share-based awards is recognized on a straight-line basis over the requisite service periods, which are generally the vesting period of the respective awards. Forfeitures are accounted for as they occur.

Recent Accounting Pronouncements

Refer to Note 2, “Summary of Significant Accounting Policies”, for a discussion of recent accounting pronouncements and to the notes to our audited consolidated financial statements as of December 31, 2021 appearing in our Annual Report on Form 10-K, filed with the SEC on March 24, 2022.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate risks. We had cash, cash equivalents and short-term investments of $77.2 million as of September 30, 2022, which consist primarily of bank deposits and guaranteed investment certificates. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

We undertake certain transactions in Canadian dollars and as such are subject to risk due to fluctuations in exchange rates. Canadian dollar denominated payables are paid at the converted rate as due. We do not use derivative instruments to hedge exposure to foreign exchange rate risk due to the low volume of transactions denominated in foreign currencies. On September 30, 2022, our net monetary exposure denominated in Canadian dollars was $4.7 million.

Our operating results and financial position are reported in U.S. dollars in our consolidated financial statements. The fluctuation of the Canadian dollar in relation to the U.S. dollar might, consequently, have an impact upon our loss and may also affect the value of our assets and the amount of shareholders’ equity.

We do not have a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have a material effect on our consolidated financial results.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that our employees have worked remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

Inherent Limitations on Effectiveness of Controls.

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have an adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors

Aside from the risk factor listed below, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A. in our Annual Report on Form 10-K, filed with the SEC and under Milestone’s SEDAR profile at www.sedar.com on March 24, 2022.

Healthcare legislative reform measures may have a negative impact on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010 the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,

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collectively referred to as PPACA, was passed, which substantially changed the way healthcare is financed by both governmental and private payors in the United States. There have been executive, judicial and Congressional challenges to certain aspects of the PPACA. For example, the Tax Cuts and Jobs Act of 2017, or the Tax Act, was enacted, which included a provision that repealed, effective January 1, 2019, the tax based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the PPACA mandated “Cadillac” tax on high cost employer sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Moreover, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the PPACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the PPACA. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in PPACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost through a newly established manufacturer discount program. It is possible that the PPACA will be subject to judicial or Congressional challenges in the future. It is unclear how any additional healthcare reform measures of the Biden administration will impact the PPACA and our business.

Further, in the United States there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and manufacturer patient programs. In July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, the U.S. Department of Health and Human Servies, or HHS, released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. In addition, the IRA, among other things, (1) directs HHS to negotiate the price of certain single-source drugs and biologics covered under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. Further, the Biden administration released an additional executive order on October 14, 2022, directing HHS to submit a report within ninety (90) days on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for Medicare and Medicaid beneficiaries.. It is unclear whether this executive order or similar policy initiatives will be implemented in the future. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect that additional U.S. healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for etripamil or any future product candidates or additional pricing pressures.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the Infrastructure Investment and Jobs Act, will remain in effect through 2031 with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 due to the ongoing COVID-19 pandemic, unless additional

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Congressional action is taken. Under current legislation the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

We cannot predict the likelihood, nature or extent of health reform initiatives that may arise from future legislation or administrative action in the United States or any other jurisdiction. If we or any third parties we may engage are slow or unable to adapt to changes in existing or new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, etripamil or any future product candidates we may develop may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Equity Securities

None

Item 3. Defaults Upon Senior Securities.

Not applicable

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

Not applicable

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Item 6. Exhibits.


Exhibit Number		Description

3.1		Amended Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-38899), filed with the SEC on May 15, 2019).
3.2		Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-38899), filed with the SEC on May 15, 2019).
10.1		2019 Equity Incentive Plan, as amended
31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL.

* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

+	Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MILESTONE PHARMACEUTICALS INC.

Date: November 10, 2022	By:	/s/ Joseph Oliveto
		Joseph Oliveto
		President and Chief Executive Officer (Principal Executive Officer)




Date: November 10, 2022	By:	/s/ Amit Hasija
		Amit Hasija
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)