UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
20-F
[Mark One]
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REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| OR |
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| x |
ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended: June 30, 2015 |
Commission File Number: 001-33514 |
TRANSITION
THERAPEUTICS INC.
(Exact name of Registrant as specified in its charter)
Ontario, Canada
(Jurisdiction of incorporation or
organization)
101 College Street, Suite 220
Toronto, Ontario, Canada
M5G 1L7
(416) 260-7770
(Address and telephone number of
Registrant’s principal executive offices)
Nicole Rusaw
Chief Financial Officer
101 College Street, Suite 220
Toronto, Ontario, Canada
M5G 1L7
(416) 260-7770 Tel.
(416) 260-2886 Fax
(Name, Telephone, E-mail and/or
Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section
12(b) of the Act:
| Title of each class |
|
Name of each exchange on which registered |
| Common Shares, no par value |
|
The NASDAQ Stock Market LLC |
Securities registered or to be registered pursuant to Section
12(g) of the Act: None
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None
Indicate the number of outstanding shares
of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: As
of June 30, 2015: 38,878,879 shares of Common Shares were outstanding.
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨
Yes x No
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes x
No
Note – Checking the box above will
not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
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. x Yes
¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). ¨
Yes ¨ No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ¨ |
Accelerated filer x |
Non-accelerated filer ¨ |
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ¨ |
International Financial Reporting Standards as issued by
the International Accounting Standards Board x |
Other ¨ |
If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow. ¨
Item 17 ¨ Item 18
If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). ¨ Yes x No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨
Yes ¨ No
Table
of Contents
Introduction
In this annual report, where “we”,
“us”, “our”, “Transition”, “Corporation” or the “Company” is used,
it is referring to Transition Therapeutics Inc. and its wholly-owned subsidiaries, unless otherwise indicated. All amounts are
in Canadian dollars, unless otherwise indicated.
Additional information relating to the
Corporation, including the Corporation’s most recently filed Annual Information Form, can be found on SEDAR at www.sedar.com.
Presentation
of Financial Information
Unless we indicate otherwise, financial
information in this annual report has been prepared in accordance with International Financial Reporting Standards, or IFRS, as
issued by the International Accounting Standards Board. IFRS differs in some respects from United States generally accepted accounting
principles, or United States GAAP, and thus our financial statements may not be comparable to the financial statements of United
States companies.
Percentages and some amounts in this annual
report have been rounded for ease of presentation. Any discrepancies between totals and the sums of the amounts listed are due
to rounding.
Currency
Translation
We present our historical financial statements
in Canadian dollars, which is the reporting currency of the Corporation. All figures reported in this annual report are in Canadian
dollars, except where we indicate otherwise, and are referenced as “CAD$,” “$” and “dollars”.
This annual report contains a translation of some Canadian dollar amounts into United States dollars at specified exchange rates
solely for your convenience. See “Exchange Rate Data” below for certain information about the rates of exchange between
Canadian dollars and United States dollars.
Exchange
Rate Data
The following table sets forth, for each
period indicated, the low and high exchange rates for Canadian dollars expressed in United States dollars and the average of such
exchange rates on the last day of each month during such period, based on the inverse of the noon buying rate in the City of New
York for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. The source
of the exchange rate data is the H.10 statistical release of the Federal Reserve Board. The exchange rates set forth below demonstrate
trends in exchange rates, but the actual exchange rates used throughout this Annual Report may vary.
| | |
Exchange Rate | |
| | |
High | | |
Average (1) | | |
Low | |
| | |
(US$ per CAD$1.00) | |
| Last Five Fiscal Years | |
| | | |
| | | |
| | |
| Fiscal Year Ended June 30, 2011 | |
| 1.0542 | | |
| 1.0013 | | |
| 0.9392 | |
| Fiscal Year Ended June 30, 2012 | |
| 1.0584 | | |
| 0.9977 | | |
| 0.9430 | |
| Fiscal Year Ended June 30, 2013 | |
| 1.03 | | |
| 0.9920 | | |
| 0.9495 | |
| Fiscal Year Ended June 30, 2014 | |
| 0.9769 | | |
| 0.9336 | | |
| 0.8888 | |
| Fiscal Year Ended June 30, 2015 | |
| 0.9388 | | |
| 0.8438 | | |
| 0.7811 | |
| | |
| | | |
| | | |
| | |
| Last Six Months | |
| | | |
| | | |
| | |
| March 2015 | |
| 0.8039 | | |
| | | |
| 0.7811 | |
| April 2015 | |
| 0.8365 | | |
| | | |
| 0.7930 | |
| May 2015 | |
| 0.8368 | | |
| | | |
| 0.8011 | |
| June 2015 | |
| 0.8193 | | |
| | | |
| 0.7970 | |
| July 2015 | |
| 0.7962 | | |
| | | |
| 0.7658 | |
| August 2015 | |
| 0.7708 | | |
| | | |
| 0.7518 | |
Notes:
| (1) | For the years indicated, the average exchange rates are determined by averaging the exchange rates on the last business day
of each month during the relevant period. |
Cautionary
Statement Concerning Forward-Looking Statements
This annual report contains and incorporates
by reference certain forward looking statements within the meaning of applicable securities laws. Forward-looking information typically
contains statements with words such as “anticipate”, “believe”, “expect”, “plan”,
“estimate”, “intend”, “may” or similar words suggesting future outcomes.
Forward-looking statements in this annual
report include, but are not limited to statements with respect to: the clinical study phases of the Company’s product candidates
which the Company expects to complete in fiscal 2016 and beyond; the ability of the Company’s business model to maximize
shareholder returns; the potential for ELND005 to slow the progression of Alzheimer’s disease and improve symptoms; the potential
for ELND005 to be effective for the treatment of agitation and or aggression in patients with Alzheimer’s disease; the potential
for ELND005 to be effective for the treatment of Down syndrome; the timing and manner of future clinical development, if any, of
ELND005; the global population size of those affected by Alzheimer’s disease; the demand for a product that can slow or reverse
the progression of Alzheimer’s disease; the demand for a product that can reduce the emergence or severity of neuropsychiatric
symptoms like depression, anxiety, agitation and aggression in Alzheimer’s disease; the potential clinical benefit of ELND005
in the treatment of other disease indications; the development of TT401 and the series of preclinical compounds in-licensed from
Eli Lilly and Company (“Lilly”) and their potential benefit in type 2 diabetes patients and obese individuals; the
timing and manner of future clinical development of TT401 performed by Lilly; TT701 development plans and timelines for individuals
with androgen deficiency or other disease indications; the potential clinical benefit of TT701 to increase lean body mass, improve
functional and sexual outcomes or improve other symptoms associated with androgen deficiency; the engagement of third party manufacturers
to produce the Company’s drug substances and products; the potential future in-licensing of additional drug candidates to
expand the development pipeline; the intention of the Company to make collaborative arrangements for the marketing and distribution
of its products and the impact of human capital on the growth and success of the Company.
Some of the assumptions, risks and factors
which could cause future outcomes to differ materially from those set forth in the forward-looking information include, but are
not limited to: (i) the assumption that the Company will be able to obtain sufficient and suitable financing to support operations,
clinical trials and commercialization of products, (ii) the risk that the Company may not be able to capitalize on partnering and
acquisition opportunities, (iii) the assumption that the Company will obtain favourable clinical trial results in the expected
timeframe, (iv) the assumption that the Company will be able to adequately protect proprietary information and technology from
competitors, (v) the risks relating to the uncertainties of the regulatory approval process, (vi) the impact of competitive products
and pricing and the assumption that the Company will be able to compete in the targeted markets, and (vii) the risk that the Company
may be unable to retain key personnel or maintain third party relationships, including relationships with key collaborators.
By its nature, forward looking information
involves numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility
that the predictions, forecasts, projections or other forward looking statements will not occur. Prospective investors should carefully
consider the information contained under the heading “Risk Factors” and all other information included in or incorporated
by reference in this annual report before making investment decisions with regard to the securities of the Corporation.
The section entitled “Risks Factors”
discusses risks, uncertainties and factors that our management believes could cause actual results or events to differ materially
from the forward-looking statements. Although we have attempted to identify important risks, uncertainties and other factors that
could cause actual results or events to differ materially from those expressed or implied in the forward-looking information, there
may be other factors that cause actual results or events to differ from those expressed or implied in the forward-looking information.
Forward-looking statements contained in
this annual report are made as of the dates hereof, and such forward-looking statements are based on the beliefs, expectations
and opinions of our management as of such date. We disclaim any obligation to update any forward-looking statements.
Part I
| Item 1. | Identity of Directors, Senior Management and Advisers |
Not applicable.
| Item 2. | Offer Statistics and Expected Timetable |
Not applicable.
| A. | Selected Financial Data |
The following information should be read
in conjunction with the Corporation’s audited consolidated financial statements for the year ended June 30, 2015 and the
related notes, which are prepared in accordance with IFRS. The selection of financial information includes financial information
derived from the annual audited consolidated financial statements.
The following table is a summary of selected
audited consolidated financial information of the Corporation for each of the five most recently completed financial years. The
information presented is presented in accordance with IFRS:
| | |
June 30, 2015 | | |
June 30, 2014 | | |
June 30, 2013 | | |
June 30, 2012 | | |
June 30, 2011 | |
| Revenue | |
$ | — | | |
$ | — | | |
$ | 17,933,500 | | |
$ | — | | |
$ | 10,251,394 | |
| Net income (loss) (1) | |
| (51,339,528 | ) | |
| (21,782,255 | ) | |
| 23,297 | | |
| (12,269,846 | ) | |
| (5,689,613 | ) |
| Basic and diluted net income ( loss) per share | |
| (1.41 | ) | |
| (0.72 | ) | |
| 0.00 | | |
| (0.48 | ) | |
| (0.25 | ) |
| Total assets | |
| 49,649,085 | | |
| 68,907,236 | | |
| 37,807,955 | | |
| 37,093,030 | | |
| 43,179,488 | |
| Total long-term liabilities | |
| 3,503,344 | | |
| 3,849,718 | | |
| 1,457,821 | | |
| 1,469,253 | | |
| 1,480,685 | |
| Shareholders’ equity | |
| 36,737,589 | | |
| 59,094,260 | | |
| 33,154,612 | | |
| 32,123,489 | | |
| 38,432,070 | |
| Common shares outstanding | |
| 38,878,879 | | |
| 35,303,913 | | |
| 26,930,634 | | |
| 26,921,302 | | |
| 23,217,599 | |
| Cash dividends declared per share | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Notes:
| (1) | Net income (loss) before discontinued operations and extraordinary items was equivalent to the net income (loss) for such periods. |
| B. | Capitalization and Indebtedness |
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
Investing in our securities involves
a high degree of risk. Before making an investment decision, you should carefully consider the following risk factors, in addition
to the other information provided in this annual report and the Corporation’s other disclosure documents filed with the U.S.
Securities and Exchange Commission on www.sec.gov.
The Company will require significant additional financing
and it may not have access to sufficient capital.
The Company anticipates that it will need
additional financing in the future to fund its ongoing research and development programs and for general corporate requirements.
The Company may choose to seek additional funding through public or private offerings, corporate collaborations or partnership
arrangements. The amount of financing required will depend on many factors including the financial requirements of the Company
to fund its research and clinical trials, and the ability of the Company to secure partnerships and achieve partnership milestones
as well as to fund other working capital requirements. The Company’s ability to access the capital markets or to enlist partners
is mainly dependent on the progress of its research and development and regulatory approval of its products. There is no assurance
that additional funding will be available on acceptable terms, if at all.
The Company has a history of losses, and it has not
generated any product revenue to date. It may never achieve or maintain profitability.
Since inception, the Company has incurred
significant losses each year and expects to incur significant operating losses as the Company continues product research and development
and clinical trials. There is no assurance that the Company will ever successfully commercialize or achieve revenues from sales
of its therapeutic products if they are successfully developed or that profitability will ever be achieved or maintained. Even
if profitability is achieved, the Company may not be able to sustain or increase profitability.
The Company is an early stage development company in
an uncertain industry.
The Company is at an early stage of development.
Preclinical and clinical trial work must be completed before our products could be ready for use within the markets we have identified.
We may fail to develop any products, to obtain regulatory approvals, to enter clinical trials or to commercialize any products.
The Company does not know whether any of our potential product development efforts will prove to be effective, meet applicable
regulatory standards, obtain the requisite regulatory approvals or be capable of being manufactured at a reasonable cost. If the
Company’s products are approved for sale, there can be no assurance that the products will gain market acceptance among consumers,
physicians, patients and others in the medical community. A failure to gain market acceptance may adversely affect the revenues
of the Company.
The Company is subject to a strict regulatory environment.
None of the Company’s product candidates
have received regulatory approval for commercial sale.
Numerous statutes and regulations govern
human testing and the manufacture and sale of human therapeutic products in Canada, the United States and other countries where
the Company intends to market its products. Such legislation and regulation bears upon, among other things, the approval of protocols
and human testing, the approval of manufacturing facilities, testing procedures and controlled research, review and approval of
manufacturing, preclinical and clinical data prior to marketing approval including adherence to Good Manufacturing Practices (“GMP”)
during production and storage as well as regulation of marketing activities including advertising and labelling.
The completion of the clinical testing
of our product candidates and the obtaining of required approvals are expected to take years and require the expenditure of substantial
resources. There can be no assurance that clinical trials will be completed successfully within any specified period of time, if
at all. Furthermore, clinical trials may be delayed or suspended at any time by the Company or by regulatory authorities if it
is determined at any time that patients may be or are being exposed to unacceptable health risks, including the risk of death,
or that compounds are not manufactured under acceptable GMP conditions or with acceptable quality. Any failure or delay in obtaining
regulatory approvals would adversely affect the Company’s ability to utilize its technology thereby adversely affecting operations.
No assurance can be given that the Company’s product candidates or lead compounds will prove to be safe and effective in
clinical trials or that they will receive the requisite protocol approval or regulatory approval. Furthermore, no assurance can
be given that current regulations relating to regulatory approval will not change or become more stringent. There are no assurances
the Company can scale-up, formulate or manufacture any compound in sufficient quantities with acceptable specifications for the
regulatory agencies to grant approval or not require additional changes or additional trials be performed. The agencies may also
require additional trials be run in order to provide additional information regarding the safety, efficacy or equivalency of any
compound for which the Company seeks regulatory approval. Similar restrictions are imposed in foreign markets other than the United
States and Canada. Investors should be aware of the risks, problems, delays, expenses and difficulties which may be encountered
by the Company in light of the extensive regulatory environment in which the Company’s business operates.
Even if a product candidate is approved
by the FDA or any other regulatory authority, the Company may not obtain approval for an indication whose market is large enough
to recoup its investment in that product candidate. The Company may never obtain the required regulatory approvals for any of its
product candidates.
The Company is faced with uncertainties related to its
research.
The Company’s research programs are
based on scientific hypotheses and experimental approaches that may not lead to desired results. In addition, the timeframe for
obtaining proof of principle and other results may be considerably longer than originally anticipated, or may not be possible given
time, resource, financial, strategic and collaborator scientific constraints. Success in one stage of testing is not necessarily
an indication that the particular program will succeed in later stages of testing and development. It is not possible to predict,
based upon studies in in-vitro models and in animals, whether any of the compounds made for these programs will prove to be safe,
effective, and suitable for human use. Each compound will require additional research and development, scale-up, formulation and
extensive clinical testing in humans. Decisions regarding future development activities may be based on results from completed
studies or interim results from on-going studies or projections derived from interim or administrative analyses of studies not
yet completed. Development of these compounds will require investigations into the mechanism of action of the molecules as these
are not fully understood. Unsatisfactory results obtained from a particular study relating to a program may cause the Company to
abandon its commitment to that program or to the lead compound or product candidate being tested. The discovery of unexpected toxicities,
lack of sufficient efficacy, poor physiochemical properties, unacceptable ADME (absorption, distribution, metabolism and excretion)
and DMPK (drug metabolism and pharmacokinetics), pharmacology, inability to increase scale of manufacture, market attractiveness,
regulatory hurdles, competition, as well as other factors, may make the Company’s targets, lead compounds or product candidates
unattractive or unsuitable for human use, and the Company may abandon its commitment to that program, target, lead compound or
product candidate. In addition, preliminary results seen in animal and/or limited human testing may not be substantiated in larger
controlled clinical trials.
If difficulties are encountered enrolling patients in
the Company’s clinical trials, the Company’s trials could be delayed or otherwise adversely affected.
Clinical trials for the Company’s
product candidates require that the Company identify and enroll a large number of patients with the disorder under investigation.
The Company may not be able to enroll a sufficient number of patients to complete its clinical trials in a timely manner. Patient
enrolment is a function of many factors including, but not limited to, design of the study protocol, size of the patient population,
eligibility criteria for the study, the perceived risks and benefits of the therapy under study, the patient referral practices
of physicians and the availability of clinical trial sites. If the Company has difficulty enrolling a sufficient number of patients
to conduct the Company’s clinical trials as planned, it may need to delay or terminate ongoing clinical trials.
Even if regulatory approvals are obtained for the Company’s
product candidates, the Company will be subject to ongoing government regulation.
Even if regulatory authorities approve
any of the Company’s human therapeutic product candidates, the manufacture, marketing and sale of such products will be subject
to strict and ongoing regulation. Compliance with such regulation may be expensive and consume substantial financial and management
resources. If the Company, or any future marketing collaborators or contract manufacturers, fail to comply with applicable regulatory
requirements, it may be subject to sanctions including fines, product recalls or seizures, injunctions, total or partial suspension
of production, civil penalties, withdrawal of regulatory approvals and criminal prosecution. Any of these sanctions could delay
or prevent the promotion, marketing or sale of the Company’s products.
The Company may not achieve its projected development
goals in the time frames announced and expected.
The Company sets goals for and makes public
statements regarding the timing of the accomplishment of objectives material to its success, such as the commencement and completion
of clinical trials, anticipated regulatory submission and approval dates and time of product launch. The actual timing of these
events can vary dramatically due to factors such as delays or failures in the Company’s clinical trials, the uncertainties
inherent in the regulatory approval process and delays in achieving manufacturing or marketing arrangements sufficient to commercialize
its products.
There can be no assurance that the Company’s
clinical trials will be completed, that the Company will make regulatory submissions or receive regulatory approvals as planned.
If the Company fails to achieve one or more of these milestones as planned, the price of the Common Shares would likely decline.
If the Company fails to obtain acceptable prices or
adequate reimbursement for its human therapeutic products, its ability to generate revenues will be diminished.
The Company’s ability to successfully
commercialize its human therapeutic products will depend significantly on its ability to obtain acceptable prices and the availability
of reimbursement to the patient from third-party payers, such as government and private insurance plans. While the Company has
not commenced discussions with any such parties, these third-party payers frequently require companies to provide predetermined
discounts from list prices, and they are increasingly challenging the prices charged for pharmaceuticals and other medical products.
The Company’s human therapeutic products may not be considered cost-effective, and reimbursement to the patient may not be
available or sufficient to allow the Company to sell its products on a competitive basis. The Company may not be able to negotiate
favourable reimbursement rates for its human therapeutic products.
In addition, the continuing efforts of
third-party payers to contain or reduce the costs of healthcare through various means may limit the Company’s commercial
opportunity and reduce any associated revenue and profits. The Company expects proposals to implement similar government control
to continue. In addition, increasing emphasis on managed care will continue to put pressure on the pricing of pharmaceutical and
biopharmaceutical products. Cost control initiatives could decrease the price that the Company or any current or potential collaborators
could receive for any of its human therapeutic products and could adversely affect its profitability. In addition, in Canada and
in many other countries, pricing and/or profitability of some or all prescription pharmaceuticals and biopharmaceuticals are subject
to government control.
If the Company fails to obtain acceptable
prices or an adequate level of reimbursement for its products, the sales of its products would be adversely affected or there may
be no commercially viable market for its products.
The Company may not obtain adequate protection for its
products through its intellectual property.
The Company’s success depends, in
large part, on its ability to protect its competitive position through patents, trade secrets, trademarks and other intellectual
property rights. The patent positions of pharmaceutical and biopharmaceutical firms, including the Company, are uncertain and involve
complex questions of law and fact for which important legal issues remain unresolved. The patents issued or to be issued to the
Company may not provide the Company with any competitive advantage. The Company’s patents may be challenged by third parties
in patent litigation, which is becoming widespread in the biopharmaceutical industry. In addition, it is possible that third parties
with products that are very similar to the Company’s will circumvent its patents by means of alternate designs or processes.
The Company may have to rely on method of use protection for its compounds in development and any resulting products, which may
not confer the same protection as compounds per se. The Company may be required to disclaim part of the term of certain patents.
There may be prior applications of which the Company is not aware that may affect the validity or enforceability of a patent claim.
There also may be prior applications which are not viewed by the Company as affecting the validity or enforceability of a claim,
but which may, nonetheless ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that
the Company’s patents would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology
or product would be found by a court to infringe the Company’s patents. Applications for patents and trademarks in Canada,
the United States and in foreign markets have been filed and are being actively pursued by the Company. Pending patent applications
may not result in the issuance of patents, and the Company may not develop additional proprietary products which are patentable.
Patent applications relating to or affecting
the Company’s business have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions.
A number of the technologies in these applications or patents may conflict with the Company’s technologies, patents or patent
applications, and such conflict could reduce the scope of patent protection which the Company could otherwise obtain. The Company
could become involved in interference proceedings in the United States in connection with one or more of its patents or patent
applications to determine priority of invention. The Company’s granted patents could also be challenged and revoked in opposition
proceedings in certain countries outside the United States.
In addition to patents, the Company relies
on trade secrets and proprietary know-how to protect its intellectual property. The Company generally requires its employees, consultants,
outside scientific collaborators and sponsored researchers and other advisors to enter into confidentiality agreements. These agreements
provide that all confidential information developed or made known to the individual during the course of the individual’s
relationship with the Company is to be kept confidential and not disclosed to third parties except in specific circumstances. In
the case of the Company’s employees, the agreements provide that all of the technology which is conceived by the individual
during the course of employment is the Company’s exclusive property. These agreements may not provide meaningful protection
or adequate remedies in the event of unauthorized use or disclosure of the Company’s proprietary information. In addition,
it is possible that third parties could independently develop proprietary information and techniques substantially similar to those
of the Company or otherwise gain access to the Company’s trade secrets.
The Company currently has the right to
use certain technology under license agreements with third parties. The Company’s failure to comply with the requirements
of material license agreements could result in the termination of such agreements, which could cause the Company to terminate the
related development program and cause a complete loss of its investment in that program.
As a result of the foregoing factors, the
Company may not be able to rely on its intellectual property to protect its products in the marketplace.
The Company may infringe the intellectual property rights
of others.
The Company’s commercial success
depends significantly on its ability to operate without infringing the patents and other intellectual property rights of third
parties. There could be issued patents of which the Company is not aware that its products infringe or patents, that the Company
believes it does not infringe, but that it may ultimately be found to infringe. Moreover, patent applications are in some cases
maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently
occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because
patents can take many years to issue, there may be currently pending applications of which the Company is unaware that may later
result in issued patents that its products infringe.
The biopharmaceutical industry has produced
a proliferation of patents, and it is not always clear to industry participants, including the Company, which patents cover various
types of products. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.
The Company is aware of, and has reviewed, third party patents relating to the treatment of Alzheimer’s disease, diabetes
and other relevant indication areas. In the event of infringement or violation of another party’s patent, the Company may
not be able to enter into licensing arrangements or make other arrangements at a reasonable cost. Any inability to secure licenses
or alternative technology could result in delays in the introduction of the Company’s products or lead to prohibition of
the manufacture or sale of the products.
Patent litigation is costly and time consuming and may
subject the Company to liabilities.
The Company’s involvement in any
patent litigation, interference, opposition or other administrative proceedings will likely cause the Company to incur substantial
expenses, and the efforts of its technical and management personnel will be significantly diverted. In addition, an adverse determination
in litigation could subject the Company to significant liabilities.
The Company operates in a fiercely competitive business
environment.
The biopharmaceutical industry is highly
competitive. Competition comes from healthcare companies, pharmaceutical companies, large and small biotech companies, specialty
pharmaceutical companies, universities, government agencies and other public and private companies. Research and development by
others may render the Company’s technology or products non-competitive or obsolete or may result in the production of treatments
or cures superior to any therapy the Company is developing or will develop. In addition, failure, unacceptable toxicity, lack of
sales or disappointing sales or other issues regarding competitors’ products or processes could have a material adverse effect
on the Company’s product candidates, including its clinical candidates or its lead compounds.
The market price of the Company’s Common Shares
may experience a high level of volatility due to factors such as the volatility in the market for biotechnology stocks generally,
and the short-term effect of a number of possible events.
The Company is a public growth company
in the biotechnology sector. As frequently occurs among these companies, the market price for the Company’s Common Shares
may experience a high level of volatility. For example, in the last year, the Company’s stock price has ranged from a low
of US$1.77 to a high of US$9.30. Numerous factors, including many over which the Company has no control, may have a significant
impact on the market price of Common Shares including, among other things, (i) clinical and regulatory developments regarding the
Company’s products and product candidates and those of its competitors, (ii) arrangements or strategic partnerships by the
Company, (iii) other announcements by the Company or its competitors regarding technological, product development, sales or other
matters, (iv) patent or other intellectual property achievements or adverse developments, (v) arrivals or departures of key personnel;
(vi) government regulatory action affecting the Company’s product candidates in the United States, Canada and foreign countries,
(vii) actual or anticipated fluctuations in the Company’s revenues or expenses, (viii) general market conditions and fluctuations
for the emerging growth and biopharmaceutical market sectors, (ix) reports of securities analysts regarding the expected performance
of the Company, and (x) events related to threatened, new or existing litigation. Listing on NASDAQ and the TSX may increase share
price volatility due to various factors including, (i) different ability to buy or sell the Company’s Common Shares, (ii)
different market conditions in different capital markets; and (iii) different trading volume.
In addition, the stock market in recent
years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating
performance of individual companies. These broad market fluctuations may adversely affect the price of Common Shares, regardless
of the Company’s operating performance. In addition, sales of substantial amounts of Common Shares in the public market after
any offering, or the perception that those sales may occur, could cause the market price of Common Shares to decline.
Furthermore, shareholders may initiate
securities class action lawsuits if the market price of the Company’s stock drops significantly, which may cause the Company
to incur substantial costs and could divert the time and attention of its management.
The Company is highly dependent on third parties.
The Company is or may in the future be
dependent on third parties for certain raw materials, product manufacture, marketing and distribution and, like other biotechnology
and pharmaceutical companies, upon medical institutions to conduct clinical testing of its potential products. Although the Company
does not anticipate any difficulty in obtaining any such materials and services, no assurance can be given that the Company will
be able to obtain such materials and services.
The Company is subject to intense competition for its
skilled personnel, and the loss of key personnel or the inability to attract additional personnel could impair its ability to conduct
its operations.
The Company is highly dependent on its
management and its clinical, regulatory and scientific staff, the loss of whose services might adversely impact its ability to
achieve its objectives. Recruiting and retaining qualified management and clinical, scientific and regulatory personnel is critical
to the Company’s success. Competition for skilled personnel is intense, and the Company’s ability to attract and retain
qualified personnel may be affected by such competition.
The Company’s business involves the use of hazardous
materials which requires the Company to comply with environmental regulation.
The Company’s discovery and development
processes involve the controlled use of hazardous materials. The Company is subject to federal, provincial and local laws and regulations
governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. The risk of accidental
contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could
be held liable for any damages that result, and any such liability could exceed the Company’s resources. The Company may
not be adequately insured against this type of liability. The Company may be required to incur significant costs to comply with
environmental laws and regulations in the future, and its operations, business or assets may be materially adversely affected by
current or future environmental laws or regulations.
Legislative actions, potential new accounting pronouncements
and higher insurance costs are likely to impact the Company’s future financial position or results of operations.
Compliance with changing regulations regarding
corporate governance and public disclosure, notably with respect to internal controls over financial reporting, may result in additional
expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty
for companies such as ours, and insurance costs are increasing as a result of this uncertainty.
Future healthcare reforms may produce adverse consequences.
Healthcare reform and controls on healthcare
spending may limit the price the Company can charge for any products and the amounts thereof that it can sell. In particular, in
the United States, the federal government and private insurers have considered ways to change, and have changed, the manner in
which healthcare services are provided. Potential approaches and changes in recent years include controls on healthcare spending
and the creation of large purchasing groups. In the future, the U.S. government may institute further controls and different reimbursement
schemes and limits on Medicare and Medicaid spending or reimbursement. These controls, reimbursement schemes and limits might affect
the payments the Company could collect from sales of any of its products in the United States. Uncertainties regarding future health
care reform and private market practices could adversely affect the Company’s ability to sell any products profitably in
the United States. Election of new or different political or government officials in large market countries could lead to dramatic
changes in pricing, regulatory approval legislation and reimbursement which could have material impact on product approvals and
commercialization.
The Company faces an unproven market for its future
products.
The Company believes that there will be
many different applications for products successfully derived from its technologies and that the anticipated market for products
under development will continue to expand. No assurance, however, can be given that these beliefs will prove to be correct due
to competition from existing or new products and the yet to be established commercial viability of the Company’s products.
Physicians, patients, formularies, third party payers or the medical community in general may not accept or utilize any products
that the Company or its collaborative partners may develop.
The Company may be faced with future lawsuits related
to secondary market liability.
Securities legislation in Canada has recently
changed to make it easier for shareholders to sue. These changes could lead to frivolous law suits which could take substantial
time, money, resources and attention or force the Company to settle such claims rather than seek adequate judicial remedy or dismissal
of such claims.
The Company may encounter unforeseen emergency situations
and information technology breaches.
Despite the implementation of security
measures, any of the Company’s, its collaborators’ or its third party service providers’ internal computer systems
are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and
electrical failure. Any resulting system failure, accident or security breach could result in a material disruption of the Company’s
operations. Likewise, data privacy or security breaches by employees and others with permitted access to our systems, including
in some cases third-party service providers to which we may outsource certain business functions, may pose a risk that sensitive
data, including intellectual property or personal information, may be exposed to unauthorized persons or to the public. While we
have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent service
interruptions, or identify breaches in our systems, that could adversely affect our business and/or result in the loss of critical
or sensitive information, which could result in financial, legal, business or reputational harm to us.
The
Company’s technologies may become obsolete.
The pharmaceutical industry is characterized
by rapidly changing markets, technology, emerging industry standards and frequent introduction of new products. The introduction
of new products embodying new technologies, including new manufacturing processes, and the emergence of new industry standards
may render the Company’s technologies obsolete, less competitive or less marketable.
Our product candidates may cause undesirable serious
adverse events during clinical trials that could delay or prevent their regulatory authorization, approval or other permission
to conduct further testing or commence commercialization.
Our product candidates in clinical development,
including ELND005 can potentially cause adverse events. In 2010, together with our collaborator, Elan, we completed a Phase 2 study
that evaluated three dose groups of ELND005 and a placebo group in mild to moderate Alzheimer’s disease patients. The study
included four treatment arms: placebo, 250mg bid, 1000mg bid and 2000mg bid. The two high dose ELND005 groups were electively discontinued
in 2009 by the companies due to an observed imbalance of serious adverse events, including deaths. No causal relationship could
be determined between these higher doses and the events.
Of the 351 subjects who received study
drug, a total of 171 subjects received either 250mg bid or placebo, the rest were in the two discontinued high dose groups. The
overall incidence of adverse events in the 250mg bid and placebo groups was 87.5% versus 91.6%; and the incidence of withdrawals
due to adverse events was 10.2% versus 9.6%, respectively. The incidence of serious adverse events in the 250mg bid and placebo
groups was 21.6% versus 13.3%, but the incidence of serious adverse events that were considered drug related was 2.3% and 2.4%,
respectively. The total number of deaths in the study was five and four in the 1000mg bid and 2000mg bid dose groups versus one
and zero in the 250mg bid and placebo groups, respectively. These deaths occurred between August 2008 and November 2009. The study’s
independent safety monitoring committee reviewed the final safety results and continued to conclude that a causal relationship
between the deaths and drug could not be determined.
The most common adverse events in the 250mg
bid group that were >5% in incidence and double the placebo rate were: falls (12.5% vs. placebo 6%), depression (11.4% vs. placebo
4.8%), and confusional state (8% vs. placebo 3.6%). Because our product candidates have been tested in relatively small patient
populations and for limited durations, additional adverse events may be observed as their development progresses.
Adverse events caused by any of our product
candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial
of regulatory approval by the FDA or other non-U.S. regulatory authorities for any or all targeted indications. This, in turn,
could prevent the commercialization of our product candidates and the generation of revenues from their sale. In addition, if our
product candidates receive authorization, marketing approval or other permission and we or others later identify adverse events
caused by the product, the material adverse consequences that may arise, include, but are not limited to:
| • | regulatory authorities may withdraw their authorization, approval, or other permission to test or market the candidate product; |
| • | we may be required to recall the product, change the way the product is administered, conduct additional clinical trials or
change the labeling of the product; |
| • | a product may become less competitive and product sales may decrease; or |
| • | our reputation may suffer. |
Any one or a combination of these events
could prevent us from achieving or maintaining market acceptance or could substantially increase the costs and expenses of commercializing
the product candidate, which in turn could delay or prevent us from generating significant revenues from the sale of such products.
The Company may be subject to costly product liability
claims and may not have adequate insurance.
The conduct of clinical trials in humans
involves the potential risk that the use of our product candidates will result in adverse effects. The Company currently
maintains product liability insurance for their clinical trials; however, such liability insurance may not be adequate to fully
cover any liabilities that arise from clinical trials of our product candidates. The Company may not have sufficient resources
to pay for any liabilities resulting from a claim excluded from, or beyond the limit of, our insurance coverage.
Clinical Study Results from our product candidates may
not support further clinical development.
The clinical studies performed to evaluate
the safety, tolerability and efficacy of our product candidates, including ELND005, can yield study results that may or may not
support further clinical development. In June 2015, the Company announced that a Phase 2/3 study of neuropsychiatric drug candidate
ELND005 did not meet its primary efficacy endpoint. In the study, both the treatment and placebo groups showed a significant, but
similar, reduction in agitation and aggression relative to baseline. There was a greater than expected reduction in agitation and
aggression observed in the placebo group as measured in weeks 4, 8 and 12 in the study. The safety and tolerability profile of
ELND005 was consistent with previous studies in AD at the 250mg bid dose. The Phase 2/3 clinical study evaluated the efficacy,
safety and tolerability of ELND005 over 12 weeks of treatment in patients with mild to severe AD, who were experiencing at least
moderate levels of agitation/aggression. The randomized, double-blind, placebo-controlled study enrolled 350 AD patients (175 subjects
per study arm). The primary efficacy endpoint of the study was the change from baseline in the Neuropsychiatric Inventory –
Clinician (“NPI-C”) scale of agitation and aggression. An analysis of the full study dataset is being performed. A
group of expert external clinical advisors is being consulted to determine any future development of ELND005. The results of this
data analysis and clinical advisory interaction may or may not support the further development of ELND005. Future development may
include evaluating ELND005 as a treatment of neuropsychiatric symptoms such as agitation and aggression in Alzheimer’s disease
patients or potentially narrower patient populations or other disease indications. Any ELND005 development plan will be strategically
focused to advance the drug candidate in the targeted patient population and therefore may differ from previously proposed development
plans. Further, interactions with regulatory authorities including the FDA may or may not support proposed ELND005 clinical plans.
Regulatory interactions may also result in modifications to the ELND005 development plan potentially increasing the time and cost
of clinical development activities.
U.S. holders of our Common Shares may suffer adverse
tax consequences if we are characterized as a Passive Foreign Investment Company (“PFIC”).
There is a risk that we will be classified
as a PFIC for U.S. federal income tax purposes. Our status as a PFIC could result in a reduction in the after-tax return to U.S.
Holders of our Common Shares and may cause a reduction in the value of such shares. We will be classified as a PFIC for any taxable
year in which (i) at least 75% of our gross income is passive income or (ii) at least 50% of the average value of all of our assets
produce or are held for the production of passive income. For this purpose, passive income includes dividends, interest, and royalties
and rents that are not derived in the active conduct of a trade or business, as well as gains from the sale of assets that produce
passive income. Based on the composition of our income and valuation of our assets, we do not believe we were a PFIC for the taxable
year ended June 30, 2015. However, there is no assurance that we will not be classified as a PFIC in subsequent taxable years.
If we are classified as a PFIC, U.S. Holders of our common shares could be subject to greater U.S. income tax liability than might
otherwise apply, imposition of U.S. income tax in advance of when tax would otherwise apply, and detailed tax filing requirements
that would not otherwise apply. Subject to certain exceptions, once a U.S. Holder’s shares are treated as shares in a PFIC,
they remain shares in a PFIC. Dividends received by a U.S. Holder from a PFIC will not constitute qualified dividend income qualifying
for lower tax rates. The PFIC rules are complex and U.S. Holders of our common shares are urged to consult their own tax advisors
regarding the possible application of the PFIC rules to them in their particular circumstances. See “Taxation—United
States Federal Income Taxation.”
| Item 4. | Information on the Corporation |
Name, Address and Incorporation
Transition Therapeutics Inc. was incorporated
pursuant to the Business Corporations Act (Ontario) on July 6, 1998 as “Transition Therapeutics and Diagnostics Inc.”
The Corporation filed articles of amendment on October 12, 2000 and on October 19, 2000 to create a class of non-voting shares
(the “Class B Shares”) and to amend certain attributes of its Common Shares. On November 2, 2000, the Corporation filed
articles of amendment to delete its private company restrictions. On December 14, 2000, the Corporation filed articles of amendment
to change its name to “Transition Therapeutics Inc.” and effect a split of its issued and outstanding Common Shares
on the basis of 3.25649 Common Shares for each previously issued and outstanding Common Share. On December 14, 2004, the Corporation
filed articles of amendment to eliminate the Class B Shares from its authorized capital. In July 2007, the Corporation completed
the consolidation of its issued and outstanding Common Shares on the basis of one (1) post-consolidation Common Share for every
nine (9) pre-consolidation Common Shares.
The
Corporation’s principal and registered office is located at 101 College Street, Suite 220, Toronto, Ontario, Canada, M5G
1L7, and its telephone number is (416) 260-7770. The Corporation’s agent for service of process in the United States
is CT Corporation System located at 111 Eighth Avenue, New York, NY 10011.
Intercorporate Relationships
The Corporation has three wholly-owned
material subsidiaries: Waratah Pharmaceuticals Inc. (“Waratah”), which is incorporated under the Canada Business Corporations
Act, Transition Therapeutics Ireland Limited (“Transition Ireland”) (formerly Elan Science Ten Limited) which is incorporated
under the Companies Acts of 1963 to 2009 in Dublin, Ireland and Transition Therapeutics (USA) Inc. (“Transition USA”),
which is incorporated under the laws of the State of California.
The chart below illustrates the corporate
structure:
General Development of the Business
Three Year History
On August 30, 2012, the Corporation announced
that Elan Pharma International Limited (“Elan”) had dosed the first patient in a Phase 2 clinical study of ELND005
in bipolar disorder. The study is a placebo-controlled, safety and efficacy study of oral ELND005 as an adjunctive maintenance
treatment in patients with Bipolar 1 Disorder to delay the time to occurrence of mood episodes. As the first patient has been dosed
in the study, the Corporation received a milestone payment of US$11 million from Elan.
On November 28, 2012, Transition announced
that Elan had enrolled the first patient in a Phase 2 study of ELND005 for the treatment of agitation/aggression in patients with
moderate to severe Alzheimer's disease.
On April 30, 2013, Transition announced
the results of a five-week proof of concept clinical study of TT401 in type 2 diabetic and obese non-diabetic subjects. In the
study, TT401, a once-weekly administered peptide, demonstrated significant improvements in glycemic control and reductions in body
weight.
On June 17, 2013, Transition announced
that Eli Lilly and Company (“Lilly”) had exercised its option to assume all development and commercialization rights
to type 2 diabetes drug candidate TT401. In conjunction with this assumption of rights, Transition received a US$7 million milestone
payment from Lilly.
On July 17, 2013, Transition announced
that the US Food and Drug Administration (“FDA”) has granted Fast Track Designation to the development program for
ELND005 which was submitted for the treatment of Neuropsychiatric Symptoms (“NPS”) in Alzheimer's disease (“AD”).
The FDA concluded that the development program for ELND005 for the treatment of NPS in AD meets their criteria for Fast Track Designation.
On July 23, 2013, Transition announced
the exclusive licensing of worldwide rights to a novel small molecule transcriptional regulator ("TT601") from Lilly
for the treatment of osteoarthritis ("OA") pain.
On August 15, 2013, the Corporation announced
the closing of its private placement financing issuing 2,625,300 units of the Corporation to certain existing shareholders, board
members and management at a price of US$4.19 per unit, raising gross proceeds of US$11.0 million. Each unit consists of (i) one
common share, (ii) 0.325 Common Share purchase warrant with a purchase price of US$4.60 per whole warrant and (iii) 0.4 Common
Share purchase warrant with a purchase price of US$6.50 per whole warrant. Each whole warrant will entitle the holder, within two
years of the closing date, to purchase one additional common share in the capital of the Corporation. If and when all of the warrants
are exercised, the Corporation may realize up to an additional US$10.7 million in proceeds.
On September 4, 2013, Transition announced
the first patient was dosed in a Phase 2a study of ELND005 in Down syndrome. Study ELND005-DS201 will evaluate the safety and pharmacokinetics
of two doses of ELND005 and placebo in young adults with Down syndrome without dementia, and will also include select cognitive
and behavioural measures.
On December 18, 2013 Perrigo Company plc
“(Perrigo”) completed its acquisition of Elan Company plc and all of its subsidiaries. With this acquisition, Perrigo
acquired all of the rights and obligations of Elan under the collaboration agreement (“ELND005 Agreement”) between
Waratah, a wholly-owned subsidiary of the Corporation, and Elan for the development and commercialization of ELND005.
On February 28, 2014 Transition announced
the acquisition of an Irish domiciled company, the holder of all the development and commercialization rights of neuropsychiatric
drug candidate, ELND005. Going forward, Transition’s wholly owned subsidiary, Transition Therapeutics Ireland Limited, will
be responsible for all future development and commercialization activities of the ELND005 drug candidate. In parallel with this
acquisition, Perrigo has invested US$15 million and received 2,255,640 Transition common shares representing approximately a 7%
ownership stake in Transition. Perrigo will also be eligible to receive up to US$40 million in approval and commercial milestone
payments and a 6.5% royalty on net sales of ELND005 products and sublicense fees received. As a result of the transaction, Perrigo
transferred its rights under the ELND005 Agreement to Transition Ireland.
On April 7, 2014, Transition provided a
clinical development update and announced the decision to focus ELND005 development on the completion of current Phase 2 clinical
studies in Agitation and Aggression in Alzheimer’s disease and a Phase 2a study in Down syndrome. A decision was also made
to discontinue the clinical study of bipolar subjects following a commercial assessment of the size and length of the bipolar study,
and costs and timelines for its completion. This decision was not based on any analysis of efficacy data and there were no adverse
safety findings that contributed to this decision. Transition also announced that a Phase 2 study of TT401 is in the final preparation
stage with dosing expected to commence in calendar Q2 2014 and that there would be no further development of osteoarthritis preclinical
candidate, TT601. This decision was made after expanded toxicology study data and regulatory interactions revealed the development
plan for TT601 would be restricted and timelines delayed.
On May 15, 2014, Transition announced the
dosing of the first patient in a Phase 2 clinical study of TT401 (LY2944876), a drug candidate for the treatment of type 2 diabetes.
The study is expected to enroll up to 375 type 2 diabetes subjects and will be performed by Transition's development partner, Lilly.
The objectives of the study will be to evaluate the safety and effectiveness of TT401 compared to once-weekly exenatide extended
release and placebo.
On June 23, 2014, the Corporation announced
the closing of its private placement financing through which 3,195,487 units of the Corporation were purchased by certain existing
shareholders, board members and management of the Corporation at a price of US$5.32 per unit for gross proceeds of $18,319,000
(US$17.0 million). Each unit consisted of one common share and 0.61 Common Share purchase warrant with a purchase price of US$7.10
per whole warrant. Each whole warrant will entitle the holder, within two years of the closing date, to purchase one additional
common share in the capital of the Corporation. If and when all of the warrants are exercised, the Corporation will realize an
additional US$13.8 million in proceeds.
On July 11, 2014, the Corporation announced
that Carl Damiani has been appointed Chief Operating Officer of Transition.
On November 4, 2014, Transition announced
findings from a Phase 2 study of neuropsychiatric drug candidate, ELND005, as an adjunctive maintenance treatment for bipolar disorder
type I patients (BPD). Overall, ELND005 had an acceptable safety and tolerability profile in the study, and showed numerical differences
in the number of mood event recurrences favoring ELND005.
On November 20, 2014, the Corporation announced
the results of a clinical study of neuropsychiatric drug candidate ELND005 in young adults with Down syndrome. TTIL completed this
first study in Down syndrome subjects without dementia to allow optimal dose selection for future larger studies. The study enrolled
23 Down syndrome subjects in three study arms over a four-week treatment period. At the doses evaluated, ELND005 was determined
to have an acceptable safety and tolerability profile and there were no serious adverse events reported.
On November 24, 2014, Transition announced
results from a thorough QT (tQT) study in which no QT effects were observed at supra-therapeutic single doses of neuropsychiatric
drug candidate, ELND005. A tQT study is a specialized clinical trial required by the FDA for the approval of most drugs in development.
From a safety perspective, drugs that have no QT prolongation effects are particularly desirable for administration to an elderly
Alzheimer’s disease (“AD”) population.
In December, 2014, TT401 diabetes drug
candidate development partner Lilly informed Transition that the 70% patient enrollment milestone had been achieved triggering
the payment of the third and final milestone payment which in aggregate totalled US$14 million. The Corporation has no additional
funding obligations related to this Phase 2 clinical study.
On February 18, 2015, the Corporation announced
the closing of a public offering of US$23 million of common shares equivalent to an aggregate of 3,538,461 common shares at a price
to the public of US$6.50 per share, including 461,538 common shares issued upon the exercise of the underwriters’ over-allotment
option. Cowen and Company, LLC was the sole book-running manager and Canaccord Genuity Inc., H.C. Wainwright & Co., LLC, and
LifeSci Capital LLC were the co-managers for the offering.
In February, 2015, development partner
Lilly informed Transition that 420 type 2 diabetic subjects have been enrolled in the current Phase 2 study thereby completing
the enrollment phase of the study.
On March 2, 2015, the Corporation announced
that its wholly owned subsidiary, Transition Ireland completed enrolment of 350 patients in the Phase 2 clinical study evaluating
neuropsychiatric drug candidate ELND005 as a treatment for agitation and aggression in patients with Alzheimer’s disease
(“AD”). The objectives of the Phase 2 clinical study (“Harmony AD Study”) are to evaluate the efficacy,
safety and tolerability of ELND005 over 12 weeks of treatment in patients with mild to severe AD, who are experiencing at least
moderate levels of agitation/aggression.
On March 26, 2015, Transition announced
results from two phase 1 clinical studies of neuropsychiatric drug candidate ELND005. These studies, an absorption-metabolism-excretion
(“AME”) study and a renal clearance study, are specialized clinical pharmacology trials that are required by the United
States Food and Drug Administration (“FDA”) for the approval of most drugs in development.
On May 6, 2015, the Corporation announced
its wholly-owned subsidiary, Transition Ireland has exclusively licensed worldwide rights to a novel small molecule drug candidate
(“TT701”) from Lilly.
On June 16, 2015, Transition announced
that Carl Damiani has been appointed as President and Chief Operating Officer of Transition.
On June 24, 2015, the Corporation announced
results of Clinical Study of ELND005 in Agitation and Aggression in Patients with Alzheimer’s Disease. The Phase 2/3 clinical
study of neuropsychiatric drug candidate ELND005 did not meet its primary efficacy endpoint. In the study, both the treatment and
placebo groups showed a significant, but similar, reduction in agitation and aggression relative to baseline. There was a greater
than expected reduction in agitation and aggression observed in the placebo group as measured in weeks 4, 8 and 12 in the study.
The safety and tolerability profile of ELND005 was consistent with previous studies in Alzheimer’s disease at the 250mg bid
dose.
Business
of the Corporation
Market sizes appearing in this annual
report are estimates of potential markets only. The Corporation makes no claim that such figures represent sales figures actually
anticipated should the Corporation successfully develop and receive approval for any of its product candidates.
General
The Corporation’s principal business
activity is the researching and developing of therapeutic agents.
The Corporation has two entities (Transition
Ireland and Waratah) that are developing novel pharmaceuticals for disease indications with large markets. The Corporation’s
other two entities, (Transition Therapeutics Inc. and Transition Therapeutics USA) provide development services to support the
clinical and non-clinical activities of Transition Ireland and Waratah. The Corporation’s entities each perform different
activities and have different business models.
Transition Ireland is developing two drug
candidates; neuropsychiatric candidate ELND005 and androgen deficiency candidate TT701. In the recently completed Phase 2/3 study
in Alzheimer’s disease patients, ELND005 did not meet the study’s primary efficacy endpoint. Transition Ireland is
currently conducting a thorough review of all data from the studies with external clinical advisors to determine the potential
future development path for this asset. Transition Ireland is also developing TT701 toward a Phase 2 clinical study expected to
commence in fiscal 2016. TT701 is a selective androgen receptor modulator (“SARM”) that has been shown in a Phase 2
study to significantly increase lean body mass and a measurement of muscle strength in male subjects.
Waratah’s lead development asset
is diabetes drug candidate TT401. Currently, Waratah’s development partner Lilly, is performing a 420 patient, Phase 2 clinical
study of TT401 in type 2 diabetes individuals.
Transition Therapeutics Inc. and Transition
USA provide development services in support of the clinical and non-clinical activities of Transition Ireland and Waratah. The
Corporation operates in one operating segment, the research and development of therapeutic agents.
The Corporation’s strategic focus
is on building shareholder value. To effectively achieve this, the Corporation has established a core business model based on the
following steps: 1) identifying attractive early stage technologies targeting large markets; 2) moving these products through the
clinic to provide validation; 3) considering additional product opportunities; 4) identifying partners with the infrastructure
and resources to complete late stage clinical development and product commercialization; and 5) identifying new product opportunities
to expand the Corporation’s product pipeline.
In addition to this business model, Transition
Ireland has a separate and distinct business. Transition Ireland acquired the development and commercialization rights to the late
stage neuropsychiatric asset, ELND005. Transition Ireland’s business model is to perform later stage clinical development,
including late stage Phase 2 and Phase 3 clinical studies for this asset and potentially other drug candidates, including TT701
which was acquired from Lilly in May, 2015. Transition Ireland has contracted development services from contract research organizations,
Transition Therapeutics Inc., Transition Therapeutics USA and third parties to perform the development activities of ELND005. The
development of un-partnered assets, such as ELND005, will allow Transition Ireland to access the economics associated with advancing
assets to regulatory approval.
Technology
The Corporation’s technologies in
development are as follows: (i) Transition Ireland is developing ELND005 for the treatment of Alzheimer’s disease and Down
syndrome as well as TT701 for the treatment of androgen deficiencies and (ii) Waratah is developing TT401for the treatment of diabetes.
ELND005 for Alzheimer`s Disease
The Corporation’s subsidiary, Transition
Ireland, is developing small molecule therapeutics that act by preventing the formation of and breaking down amyloid beta peptide
aggregates. The accumulation of amyloid beta has been connected to several diseases including Alzheimer’s disease, AA Amyloidosis
and others.
The Product
ELND005, scyllo-inositol, is an orally
bioavailable small molecule that is being investigated for neuropsychiatric indications on the basis of its proposed dual mechanism
of action, which includes β-amyloid anti-aggregation and regulation of brain myo-inositol levels. An extensive clinical program
of Phase 1 and Phase 2 studies have been completed with ELND005. The Phase 2 study (ELND005-AD201) which evaluated ELND005 in more
than 350 mild to moderate AD patients was published in the peer-reviewed journal, Neurology. The Neurology article
was entitled “A Phase 2 randomized trial of ELND005, scyllo-inositol, in mild-moderate Alzheimer’s disease”.
On July 17, 2013, the FDA granted Fast
Track Designation to the development program for ELND005 which was submitted for the treatment of Neuropsychiatric Symptoms (“NPS”)
in Alzheimer's disease. The FDA concluded that the development program for ELND005 for the treatment of NPS in AD meets their criteria
for Fast Track Designation.
On June 24, 2015, the Corporation reported
that a Phase 2/3 study of ELND005 in Alzheimer’s disease patients with at least moderate levels of agitation/aggression did
not meet its primary endpoint. In the study, both the treatment and placebo groups showed a significant, but similar, reduction
in agitation and aggression relative to baseline. There was a greater than expected reduction in agitation and aggression observed
in the placebo group as measured in weeks 4, 8 and 12 in the study. The safety and tolerability profile of ELND005 was consistent
with previous studies in AD at the 250mg bid dose. The Company is performing a thorough review of the data from the completed study
in agitation and aggression. An external clinical advisory board is working with the Company to evaluate the data and consider
potential future clinical development paths for ELND005.
Alzheimer’s Disease – The Disease
and the Market Opportunity
Alzheimer’s disease is a progressive
brain disorder that gradually destroys a person’s memory and ability to learn, reason, make judgments, communicate and carry
out daily activities. As Alzheimer’s disease progresses, individuals may also experience changes in personality and behaviour,
such as anxiety, suspiciousness or agitation, as well as delusions or hallucinations. In late stages of the disease, individuals
need help with dressing, personal hygiene, eating and other basic functions. People with Alzheimer’s disease die an average
of eight years after first experiencing symptoms, but the duration of the disease can vary from three to 20 years.
The disease mainly affects individuals
over the age of 65 and it is estimated over 18 million people are suffering from Alzheimer’s disease worldwide. The likelihood
of developing late-onset Alzheimer’s approximately doubles every five years after age 65. By age 85, the risk reaches nearly
50 percent. In the United States, Alzheimer’s disease is the sixth leading cause of death and current direct/indirect costs
of caring for an estimated 5.4 million Alzheimer’s disease patients are at least US$100 billion annually. Scientists have
so far discovered one gene that increases risk for late-onset of the disease.
Current FDA approved Alzheimer’s
disease medications may temporarily delay memory decline for some individuals, but none of the currently approved drugs are known
to stop the underlying degeneration of brain cells. With no approved therapies for neuropsychiatric symptoms of Alzheimer’s
disease, certain drugs approved to treat other illnesses may sometimes help with the emotional and behavioural symptoms of Alzheimer’s
disease.
Neuropsychiatric symptoms associated with
Alzheimer’s disease are a significant problem for Alzheimer’s disease patients and their caregivers. Approximately
90% of Alzheimer’s disease patients develop neuropsychiatric symptoms, and up to 60% develop agitation/aggression over the
course of their disease. Agitation/aggression are among the most disruptive neuropsychiatric symptoms in Alzheimer’s disease
and are associated with increased morbidity and caregiver burden. With an aging population, there is a great need for new
therapies that can effectively reduce or delay the neuropsychiatric symptoms associated with Alzheimer’s disease.
ELND005 for Down Syndrome
On November 20, 2014, the Corporation announced
the results of a clinical study of neuropsychiatric drug candidate ELND005 in young adults with Down syndrome. Transition’s
wholly-owned subsidiary, Transition Therapeutics Ireland Limited (“TTIL”) completed this first study in Down syndrome
subjects without dementia to allow optimal dose selection for future larger studies.
The study enrolled 23 Down syndrome subjects
in three study arms over a four-week treatment period: placebo (n=6), 250mg once daily (QD) (n=5), and 250mg twice daily (BID)
(n=12). ELND005, at the doses evaluated, was determined to have an acceptable safety and tolerability profile and there were no
serious adverse events reported in the study. Treatment emergent adverse events were reported in seven of the subjects receiving
ELND005 and all were deemed to be mild in severity. The two ELND005 doses achieved the plasma levels expected in pharmacokinetic
modeling and will inform the selection of a higher dose in a future clinical study.
The Product
Excess activity of genes on chromosome
21, such as amyloid precursor protein (APP) and sodium-myo-inositol active transporter (SMIT), are thought to play a role in the
cognitive dysfunction of DS. Life-long exposure to increased amyloid and myo-inositol levels in the brain are thought to lead to
synaptic dysfunction and cognitive disability. ELND005 may have the potential to improve cognition in DS by decreasing amyloid
levels and regulating myo-inositol-dependent neuronal signaling.
Down Syndrome – The Disease and the
Market Opportunity
Down syndrome (DS, Trisomy 21), caused
by an extra copy of chromosome 21, is the most common genetic form of intellectual disability with a prevalence of approximately
1 in 700 live births in the US. Children with DS exhibit developmental delay and various degrees of intellectual disability, while
adults are at increased risk of Alzheimer’s dementia. There are currently no drugs approved for the treatment of cognitive
dysfunction in DS.
TT401 for Type 2 Diabetes
In March, 2010, the Corporation acquired
the rights to a series of preclinical compounds from Lilly in the area of diabetes. Under the licensing and collaboration agreement,
the Corporation receives exclusive worldwide rights to develop and potentially commercialize a class of compounds.
The Product
In preclinical diabetes models, the lead
compound, TT401 has shown potential to provide glycemic control and other beneficial effects including weight loss. In June, 2012,
the Corporation announced the results of the Phase 1 clinical study of type 2 diabetes drug candidate, TT401. The Phase 1, double-blind,
placebo-controlled randomized study enrolled 48 non-diabetic obese subjects in six cohorts evaluating six escalating subcutaneous
single doses of TT401. TT401 demonstrated an acceptable safety and tolerability profile in non-diabetic obese subjects in the study.
TT401 exhibited the expected pharmacological effect on glucose and pharmacodynamic biomarkers at doses that were safe and tolerable.
The pharmacokinetic profile, assessed over 28 days, demonstrated a half-life consistent with once-weekly dosing.
In April, 2013, Transition announced the
results of a five-week proof of concept clinical study of TT401 in type 2 diabetes and obese non-diabetic subjects. The study enrolled
diabetic patients at five dosing levels and non-diabetic obese patients at one dose level. All dosing cohorts received five doses
over a five week period. Diabetic patients were on stable doses of metformin.
At the end of the treatment period, TT401-treated
patients in the 3 highest dose groups experienced statistically significant reductions in mean fasting plasma glucose relative
to placebo. Statistically significant mean body weight reduction relative to baseline occurred in the three highest dose groups.
A similar reduction in body weight was also observed in the obese non-diabetic cohort. TT401 demonstrated an acceptable safety
and tolerability profile at all doses evaluated in diabetic and non-diabetic obese subjects. The most common adverse event noted
in the study was decreased appetite. Some subjects in the highest three dose groups experienced mild nausea and vomiting, which
are consistent with studies of other GLP-1 agonist drug candidates. The pharmacokinetic profile, assessed over the five week study,
demonstrated a half-life consistent with once-weekly dosing.
In June, 2013, Lilly exercised its option
to assume all development and commercialization rights to type 2 diabetes drug candidate TT401. In conjunction with this assumption
of rights, Transition received a US$7 million milestone payment. Lilly and Transition have amended their agreement to address future
development of TT401 and associated financial arrangements. Lilly assumed all costs and will perform all future development and
commercialization activities of TT401. Transition made payments totalling US$14 million to Lilly in three separate installments
during the Phase 2 clinical study.
On May 15, 2014, Transition announced the
dosing of the first patient in a Phase 2 clinical study of TT401 for the treatment of type 2 diabetes. The study enrolled 420 type
2 diabetes subjects and is being performed by Transition's development partner Lilly. The main efficacy outcome measures is the
change in HbA1c (a measure of blood-glucose levels) at week 12 and 24 and change in body weight over the course of the study.
Diabetes – The Disease and the Market
Opportunity
Diabetes is a disease in which the body
does not produce or properly use insulin. Insulin is a hormone released from islet cells located in the pancreas that is needed
to convert sugar, starches and other food into energy needed for daily life. There are two primary forms of diabetes; type 1 diabetes
and type 2 diabetes.
Type 1 diabetes develops when the body’s
immune system destroys pancreatic islet beta cells, the only cells in the body that make the hormone insulin that regulates blood
glucose. To survive, people with type 1 diabetes must have insulin delivered by injection or pump. Type 1 diabetes accounts for
5-10% of all diagnosed cases of diabetes.
Type 2 diabetes usually begins as insulin
resistance, a disorder in which the cells do not use insulin properly. As the need for insulin increases, the pancreas gradually
loses its ability to produce it. Current treatments for type 2 diabetes include lifestyle changes, oral medications, incretin therapy
and insulin therapy. Type 2 diabetes accounts for about 90-95% of all diagnosed cases of diabetes.
With the insulins and anti-diabetic medications
markets having global sales of over US$9 billion and US$15 billion, respectively, the market opportunity for an effective therapeutic
is significant.
TT701 for Androgen Deficiencies
The Product
TT701
is a selective androgen receptor modulator that has been shown in a Phase 2 study to significantly increase lean body mass and
a measurement of muscle strength in male subjects. This completed 12-week, Phase 2 study of 350 subjects also demonstrated additional
beneficial effects, including significant fat mass reduction with no significant change in prostate specific antigen (PSA) levels.
Transition Ireland is evaluating multiple development paths for TT701, including as a new therapeutic option for patients with
androgen deficiency. Transition Ireland is engaged with potential collaborators to rapidly commence a Phase 2 clinical study.
Androgen Deficiencies – The Disease
and the Market Opportunity
Androgens
are a group of hormones that play a role in male traits and reproductive activity. Present in both males and females, the principle
androgens are testosterone and androstenedione. Men experience a modest and gradual drop in sex hormone levels over a long period
of time, from the age of about 30. However, androgen deficiency is when the body has lower levels of male sex hormones, particularly
testosterone, than is needed for health. This deficiency can be caused by a number of conditions leading to reduced libido, reduced
lean body mass, increased fat mass and other undesired outcomes.
Transition Ireland is actively engaged
with potential partners to collaborate on the development of TT701 for specific medical populations. These target medical populations
are individuals who can benefit from androgen therapy, but their background condition would preclude the use of testosterone replacement
therapy. The markets that Transition Ireland is targeting for the TT701 drug candidate do not have a product approved for androgen
replacement therapy.
Product Pipeline
Below is a diagram illustrating the Corporation’s
product pipeline for its lead technologies, and the current stage of development for each product:
Regulatory Approval Process for Therapeutic Drugs
The development of new pharmaceuticals
is strongly influenced by a country’s regulatory environment. The drug approval process in Canada is regulated by Health
Canada. In the United States, the regulatory body is the FDA. Similar processes are conducted in other countries by similar regulatory
bodies. Regulations in each jurisdiction require that licenses be obtained from regulatory agencies for drug manufacturing facilities
and also mandate strict research and product testing standards in order to ensure quality in respect of the manufacturing of therapeutic
products, “Good Manufacturing Practices” (“GMP”). Companies must establish that the production of their
products comply with GMP and the clinical development be conducted with Good Clinical Practices in order to demonstrate the safety
and effectiveness of the therapeutic. While the Corporation will pursue the approval of any product that it develops, success in
acquiring regulatory approval for any such product is not assured. See “Risks and Uncertainties”.
In order to market its pharmaceutical products
in Canada and the United States, the Corporation must successfully satisfy the requirements of each of the following stages of
the regulatory approval process and drug development:
Pre–Clinical
Studies: Pre–clinical studies involve extensive testing in laboratory animals to determine if a potential therapeutic
product has utility in an in vivo disease model and has any adverse toxicological effects in animals. The conduct and results of
these studies are reported to regulatory agencies in an Investigational New Drug (“IND”) application in the United
States and a Clinical Trial Application (“CTA”) in Canada, to gain approval to commence clinical
trials of the product in human subjects or patients, depending on the indication for use.
Phase
1 Clinical Trials: Phase 1 clinical trials are designed to determine the pharmacokinetics, metabolism and pharmacologic
actions of the drug in humans, the side effects associated with increasing doses and the maximum tolerated dose. These studies,
usually short in duration, are typically conducted with healthy volunteers.
Phase
2 Clinical Trials: Phase 2 studies are conducted to evaluate the safety of the drug in the intended patient population
with the disease or condition under study and to determine the common short-term side effects and risks associated with the drug.
Phase 2 studies are typically well controlled, closely monitored and conducted in a relatively small number of patients. These
studies are usually designed to gain early evidence of the effectiveness of the therapeutic, along with its safety.
Phase
3 Clinical Trials: Phase 3 studies are expanded studies performed after preliminary evidence suggesting effectiveness
of the drug is obtained. Phase 3 studies gather additional information about effectiveness and safety that is required to evaluate
the overall benefit-risk profile of the drug and to provide adequate basis for physician labelling. Phase 3 trials usually involve
several hundred to several thousand patients.
After all three phases of clinical trials
have been completed the results are then submitted to the respective health authority for marketing approval in the respective
countries. If and when marketing approval is granted by Health Canada or the FDA, as the case may be, the product is then approved
for commercial sale in the respective jurisdiction.
In addition to the approval of the drug
itself, Health Canada and the FDA each require that the manufacturer of a therapeutic drug be in full compliance with the current
GMPs in effect in Canada or the United States, respectively. A similar process for therapeutic drug approval is followed in most
other countries with sophisticated regulatory bodies that have appropriate regulations and oversight.
Manufacturing
The Corporation relies on third party manufacturers
to supply all of its drug substances and the finished dosage form for its preclinical and clinical products. Similarly, it will
rely on third party manufacturers to manufacture its products for sale. As such, the commercial success of such products may be
outside of the Corporation’s control. See “Risk Factors”.
The preclinical and clinical products are
produced in compliance with current GMPs as established by applicable regulatory authorities, and the manufacturer is responsible
for ensuring compliance to the set standard, and biosafety testing, with full characterization being the responsibility of the
Corporation.
Thus far, Transition Ireland’s neuropsychiatric
drug candidate ELND005, the active pharmaceutical ingredient, has been produced by Albany Molecular Research Inc. (New York), Abbott
Laboratories (Illinois) and Lonza Sales Limited (Czech Republic). The final drug product for all the Phase 1 and Phase 2
studies was manufactured by Patheon (Canada) and Alkermes Pharma Ireland Limited (Ireland), third party contract manufacturers
for clinical use. For the recently completed ELND005 Phase 2 studies and any future studies, the final drug product is prepared
in a tablet form by Alkermes Pharma Ireland Limited (Ireland) and packaged by Catalent CTS (Kansas City) LLC (Missouri).
The active pharmaceutical ingredient for
diabetes drug candidate TT401 was manufactured by PolyPeptide Laboratories, Inc. (California). The final injectable drug product
for the Phase 1 studies was manufactured by AAIPharma Services Corp. Lilly is responsible for manufacturing the final drug product
that is currently being used in the ongoing Phase 2 clinical trial and beyond.
Product Marketing Strategy
The markets for the products being developed
by the Corporation are large and may require substantial sales and marketing capability. Before successful completion of the development
of the Corporation’s various products, the Corporation hopes to enter into one or more strategic partnerships or other collaborative
arrangements with pharmaceutical or other companies that have marketing and distribution expertise to address these needs. If appropriate,
the Corporation will establish arrangements with various partners for different geographical areas.
Transition Ireland’s business strategy
of developing products towards obtaining regulatory approval may lead Transition Ireland to acquire a commercialization partner
at or near the regulatory approval stage of its development assets, including, but not limited to ELND005.
Specialized Skills and Knowledge
As of June 30, 2015, the Corporation had
18 full-time employees, who possess the skills and knowledge that the Corporation requires to implement its current strategy.
The Corporation believes that investing
in human capital is fundamental to its continued growth and success. The Corporation depends on its people for constant innovation
and research and development. The Corporation intends to implement a practice of aggressively recruiting high calibre personnel
and retaining such personnel by offering appropriate compensation incentives.
Competitive Conditions
There are a number of treatments in various
stages of development which may compete with the Corporation’s therapeutic programs in each of its selected therapeutic disease-specific
applications. The following is a summary of the principal therapeutic treatments which the Corporation understands are currently
being developed by others for therapeutic areas in which the Corporation is currently focusing its clinical efforts. This summary
is not necessarily an exhaustive list of such competing therapeutic treatments. Competition may have an adverse effect on the Corporation.
See “Risk Factors”.
Alzheimer’s Disease
Currently, all of the approved Alzheimer’s
therapies and many of the clinical candidates seek to reduce Alzheimer’s related symptoms rather than treating the underlying
disease. These products include cholinesterase inhibitors and glutamate receptor antagonists. The emerging classes of compounds
in clinical development are immunotherapies and secretase enzyme inhibitors. Each class seeks to slow or even to reverse the Alzheimer’s
disease process by targeting a mechanism to reduce the occurrence of beta-amyloid plaques, a hallmark pathology of the disease.
The treatment of neuropsychiatric symptoms
associated with AD is emerging as an important new focus for the AD clinical research community. There are currently no approved
drugs for the treatment of agitation and aggression associated with AD. As diagnostics and clinical measures have evolved for this
type of neuropsychiatric symptom, there are now multiple drug candidates being developed to address agitation and aggression in
AD. The leading candidates are novel anti-depressant therapies and therapies that are approved for other neuropsychiatric indications.
Diabetes
The following is a brief summary of the
principal therapeutic strategies, of which the Corporation is aware, currently being developed for the treatment of diabetes.
Intensive
Insulin Therapy - The goal of intensive insulin therapy is to more accurately control hyperglycemia by increasing
the frequency of insulin injection. This type of insulin therapy, however, increases the risk of hypoglycemia and demands more
frequent blood sugar monitoring which can be painful and time consuming. This approach only addresses type 1 diabetics and the
subset of type 2 diabetics that requires constant insulin injections and it only manages the disease, it does not offer a long-term
solution.
Oral
Antidiabetic Agents are FDA approved for use in conjunction with diet and exercise to enhance glycemic control in type
2 diabetic patients.
Oral
sulfonylureas reduce blood glucose by stimulating insulin from pancreatic beta-cells as well as increasing responsiveness
in insulin-sensitive tissues.
Metformin
is an oral hypoglycemic agent that improves glycemic control by decreasing hepatic glucose production and intestinal glucose absorption
as well as improving insulin sensitivity through increased peripheral glucose uptake and utilization.
Thiazolidinediones
are potent agonists of peroxisome proliferator-activated receptor-gamma (“PPAR-gamma”), receptors important
for insulin action which are located in adipose tissue, liver and skeletal muscle. Activation of these receptors affects the transcription
of genes responsible for control of glucose and lipid metabolism. These agents, in the presence of insulin, decrease insulin resistance
in the liver and at peripheral sites and improve insulin-dependent glucose disposal and reduce hepatic glucose output.
Non-Insulin
Dependent Therapies - SGLT2 inhibitors are the most recent class of oral drugs approved for the treatment of type 2
diabetes mellitus. They inhibit glucose re-absorption in the proximal renal tubules providing an insulin independent mechanism
to lower blood glucose. Their use in clinical practice is associated with improved glycemic control, marginal weight loss and a
low risk of hypoglycemia.
Incretin
Therapies - The incretin hormones, GLP-1 and glucose-dependent insulinotropic peptide (“GIP”), have been
identified as important factors in glucose homeostasis. Released from the gut following a meal, GLP-1 and GIP stimulate insulin
secretion from pancreatic beta cells in response to normal or elevated blood glucose concentrations. GLP-1 also lowers glucagon
excretion from pancreatic beta cells, which results in reduced hepatic glucose production, and also reduces appetite, slows gastric
emptying, and improves β-cell function. When administered intravenously or subcutaneously, GLP-1 is effective in treating
type 2 diabetes. Unfortunately, both GLP-1 and GIP are rapidly degraded by dipeptidyl peptidase IV (“DPP-IV”); therefore,
research has been focused on preventing degradation by inhibiting the DPP-IV enzyme. Sitagliptin was the first novel agent with
this unique mechanism of action: the drug acts as a DPP-IV inhibitor which reduces inactivation of incretin hormones and improves
glycemic control in type 2 diabetic patients. Additional DPP-IV inhibitors have been approved for use in the treatment of type
2 diabetes.
Intellectual Property
The Corporation’s intellectual property
practice is to file patent and trademark applications to protect proprietary inventions, technologies, improvements and trademarks
that are considered to be important to the development of the Corporation’s business and consistent with the Corporation’s
strategic focus. The Corporation also depends upon trade secrets and licensing opportunities to expand and maintain its competitive
position.
The Corporation possesses a strong intellectual
property position for its platform technologies. The Corporation, through all its entities, currently holds the rights to
ten patent families relating to its drug development programs. To date, the Corporation possesses or exclusively licenses
fourteen issued patents, with the remainder in varying stages of the patent application process. Current Canadian and U.S.
patent laws provide that the Corporation’s patents are protected for a period of 20 years after their filing dates.
Patent Protection
The Corporation’s patent portfolio
provides protection for its areas of technology focus:
ELND005
The Corporation’s subsidiary, Transition
Ireland, has a number of U.S., Canadian and foreign patent applications for the ELND005 technology. This portfolio has been
expanded with the filing of additional patent applications based on findings from clinical and preclinical studies.
U.S. Patent Number 7,521,481, issued on
April 21, 2009, covers treatment of Alzheimer's Disease with ELND005. European Patent No. 1608350 granted on June 3, 2009
and European Patent No. 2311445 granted on March 26, 2014 cover ELND005 for treatment or prevention of a condition of the central
or peripheral nervous system or systemic organ associated with a disorder in protein folding aggregation, or amyloid formation,
deposition accumulation or persistence. The U.S. Patent will expire in the year 2026 or later due to any patent term extensions.
The Corporation’s subsidiary, Transition Ireland, is actively prosecuting patent application families in multiple jurisdictions
throughout the world.
TT401 (LY2944876)
In March 2010, the Corporation acquired
the rights to a series of preclinical compounds from Lilly in the area of diabetes. In June 2013, Lilly exercised its exclusive
option to re-acquire all development and commercialization rights to TT401 and TT402. With this assumption of rights by Lilly,
Transition’s license to develop and commercialize TT401 and TT402 was terminated. The Corporation, through its subsidiary
Waratah Pharmaceuticals, has the right to receive milestone payments and royalties from the development and commercialization of
TT401 and TT402 into the future. Patent applications covering the composition of matter for drug candidate TT401 have been filed
worldwide, including in the United States, Australia, Canada, China, Europe and Japan. Patents have been issued in the US,
Europe, Australia and a number of other jurisdictions and will expire in 2030. This patent expiry date does not include any
possible patent term extensions.
Property, Plant and Equipment
The Corporation’s head office is
located at Suite 220, 101 College Street, Toronto, Ontario, Canada,, M5G 1L7. The Corporation occupies a total of 5,716 square
feet of the building which represents approximately 3.1% of the total facility.
Item 4A. Unresolved Staff
Comments
None.
Item 5. Operating and Financial Review and Prospects
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
The following information should be
read in conjunction with the Corporation’s audited consolidated financial statements for the year ended June 30, 2015 and
the related notes, which are prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS). This Management’s Discussion and Analysis (“MD&A”) provides a review of
the performance of the Corporation for the year ended June 30, 2015 as compared to the year ended June 30, 2014. This MD&A
includes financial information derived from the annual audited consolidated financial statements.
Overview
Transition is a biopharmaceutical development
company, advancing novel therapeutics for CNS and metabolic disease indications. The Company’s wholly-owned subsidiary, Transition
Therapeutics Ireland Limited (“TTIL”) is developing CNS drug candidate ELND005 for the treatment of Alzheimer’s
disease (“AD”) and Down syndrome. Transition’s lead metabolic drug candidate is TT401 for the treatment of type
2 diabetes and accompanying obesity.
During the fiscal year ended June 30, 2015
and up to the date of this MD&A, the Company announced the following:
ELND005:
| · | June 24, 2015 – Transition announced results of Clinical Study of ELND005
in Agitation and Aggression in Patients with Alzheimer’s Disease. The Phase 2/3 clinical study of neuropsychiatric
drug candidate ELND005 did not meet its primary efficacy endpoint. In the study, both the treatment and placebo groups showed a
significant, but similar, reduction in agitation and aggression relative to baseline. There was a greater than expected reduction
in agitation and aggression observed in the placebo group as measured in weeks 4, 8 and 12 in the study. The safety and tolerability
profile of ELND005 was consistent with previous studies in AD at the 250mg bid dose; |
| · | March 26, 2015 – Transition announced results from two phase 1 clinical studies of
neuropsychiatric drug candidate ELND005. These studies, an absorption-metabolism-excretion (“AME”) study and
a renal clearance study, are specialized clinical pharmacology trials that are required by the United States Food and Drug Administration
(“FDA”) for the approval of most drugs in development; |
| · | November 24, 2014 – Transition announced results from a thorough QT (tQT) study in
which no QT effects were observed at supra-therapeutic single doses of neuropsychiatric drug candidate, ELND005. A tQT
study is a specialized clinical trial required by the FDA for the approval of most drugs in development. From a safety perspective,
drugs that have no QT prolongation effects are particularly desirable for administration to an elderly Alzheimer’s disease
AD; |
| · | November 20, 2014 – Transition announced the results of a clinical study of neuropsychiatric
drug candidate ELND005 in young adults with Down syndrome. TTIL completed this first study in Down syndrome subjects without
dementia to allow optimal dose selection for future larger studies. The study enrolled 23 Down syndrome subjects in three study
arms over a four-week treatment period. At the doses evaluated, ELND005 was determined to have an acceptable safety and tolerability
profile and there were no serious adverse events reported; |
| · | November 4, 2014 - Transition announced findings from a Phase 2 study of neuropsychiatric
drug candidate, ELND005, as an adjunctive maintenance treatment for bipolar disorder type I patients (BPD). TTIL terminated
the bipolar disorder Phase 2 study on April 7, 2014 for business reasons. TTIL has completed a review of the data from this bipolar
disorder Phase 2 study. Overall, ELND005 had an acceptable safety and tolerability profile in the study, and showed numerical differences
in the number of mood event recurrences favoring ELND005. |
TT401:
| · | In February 2015, development partner Lilly informed Transition that 420 type 2 diabetic
subjects have been enrolled in the current Phase 2 study thereby completing the enrollment phase of the study. The randomized,
double-blind, placebo-controlled study includes six study arms, four doses of TT401, a placebo arm and a once-weekly exenatide
arm. The main efficacy outcome measures are the change in HbA1c, a measure of blood-glucose levels, at week 12 and 24 and change
in body weight over the course of the study; |
| · | Transition has paid all three installment payments totaling US$14 million to diabetes
drug candidate development partner Lilly. Transition has no further financial obligations for the development and commercialization
of TT401. In December, 2014, Lilly informed Transition that the 70% enrollment milestone had been achieved. |
Corporate Developments:
| · | June 16, 2015 - Transition announced that Carl Damiani has been appointed as President and
Chief Operating Officer of Transition; |
| · | May 6, 2015 – Transition announced its wholly-owned subsidiary, TTIL has exclusively
licensed worldwide rights to a novel small molecule drug candidate (“TT701”) from Eli Lilly and Company. Under
the terms of the agreement, TTIL has acquired rights to develop and commercialize TT701. Lilly will receive upfront consideration
of up to US$1 million. In addition, Lilly is eligible to receive up to US$100 million in commercial milestones and a mid-single
digit royalty on sales of TT701 products should such products be successfully commercialized. TT701 is a selective androgen receptor
modulator that has been shown in a Phase 2 study to significantly increase lean body mass and a measurement of muscle strength
in male subjects. This completed 12-week, Phase 2 study of 350 subjects also demonstrated additional beneficial effects, including
significant fat mass reduction with no significant change in prostate specific antigen (PSA) levels. TTIL is evaluating multiple
development paths for TT701, including as a new therapeutic option for patients with androgen deficiency. TTIL is engaged with
potential collaborators to rapidly commence a Phase 2 clinical study; |
| · | February 18, 2015 – Transition announced the closing of a public offering of US$23
million of common shares equivalent to an aggregate of 3,538,461 common shares at a price to the public of US$6.50 per share, including
461,538 common shares issued upon the exercise of the underwriters’ over-allotment option. Cowen and Company, LLC
was the sole book-running manager and Canaccord Genuity Inc., H.C. Wainwright & Co., LLC, and LifeSci Capital LLC were the
co-managers for the offering. |
Strategic Collaborations
Perrigo Company plc (“Perrigo”)
In 2006, Transition exclusively licensed
the ELND005 technology to Elan for worldwide development and commercialization. Following amendment of that agreement in 2010,
Elan held all development and commercialization rights to ELND005 and Transition became eligible to receive milestone and royalty
payments with the successful advancement of ELND005. Transition has received US$40 million from Elan in upfront and achieved milestone
payments. Perrigo acquired Elan in December 2013, including all Elan’s rights and obligations to the development of ELND005.
On
February 28, 2014, Transition announced that after a series of transactions, Perrigo had transferred all of its ELND005
rights and assets under the collaboration agreement to the Company’s wholly owned subsidiary, TTIL. In parallel with this
acquisition, Perrigo invested US$15 million and received 2,255,640 Transition common shares representing approximately a 6.4% ownership
stake in Transition as of the date of the transaction. Perrigo will also be eligible to receive up to US$40 million in approval
and commercial milestone payments and a 6.5% royalty on net sales of ELND005 products and sublicense fees received. Going forward,
TTIL is responsible for all future development and commercialization activities of the ELND005 drug candidate.
Lilly
Diabetes
On March 3, 2010, Transition and Lilly
entered into a licensing and collaboration agreement granting Transition the rights to a series of preclinical compounds in the
area of diabetes. Under the licensing and collaboration agreement, Transition received exclusive worldwide rights to develop and
potentially commercialize a class of compounds that, in preclinical models, showed potential to provide glycemic control and other
beneficial effects including weight loss.
Under the terms of the agreement, Lilly
received an up-front payment of $1,055,900 (US$1 million) which has been capitalized as a license acquired from Lilly and is being
amortized over 20 years which represents the estimated life of the underlying compounds and patents.
In June 2013, Lilly exercised its option
and assumed all development and commercialization rights to type 2 diabetes drug candidate TT401. In conjunction with this assumption
of rights, Transition received a US$7 million milestone payment. Lilly has assumed all costs and will perform all future development
and commercialization activities of TT401, and Transition paid US$14 million to Lilly in three separate installments during the
Phase 2 clinical study; the first installment of US$6 million was paid during the three month period ended September 30, 2014 when
the study achieved 20% patient enrollment. The remaining two installments totaling US$8 million were paid during the three month
period ended December 31, 2014 when the study achieved both the 50% and 70% patient enrollment milestones. Transition has no additional
funding obligations related to this clinical study or any other development or commercialization activities in the future.
Transition is eligible to receive up to
approximately US$240 million in additional milestone payments plus double-digit royalties on sales of TT401 products and a low
single digit royalty on sales of related compounds.
Programs
Transition is focused on developing innovative
therapies in several distinct areas of opportunity. Transition’s vision is to build a company that has a strong foundation
for growth based on multiple technologies and product opportunities, which reduces risk and enhances shareholder return. The Company’s
technologies are as follows:
ELND005
Alzheimer’s Disease:
Alzheimer’s disease is a progressive
brain disorder that gradually destroys a person’s memory and ability to learn, reason, make judgments, communicate and carry
out daily activities. As Alzheimer’s disease progresses, individuals may also experience changes in personality and behavior,
such as anxiety, suspiciousness or agitation, as well as delusions or hallucinations. Approximately 90% of Alzheimer’s disease
patients develop neuropsychiatric symptoms, and up to 60% develop agitation/aggression over the course of their disease. Agitation/aggression
are among the most disruptive neuropsychiatric symptoms in Alzheimer’s disease and are associated with increased morbidity
and caregiver burden.
The disease mainly affects individuals
over age 65 and it is estimated over 18 million people are suffering from Alzheimer’s disease worldwide. In the U.S., Alzheimer’s
disease is the sixth leading cause of death and current direct/indirect costs of caring for an estimated 5.4 million Alzheimer’s
disease patients are at least US$100 billion annually.
Current U.S. Food and Drug Administration
approved Alzheimer’s disease medications may temporarily delay memory decline for some individuals, but none of the currently
approved drugs are known to stop the underlying degeneration of brain cells. Certain drugs approved to treat other illnesses may
sometimes help with the emotional and behavioral symptoms of Alzheimer’s disease. With an aging population, there is a great
need for therapies to address Alzheimer’s disease patient’s neuropsychiatric symptoms and declines in cognitive ability.
Down Syndrome:
Down syndrome (DS, Trisomy 21), caused
by an extra copy of chromosome 21, is the most common genetic form of intellectual disability with a prevalence of approximately
1 in 700 live births in the US. Children with DS exhibit developmental delay and various degrees of intellectual disability, while
adults are at increased risk of Alzheimer’s dementia. There are currently no drugs approved for the treatment of cognitive
dysfunction in DS.
Excess activity of genes on chromosome
21, such as amyloid precursor protein (APP) and sodium-myo-inositol active transporter (SMIT), are thought to play a role in the
cognitive dysfunction of DS. Life-long exposure to increased amyloid and myo-inositol levels in the brain are thought to lead to
synaptic dysfunction and cognitive disability. ELND005 may have the potential to improve cognition in DS by decreasing amyloid
levels and regulating myo-inositol-dependent neuronal signaling.
Clinical Development Update
ELND005 for Neuropsychiatric Diseases
TTIL is developing neuropsychiatric drug
candidate ELND005, (scyllo-inositol). ELND005 is an orally bioavailable small molecule that is being investigated for multiple
neuropsychiatric indications on the basis of its proposed dual mechanism of action, which includes β-amyloid anti-aggregation
and regulation of brain myo-inositol levels. An extensive clinical program of Phase 1 and Phase 2 studies have been completed with
ELND005 to support clinical development. The Phase 2 study (ELND005-AD201) which evaluated ELND005 in more than 350 mild to moderate
AD patients was published in the peer-reviewed journal, Neurology. The Neurology article was entitled “A Phase 2 randomized
trial of ELND005, scyllo-inositol, in mild-moderate Alzheimer’s disease”.
Currently, the use of ELND005 is being
investigated in two clinical areas:
| (a) | Agitation and Aggression in Alzheimer’s Disease |
On November 27, 2012, the first patient
was enrolled in a Phase 2 clinical trial of ELND005 for the treatment of agitation/aggression in patients with mild to severe Alzheimer’s
disease. The objectives of the study are to evaluate the efficacy, safety and tolerability of ELND005 over 12 weeks of treatment
in patients with mild to severe AD, who are experiencing at least moderate levels of agitation/aggression. Enrollment of this clinical
study (AG201) known as the “Harmony AD” study (www.harmonyadstudy.com) was completed on March 2, 2015 with a total
of 350 patients being enrolled.
On June 24, 2015, Transition announced
that ELND005 did not meet its primary efficacy endpoints in the Phase 2/3 clinical study of ELND005 in agitation and aggression
in patients with Alzheimer’s Disease. In the study, both the treatment and placebo groups showed a significant, but similar,
reduction in agitation and aggression relative to baseline. There was a greater than expected reduction in agitation and aggression
observed in the placebo group as measured in weeks 4, 8 and 12 in the study. The safety and tolerability profile of ELND005 was
consistent with previous studies in AD at the 250mg bid dose.
As ELND005 did not meet its primary efficacy
endpoint in the Phase 2/3 clinical study in agitation and aggression in Alzheimer’s disease, management performed an impairment
test and noted there is no impairment of the ELND005 asset as at June 30, 2015. The Company is performing a thorough review of
the data from the completed study in agitation and aggression. An external clinical advisory board is working with the Company
to evaluate the data and consider potential future clinical development paths for ELND005.
On November 20, 2014, Transition announced
the results of a clinical study of neuropsychiatric drug candidate ELND005 in young adults with Down syndrome. Transition’s
wholly-owned subsidiary, TTIL completed this first study in Down syndrome subjects without dementia to allow optimal dose selection
for future larger studies.
The study enrolled 23 Down syndrome subjects
in three study arms over a four-week treatment period: placebo, 250 mg once daily; and 250 mg twice daily. At the doses evaluated,
ELND005 was determined to have an acceptable safety and tolerability profile and there were no serious adverse events reported
in the study. Treatment emergent adverse events were reported in seven of the subjects receiving ELND005 and all were deemed mild
in severity. The two ELND005 doses achieved the plasma levels expected in pharmacokinetic modeling and will inform the selection
of a higher dose in a larger Phase 2b study in Down syndrome subjects.
The ELND005 technology is claimed in multiple
issued patents and pending patent applications in many jurisdictions throughout the world.
Expenditures for the ELND005 Program
On February 28, 2014, Transition announced
that after a series of transactions, Perrigo has transferred all of its ELND005 rights and assets to the Company’s wholly
owned subsidiary, TTIL. As a result, effective March 1, 2014, TTIL is responsible for all future development and commercialization
activities of the ELND005 drug candidate.
During the years ended June 30, 2015 and
2014, the Company incurred direct research and development costs for this program as follows:
| ELND005 Program (1) | |
Fiscal 2015 | | |
Fiscal 2014 | |
| | |
| | |
| |
| Pre-clinical studies | |
$ | - | | |
$ | - | |
| Clinical studies | |
| 20,154,069 | | |
| 8,473,306 | |
| Manufacturing | |
| 796,511 | | |
| 270,241 | |
| Other direct research | |
| 2,356,831 | | |
| 955,608 | |
| TOTAL | |
$ | 23,307,411 | | |
$ | 9,699,155 | |
Note (1) These costs are direct
research and development costs only and do not include patent costs, investment tax credits, salaries and benefits, amortization
of intangible assets or an allocation of Company overhead.
Prior to the February, 2014 acquisition,
Transition was not required to fund the development or commercialization of ELND005 and accordingly, development costs were nil
during the first eight months of fiscal 2014.
TT401 / TT402
Development of TT401 and TT402 for Diabetes
Diabetes is a disease in which the body
does not produce or properly use insulin. Insulin is a hormone released from islet cells located in the pancreas that is needed
to convert sugar, starches and other food into energy needed for daily life. There are two primary forms of diabetes; type 1 diabetes
and type 2 diabetes.
Type 2 diabetes usually begins as insulin
resistance, a disorder in which the cells do not use insulin properly. As the need for insulin increases, the pancreas gradually
loses its ability to produce it. Current treatments for type 2 diabetes include lifestyle changes, oral medications, incretin therapy
and insulin therapy. Type 2 diabetes accounts for about 90-95% of all diagnosed cases of diabetes.
Clinical Development Update of TT401 (LY2944876)
On March 3, 2010, Transition announced
that it had acquired the exclusive worldwide rights to develop and potentially commercialize a series of preclinical compounds
from Lilly in the area of diabetes. In preclinical diabetes models, these compounds showed potential to provide glycemic control
and other beneficial effects including weight loss.
On June 18, 2012, Transition announced
the results of the Phase 1 clinical study of type 2 diabetes drug candidate, TT401. The Phase 1, double-blind, placebo-controlled
randomized study enrolled 48 non-diabetic obese subjects in six cohorts evaluating six escalating subcutaneous single doses of
TT401. TT401 demonstrated an acceptable safety and tolerability profile in non-diabetic obese subjects in the study. TT401 exhibited
the expected pharmacological effect on glucose and pharmacodynamic biomarkers at doses that were safe and tolerable. The pharmacokinetic
profile, assessed over 28 days, demonstrated a half-life consistent with once-weekly dosing.
On April 30, 2013, Transition announced
the results of a five-week proof of concept clinical study of TT401 in type 2 diabetes and obese non-diabetic subjects. The study
enrolled diabetic patients at five dosing levels and non-diabetic obese patients at one dose level. All dosing cohorts received
five doses over a five week period. Diabetic patients were on stable doses of metformin.
At the end of the treatment period, TT401-treated
patients in the 3 highest dose groups experienced statistically significant reductions in mean fasting plasma glucose relative
to placebo. Statistically significant mean body weight reduction relative to baseline occurred in the three highest dose groups.
A similar reduction in body weight was also observed in the obese non-diabetic cohort. TT401 demonstrated an acceptable safety
and tolerability profile at all doses evaluated in diabetic and non-diabetic obese subjects. The most common adverse event noted
in the study was decreased appetite. Some subjects in the highest three dose groups experienced mild nausea and vomiting, which
are consistent with studies of other GLP-1 agonist drug candidates. The pharmacokinetic profile, assessed over the five week study,
demonstrated a half-life consistent with once-weekly dosing.
On June 17, 2013, Lilly exercised its option
to assume all development and commercialization rights to type 2 diabetes drug candidate TT401. In conjunction with this assumption
of rights, Transition received a US$7 million milestone payment. Lilly and Transition have amended their agreement to address future
development of TT401 and associated financial arrangements. Lilly has assumed all costs and will perform all future development
and commercialization activities of TT401. In May, 2014, Transition announced the dosing of the first patient in a Phase 2 clinical
study of TT401. The study is expected to enroll up to 375 type 2 diabetes subjects and will be performed by Transition’s
development partner Lilly. The objectives of the study will be to evaluate the safety and effectiveness of TT401 compared to once-weekly
exenatide extended release and placebo. In February 2015, Lilly informed Transition that 420 type 2 diabetic subjects had been
enrolled in the current Phase 2 study, thereby completing the enrollment phase of the study.
Transition
has made three separate installments to Lilly during the Phase 2 clinical study totaling US$14 million to Lilly. The first installment
of US$6 million was paid in September 2014 when the study achieved 20% patient enrollment. The remaining two installments
totaling US$8 million were paid during the three month period ended December 31, 2014 when the study achieved both the 50% and
70% patient enrollment milestones. There are no additional funding obligations related to this clinical study.
Expenditures for the TT401/402 Program
During the years ended June 30, 2015 and
2014, the Company incurred direct research and development costs for this program as follows:
| TT401/402 Program
(1) | |
Fiscal 2015 | | |
Fiscal 2014 | |
| Pre-clinical studies | |
$ | - | | |
$ | 7,488 | |
| Clinical studies | |
| - | | |
| 87,379 | |
| Manufacturing | |
| - | | |
| (37,419 | ) |
| Other direct research | |
| - | | |
| 37,803 | |
| Development payments to Lilly | |
| 15,491,600 | | |
| - | |
| TOTAL | |
$ | 15,491,600 | | |
$ | 95,251 | |
Note (1) These costs are direct
research and development costs only and do not include patent costs, investment tax credits, salaries and benefits, amortization
of intangible assets or an allocation of Company overhead.
TT701 for Androgen Deficiency
On May 6, 2015, TTIL exclusively licensed
worldwide rights to a novel small molecule drug candidate TT701 from Lilly. TT701 is a selective androgen receptor modulator that
has been shown in a Phase 2 study to significantly increase lean body mass and a measurement of muscle strength in male subjects.
Clinical Development of TT701
Since acquiring the exclusive worldwide
rights to TT701 the Company has incurred drug development manufacturing costs as they prepare to move the drug candidate into a
Phase 2 clinical trial. TTIL has been actively working with potential partners to collaborate on the clinical development of TT701
and it is expected that a Phase 2 study of TT701 will commence before the end of calendar 2015.
Expenditures for the TT701 Program
During the years ended June 30, 2015 and
2014, the Company incurred direct research and development costs for this program as follows:
| TT701 Program (1) | |
Fiscal
2015 | | |
Fiscal 2014 | |
| Pre-clinical studies | |
$ | - | | |
$ | - | |
| Clinical studies | |
| - | | |
| - | |
| Manufacturing | |
| 253,729 | | |
| - | |
| Other direct research | |
| 41,034 | | |
| - | |
| TOTAL | |
$ | 294,763 | | |
$ | - | |
Note (1) These costs are direct
research and development costs only and do not include patent costs, investment tax credits, salaries and benefits, amortization
of intangible assets or an allocation of Company overhead.
The Next Steps
Transition’s goal for its programs
is to achieve product approval and ultimately significant revenues or royalties. To achieve product approval, the Company and or
its partners, must successfully complete clinical trials and achieve regulatory approval. The stages of development of the Company’s
technologies are illustrated below:
Overall Performance
During the year ended June 30, 2015, the
Company recorded a net loss of $51,339,528 ($1.41 loss per common share) compared to a net loss of $21,782,255 ($0.72 loss per
common share) for the year ended June 30, 2014.
During
the fiscal year ended June 30, 2015, the Company reported an increase in net loss of $29,557,273 compared to the fiscal year ending
June 30, 2014. The increase in net loss is due to the significant increase in research and development expenses resulting
from the reacquisition of the rights to develop the ELND005 drug candidate, as well as the US$14 million milestone payments made
to Lilly and increased general and administration expenses. The increase in net loss has been partially offset by the settlement
of a pre-existing relationship recognized in connection with the re-acquisition of the ELND005 asset in February 2014, increased
foreign exchange gains and the change in fair value of contingent consideration payable.
On February 18, 2015, the Company announced
the closing of its underwritten public offering of an aggregate of 3,538,461 common shares at a price to the public of US$6.50
per share, including 461,538 common shares issued upon the exercise of the underwriters’ over-allotment option, raising gross
proceeds of $28,561,400 (US$23.0 million). The Company incurred total share issuance costs of $2,492,010, resulting in net cash
proceeds of $26,069,390.
At June 30, 2015, the Company has $40,510,758
in cash and a working capital of $32,026,606.
The Company’s current cash projection
indicates that the current cash resources should enable the Company to execute its core business plan and meet its projected cash
requirements beyond the next 12 months.
Selected Annual Information
The following table is a summary of selected
financial information from the audited consolidated financial statements of the Company for each of the three most recently completed
financial years.
| | |
June 30,
2015
$ | | |
June 30,
2014
$ | | |
June 30,
2013
$ | |
| Revenue | |
| — | | |
| — | | |
| 17,933,500 | |
| Net income (loss) (1) | |
| (51,339,528 | ) | |
| (21,782,255 | ) | |
| 23,297 | |
| Basic and diluted net income (loss) per common share | |
| (1.41 | ) | |
| (0.72 | ) | |
| - | |
| Total assets | |
| 49,649,085 | | |
| 68,907,236 | | |
| 37,807,955 | |
| Total long-term liabilities (2) | |
| 3,503,344 | | |
| 3,849,718 | | |
| 1,457,821 | |
| Cash dividends declared per share | |
| — | | |
| — | | |
| — | |
Note (1) Net
income (loss) before discontinued operations and extraordinary items was equivalent to the net income (loss) for such periods.
Note (2) Total
long-term liabilities represents contingent consideration payable as set forth in the Company’s audited consolidated financial
statements for the year ended June 30, 2015. For the years ended June 30, 2014 and 2013, total long-term liabilities also includes
leasehold inducement.
ANNUAL
RESULTS – YEAR ENDED JUNE 30, 2015 COMPARED TO YEAR ENDED JUNE 30, 2014
Results of Operations
Research and Development
Research and development expenses increased
$31,842,318 or 183% from $17,367,385 for the fiscal year ended June 30, 2014 to $49,209,703 for the fiscal year ended June 30,
2015.
The
increases in research and development expenses are primarily due to increases in development costs related to ELND005. The increases
are also attributed to increases in development costs associated with diabetes drug candidate TT401 as during fiscal 2015 the Company
paid Lilly an aggregate of US$14 million upon the achievement of all three patient enrollment milestones. The increase in research
and development costs have been partially offset by decreases in clinical development costs associated with the costs related to
the TT601 program.
The Company anticipates that research and
development expenses will decrease significantly during fiscal 2016 as the Company discontinues the safety extension trial AG251
in agitation and aggression in Alzheimer’s disease and has no further funding obligations to Lilly for the ongoing Phase
2 clinical study of diabetes drug candidate TT401. The decrease will be offset by incurring costs relating to the development of
TT701, a novel small molecule drug candidate licensed from Lilly.
General and Administrative
General and administrative expenses increased
by $787,698 or 17% from $4,726,574 for the fiscal year ended June 30, 2014 to $5,514,272 for the fiscal year ended June 30, 2015.
The increases in general and administrative
expenses are primarily due to increases in compensation and overhead costs relating to the Company’s premises in San Mateo,
California.
The Company anticipates general and administrative
expenses will decrease during fiscal 2016 as all activities based out of the San Mateo, California location will be transferred
to head office, which will result in a reduction in general and administrative expenses.
Settlement of a Pre-existing Relationship
During
the comparative year ended June 30, 2014, the Company recognized an expense of $3,096,186 as a settlement of a pre-existing relationship
relating to the collaboration agreement with Elan. The Company did not recognize a similar expense during the year ended June
30, 2015.
Change in Fair Value of Contingent
Consideration Payable
Contingent
consideration is required to be measured as a financial liability at fair value and re-measured at each reporting date. Management
revisited the assumptions used in the valuation of the contingent consideration payable and accordingly, the Company has recognized
an increase in the fair value of contingent consideration payable of $65,787 during the fiscal year ended June 30, 2015.
During the comparative year ended June
30, 2014, the Company recognized a change in fair value of contingent consideration payable of $2,911,218.
ANNUAL
RESULTS – YEAR ENDED JUNE 30, 2014 COMPARED TO YEAR ENDED JUNE 30, 2013
Results of Operations
Revenue
Revenue is nil in the year ended June 30,
2014 compared to $17,933,500 for the year ended June 30, 2013.
In fiscal 2013, the Company recognized
$17,933,500 as revenue which is comprised of the milestone payment of $10,815,200 (US$11,000,000) received from Elan upon their
commencement of the next ELND005 clinical trial and the milestone payment of $7,118,300 (US$7 million) received from Lilly upon
exercising its option to assume all development and commercialization rights to type 2 diabetes drug candidate TT401.
Research and Development
Research and development expenses increased
$8,504,513 or 96% from $8,862,872 for the fiscal year ended June 30, 2013 to $17,367,385 for the fiscal year ended June 30, 2014.
The increases in research and development
expenses are primarily due to increases in clinical development costs related to the re-acquired rights to the drug candidate ELND005
as well as the costs associated with the pre-clinical research on TT601. The increase in research and development costs have been
partially offset by decreases in clinical development costs associated with diabetes drug candidate TT401/TT402 as well as decreased
amortization resulting from the write off of the TT301/302 technology.
The Company anticipates that research and
development expenses will increase significantly during fiscal 2015 as the Company continues to fund the clinical development of
the ongoing Phase 2 clinical trial of ELND005 in agitation and aggression in Alzheimer’s disease and will also pay US$14
million to Lilly in three separate installments to help fund the ongoing Phase 2 clinical study of diabetes drug candidate TT401.
General and Administrative
General and administrative expenses increased
by $1,168,782 or 33% from $3,557,792 for the fiscal year ended June 30, 2013 to $4,726,574 for the fiscal year ended June 30, 2014.
The increases in general and administrative
expenses are primarily due to increases in legal and professional fees as well as increased business and corporate development
activities.
The Company anticipates that general and
administrative expenses will remain relatively consistent during fiscal 2015.
Impairment of Intangible Assets
Impairment of intangible assets is nil
for the year ended June 30, 2014 compared to $6,545,821 for the year ended June 30, 2013.
During fiscal 2013, the Company decided
to no longer develop TT301 and TT302, the compounds acquired from NMX. Accordingly, the Company recognized an impairment loss of
$6,545,821.
Settlement of a Pre-existing Relationship
During the year ended June 30, 2014, the
Company recognized an expense of $3,096,186 as a settlement of a pre-existing relationship relating to the collaboration agreement
with Elan. The Company did not recognize a settlement during the comparative year ended June 30, 2013.
Change in Fair Value of Contingent
Consideration Payable
The contingent consideration is required
to be measured as a financial liability at fair value and re-measured at each reporting date. On February 28, 2014, the Company
became responsible for the development of ELND005 and accordingly has re-evaluated the development program timelines and adjusted
the estimate relating to the timing of the milestone payments. Accordingly, the Company has recognized a change in fair value of
contingent consideration payable of $2,911,218 during the year ended June 30, 2014. There was no change in fair value recognized
during the comparative period ended June 30, 2013.
Summary of Quarterly Results
The following table is a summary of selected
quarterly consolidated financial information of the Company for each of the eight most recently completed quarters ending at June
30, 2015.
| | |
First | | |
Second | | |
Third | | |
Fourth | | |
| |
| | |
Quarter | | |
Quarter | | |
Quarter | | |
Quarter | | |
Total | |
| 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Revenue | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Net
income (loss) (1) | |
$ | (15,695,324 | ) | |
$ | (16,910,139 | ) | |
$ | (4,748,096 | ) | |
$ | (13,985,969 | ) | |
$ | (51,339,528 | ) |
| Basic and diluted
net income (loss) per common share | |
$ | (0.45 | ) | |
$ | (0.48 | ) | |
$ | (0.13 | ) | |
$ | (0.38 | ) | |
$ | (1.41 | ) |
| 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Revenue | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Net income (loss) (1) | |
$ | (2,331,186 | ) | |
$ | (1,253,772 | ) | |
$ | (5,067,292 | ) | |
$ | (13,130,005 | ) | |
$ | (21,782,255 | ) |
| Basic and diluted net income (loss)
per common share | |
$ | (0.08 | ) | |
$ | (0.04 | ) | |
$ | (0.17 | ) | |
$ | (0.43 | ) | |
$ | (0.72 | ) |
Note (1) Net
income (loss) before discontinued operations was equivalent to the net income (loss) for such periods.
The fluctuations of Transition’s
quarterly results are primarily due to milestone payments made to Lilly to help fund TT401 Phase 2 clinical development and changes
in: activity levels of the clinical trials being performed by the Company and foreign exchange gains and losses.
Critical Accounting Estimates and Judgements
The preparation of consolidated financial
statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results can differ from those estimates. We have identified
the following areas which we believe require management’s most subjective estimates and judgments, often requiring the need
to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods.
(a) Estimates
Valuation and Amortization of Intangible
Assets
The Company’s intangible
assets are comprised of purchased or licensed pharmaceutical compounds, technology and patents. The costs of the
Company’s intangible assets are amortized over the estimated useful life of up to 20 years. Factors considered in
estimating the useful life of the intangible asset include the expected use of the asset by the Company, legal, regulatory
and contractual provisions that may limit the useful life, the effects of competition and other economic factors, and the
level of expenditures required to obtain the expected future cash flows from the intangible asset. The Company re-evaluates
the useful life when there has been a change in these factors. The Company assesses its intangible assets for recoverability
whenever indicators of impairment exist. As ELND005 did not meet its primary efficacy endpoint in the Phase 2/3 clinical
study in agitation and aggression in Alzheimer’s disease, management performed an impairment test and noted there is
no impairment of the ELND005 asset as at June 30, 2015. The Company is performing a thorough review of the data from
the completed study in agitation and aggression. An external clinical advisory board is working with the Company to evaluate
the data and consider potential future clinical development paths for ELND005.
When the carrying value of an asset is
greater than its recoverable amount, which is the higher of its value in use or fair value less costs to sell, an impairment loss
is recognized.
Valuation of Contingent Consideration
Payable
The contingent consideration is measured
at fair value based on level 3 inputs. The contingent consideration is not based on observable inputs and is measured using a discounted
cash flow analysis of expected payments in future periods. The significant estimates used in the fair value calculations are as
follows:
| (a) | Management has estimated the timing of the milestone payments based on current expectations and
plans for the development of ELND005. The milestone payments are assigned a probability based on industry statistics for the successful
development of pharmaceutical products including regulatory approval and achievement of revenue targets. An increase of 10% applied
to the probability assumptions, with all other variables held constant, will increase the contingent consideration payable by $1,428,951.
Conversely a decrease of 10% applied to the probability assumptions, with all other variables held constant, would reduce the contingent
consideration payable by $1,858,858; |
| (b) | The probability adjusted cash flows are discounted at a rate of 20% which is management’s
best estimate of the Company’s cost of capital. An increase of 5% to the discount rate would decrease the contingent consideration
payable by $1,080,299. Conversely, a decrease of 5% to the discount rate would increase the contingent consideration payable by
$1,538,400. |
Management revisited the assumptions used
in the valuation of the contingent consideration payable and accordingly, the Company has recognized a change in fair value of
contingent consideration payable of $65,787 during the fiscal year ended June 30, 2015.
Share Based Payments and Warrants
When the Company issues stock options and
warrants, an estimate of fair value is derived for the equity instrument using the Black-Scholes option pricing model. The application
of this option pricing model requires management to make assumptions regarding several variables, including the period for which
the instrument will be outstanding, the price volatility of the Company’s stock over a relevant timeframe, the determination
of a relevant risk free interest rate and an assumption regarding the Company’s dividend policy in the future. If other assumptions
are used, the value derived for the equity instruments could be significantly impacted.
Settlement of a Pre-Existing Relationship
The Company has determined that the transactions
entered into with Perrigo on February 28, 2014 have resulted in the re-acquisition of the rights to the development and commercialization
of ELND005 previously licensed to Elan which in accordance with IFRS must be accounted for as a settlement of a pre-existing relationship
(the collaboration agreement between Waratah and Elan). Accordingly, the company expensed $3,096,186 in fiscal 2014 as the
cost related to the settlement of the pre-existing relationship.
Accounting Changes
The following accounting policies have
been adopted effective July 1, 2014:
IAS 36 – Impairment of Assets
IAS 36 has been amended to include limited
scope amendments to the impairment disclosures. The amendments are effective for annual periods beginning on or after January 1,
2014. The adoption of IAS 36 did not significantly impact the Company’s consolidated financial statements;
IFRS 2 – Share Based Payments
IFRS 2 has been amended to clarify the
definition of vesting conditions. The amendments are effective for annual periods beginning on or after July 1, 2014. The adoption
of IFRS 2 did not significantly impact the Company’s consolidated financial statements.
IFRS Issued But Not Yet Adopted
IFRS 15 – Revenue from Contracts
with Customers
IFRS 15 specifies how and when to recognize
revenue as well as requiring entities to provide users of financial statements with some informative, relevant disclosures. The
standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts, and a number of revenue-related interpretations. Application
of the standard is mandatory for all IFRS reporters and it applies to nearly all contracts with customers: the main exceptions
are leases, financial instruments and insurance contracts. Currently IFRS 15 must be applied in an entity’s first annual
IFRS financial statements for periods beginning on or after January 1, 2017 however the IASB has proposed to defer the date of
adoption to periods beginning on or after January 1, 2018, with early adoption permitted. Management is evaluating the standard
and has not yet determined the impact on its consolidated financial statements.
Outstanding Share Data
Authorized
The authorized share capital of the Company
consists of an unlimited number of common shares.
Issued and Outstanding
The following details the issued and outstanding
equity securities of the Company:
Common Shares
As at September 14, the Company has 38,878,879
common shares outstanding.
Stock Options
As at September 14, 2015 the Company has
2,408,381 stock options outstanding with exercise prices ranging from $2.09 to $10.19 and various expiry dates extending to June
14, 2025. At September 14, 2015, on an if-converted basis, these stock options would result in the issuance of 2,408,381 common
shares in the capital of the Company at an aggregate exercise price of $11,430,633.
Warrants
As at September 14, 2015, the Company has
a total of 1,949,250 warrants outstanding with a purchase price of US$7.10.
Each warrant entitles the holder, within
two years of the June 23, 2014 issuance date, to purchase one additional common share in the capital of the Company.
LIQUIDITY
AND CAPITAL RESOURCES
Overview
The Company commenced operations in July
1998, and has devoted its resources primarily to fund its research and development programs. All revenue to date has been generated
from milestone payments and licensing fees. The Company has incurred a cumulative deficit to June 30, 2015 of $222,454,699. Losses
are expected to continue for the next several years as the Company invests in research and development, preclinical studies, clinical
trials, manufacturing and regulatory compliance.
Since inception, the Company has been financed
primarily from public and private sales of equity, the exercise of warrants and stock options, interest earned on cash deposits
and short term investments and revenues and reimbursements from partners.
The Company’s cash was $40,510,758
at June 30, 2015 as compared to cash and short term investments of $60,271,566 at June 30, 2014, resulting in a decrease of $19,760,808.
The Company’s working capital position at June 30, 2015 decreased $22,751,265 from $54,777,871 at June 30, 2014 to $32,026,606,
at June 30, 2015.
The decrease in the Company’s cash
and short term investments as well as the decrease in working capital are primarily due to the expenditures incurred during the
fiscal year ended June 30, 2015 which included three milestone payments totaling US$14 million paid to Lilly upon the achievement
of all three patient enrollment milestones for the TT401 Phase 2 diabetes study. The decrease is offset by the February 18, 2015
public offering of 3,538,461 common shares which resulted in net proceeds of $26,069,390.
The Company’s current cash projection
indicates that the current cash resources should enable the Company to execute its core business plan and meet its projected cash
requirements for the next 12 months.
The success of the Company is dependent
on its ability to bring its products to market, obtain the necessary regulatory approvals and achieve future profitable operations.
The continuation of the research and development activities and the commercialization of its products are dependent on the Company’s
ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities,
operations, and partnerships. It is not possible to predict either the outcome of future research and development programs or the
Company’s ability to fund these programs going forward.
On July 19, 2013, the Company’s shelf
registration statement filed with the United States Securities and Exchange Commission (“SEC”) on Form F-3 became effective.
The shelf prospectus provides for the potential offering in the United States of up to an aggregate amount of US$50 million of
Transition’s common shares, warrants, or a combination thereof, from time to time in one or more offerings until July 19,
2016.
On January 5, 2015, the Company filed with
the SEC a prospectus supplemental to the shelf prospectus and a sales agreement with Cowen and Company, LLC or Cowen, relating
to the sale of the Company’s common shares. In accordance with the terms of the sales agreement, the Company may offer and
sell from time to time common shares having an aggregate offering price of up to US $25 million with Cowen acting as sales agent.
After the closing of the February, 2015 US$23 million public offering, the Company can raise an additional US$27 million through
the issuance of common shares, warrants or a combination thereof, from time to time in in one of more offerings until July 19,
2016.
Utilization of the US shelf prospectus
is dependent upon meeting certain market capitalization thresholds at the time of financing.
Financial Instruments
Financial instruments of the Company consist
mainly of cash, short term investments, other receivables, accounts payable and accrued liabilities, and contingent consideration
payable. Management’s primary investment objective is to maintain safety of principal and provide adequate liquidity to meet
all current payment obligations and future planned expenditures.
The Company is exposed to market risks
related to volatility in interest rates for the Company’s investment portfolio and foreign currency exchange rates related
to cash and purchases of supplies and services made in U.S. dollars.
The Company is exposed to interest rate
risk to the extent that the cash is held in deposit accounts which earn interest at variable rates. The Company’s maximum
exposure to interest rate risk is based on the effective interest rate of the current carrying value of these assets. The Company
does not speculate on interest rates and holds all deposits until their date of maturity.
Off-Balance Sheet Arrangements
The Company’s off-balance sheet arrangements
include operating leases for the Company’s premises and certain office equipment. The minimum payments under these leases
are included in the contractual obligation table below.
Contractual Obligations
Minimum payments under our contractual
obligations are as follows:
| | |
Less than 1 Year | | |
1- 3 Years | | |
4 – 5 Years | | |
After 5 Years | | |
Total | |
| Operating leases | |
$ | 238,179 | | |
$ | 343,165 | | |
$ | 307,453 | | |
$ | - | | |
$ | 888,797 | |
| Clinical and toxicity study agreements | |
| 2,904,125 | | |
| - | | |
| - | | |
| - | | |
| 2,904,125 | |
| Manufacturing agreements | |
| 214,857 | | |
| - | | |
| - | | |
| - | | |
| 214,857 | |
| Contingent Consideration Payable | |
| - | | |
| 2,847,759 | | |
| - | | |
| 58,028,760 | | |
| 60,876,519 | |
| Other | |
| 327,218 | | |
| - | | |
| - | | |
| - | | |
| 327,218 | |
| TOTAL | |
$ | 3,684,379 | | |
$ | 3,190,924 | | |
$ | 307,453 | | |
$ | 58,028,760 | | |
$ | 65,211,516 | |
Contractual obligations denominated in
US dollars have been translated to Canadian dollars using the exchange rate at June 30, 2015.
| Item 6. | Directors, Senior Management and Employees |
A.
Directors and Senior Managers. The following table sets forth the name and province or state and country of residence
of each director and executive officer of the Corporation as well as their position(s) and offices held with the Corporation and
their principal occupations during the five preceding years for each as of September 14, 2015.
|
Name and Province/
State and
Country of
Residence |
|
Position(s) Held
with the
Corporation |
|
Principal Occupations within the
Five Proceeding Years |
|
Director
Since (4) |
|
Age |
| |
|
|
|
|
|
|
|
|
Dr. Tony F. Cruz
Ontario, Canada |
|
Chief Executive Officer, Director and Chairman of the Board of Directors |
|
Chief Executive Officer of the Corporation. |
|
January 1999; |
|
62 |
| |
|
|
|
|
|
|
|
|
Carl Damiani
Ontario, Canada |
|
President and Chief Operating Office |
|
President and Chief Operating Officer of the Corporation since June 16, 2015; prior thereto, Chief Operating Officer of the Corporation since July 11, 2014; prior thereto, VP of Business Development of the Corporation since December 2007, prior thereto, Director of Business Development of the Corporation since October 2003. |
|
N/A |
|
43 |
|
Name and Province/
State and
Country of
Residence |
|
Position(s) Held
with the
Corporation |
|
Principal Occupations within the
Five Proceeding Years |
|
Director
Since (4) |
|
Age |
Nicole Rusaw
Ontario, Canada |
|
Chief Financial Officer |
|
Chief Financial Officer of the Corporation since December 2011; prior thereto, VP, Finance of the Corporation since July 2008, prior thereto, Director of Finance of the Corporation since June 2005. |
|
N/A |
|
42 |
| |
|
|
|
|
|
|
|
|
Dr. Aleksandra Pastrak
Ontario, Canada |
|
VP of Clinical Development and Medical Officer |
|
VP of Clinical Development and Medical Officer since September 2011, prior thereto, VP Research and Medical Officer of the Corporation since July 2007, prior thereto, VP, Research of the Corporation since May 2005. |
|
N/A |
|
49 |
| |
|
|
|
|
|
|
|
|
Bruce Connop
Ontario, Canada |
|
VP of Non-Clinical and Pharmaceutical Development |
|
VP of Non-Clinical and Pharmaceutical Development of the Corporation since July 2012, prior thereto, Senior Director Non-Clinical Drug Development since December 2006. |
|
N/A |
|
46 |
| |
|
|
|
|
|
|
|
|
Michael Ashton (1)(2)(3)
Connecticut, USA |
|
Lead Director |
|
Director of Hikma Pharmaceuticals PLC since 2005 and Independent consultant to the pharmaceutical industry since March 2006; prior thereto, former Chief Executive Officer of Puricore plc; prior thereto, Chief Executive Officer of SkyePharma PLC, a U.K. based drug delivery company. |
|
December 2002; |
|
69 |
| |
|
|
|
|
|
|
|
|
Paul Baeher (1)(2)(3)
Quebec, Canada |
|
Director |
|
President, Chief Executive Officer and Chairman of IBEX Technologies Inc., a publicly traded biotechnology company. |
|
December 2002; |
|
72 |
Christopher Henley (1)(2)(3)
Ontario, Canada |
|
Director |
|
President of Henley Capital Corporation, an exempt market dealer and portfolio manager. |
|
October 2000; |
|
55 |
| |
|
|
|
|
|
|
|
|
Dr. Gary W. Pace (1)(2)(3)
California, USA |
|
Director |
|
Currently a Director of ResMed Inc. and Pacira Pharmaceuticals, Inc.; prior thereto, Co-founder, Chairman and Chief Executive Officer of QRxPharma from 2002 to 2013. |
|
January 2002; |
|
67 |
Notes:
| (1) | Member of the Audit Committee. |
| (2) | Member of the Compensation Committee. |
| (3) | Member of the Corporate Governance Committee. |
| (4) | The term of each current director’s appointment will expire at the Corporation’s Annual Meeting of shareholders
which is scheduled for December 10, 2015. It is anticipated that each current director will be nominated by management for re-appointment
at the Corporation’s Annual Meeting. |
Family Relationships
There are no family relationships among
our directors and executive officers.
Arrangement or understanding with major
shareholders, customers, suppliers or others
There are no arrangements or understandings
with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director
or member of senior management.
B. Executive Compensation
Compensation of Executives
Summary Compensation Table
The following table provides a summary
of compensation earned during the most recently completed fiscal year by the Corporation’s Chief Executive Officer, Chief
Financial Officer, and for the next three most highly compensated executive officers of the Corporation other than the Chief Executive
Officer and the Chief Financial Officer (the “Named Executive Officers” as the term is used in National Instrument
Form 51-102 – Statement of Executive Compensation), whose total salary and bonus exceeded $150,000.
| | |
| | |
| | |
| | |
| | |
Non-equity incentive
plan compensation
($) | | |
| | |
| | |
| |
Name and principal position | |
Year | | |
Salary
($) | | |
Share-
based
awards
($) | | |
Option-
based
awards
($) | | |
Annual
incentive
plans | | |
Long-
term
incentive
plans | | |
Pension
value
($) | | |
All other
compensation
($) | | |
Total
compensation | |
Tony Cruz,
Chief Executive Officer | |
| 2015 | | |
| 413,860 | | |
| — | | |
| 426,755 | | |
| 124,158 | | |
| — | | |
| — | | |
| 1,350 | (3) | |
| 966,123 | |
| | |
| 2014 | | |
| 401,806 | | |
| — | | |
| 664,500 | | |
| 120,542 | | |
| — | | |
| — | | |
| 1,174 | (3) | |
| 1,188,022 | |
| | |
| 2013 | | |
| 390,103 | | |
| — | | |
| 198,000 | | |
| 117,031 | | |
| — | | |
| — | | |
| 1,174 | (3) | |
| 706,308 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Nicole Rusaw
Chief Financial
Officer | |
| 2015 | | |
| 204,000 | | |
| — | | |
| 243,860 | | |
| 40,800 | | |
| — | | |
| — | | |
| — | | |
| 488,660 | |
| | |
| 2014 | | |
| 190,962 | | |
| — | | |
| 221,500 | | |
| 38,192 | | |
| — | | |
| — | | |
| 1,174 | (3) | |
| 451,828 | |
| | |
| 2013 | | |
| 185,400 | | |
| — | | |
| 92,400 | | |
| 37,080 | | |
| — | | |
| — | | |
| 1,174 | (3) | |
| 316,054 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sawsan
Abushakra
D5 Program Lead
and Chief Medical Officer (1) | |
| 2015 | | |
| 481,258 | | |
| — | | |
| 274,343 | | |
| 192,503 | | |
| — | | |
| — | | |
| — | | |
| 948,104 | |
| | |
| 2014 | | |
| 36,456 | | |
| — | | |
| 398,691 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 435,147 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Earvin
Liang
Senior Director Clinical
Pharmacology(2) | |
| 2015 | | |
| 304,014 | | |
| — | | |
| 91,448 | | |
| 91,204 | | |
| — | | |
| — | | |
| — | | |
| 486,666 | |
| | |
| 2014 | | |
| 23,029 | | |
| — | | |
| 66,449 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 89,478 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Aleksandra
Pastrak
Vice
President Clinical Development & Medical Officer | |
| 2015 | | |
| 266,053 | | |
| — | | |
| 213,378 | | |
| 53,211 | | |
| — | | |
| — | | |
| 1,350 | (3) | |
| 533,992 | |
| | |
| 2014 | | |
| 258,304 | | |
| — | | |
| 221,500 | | |
| 51,661 | | |
| — | | |
| — | | |
| 1,174 | (3) | |
| 532,639 | |
| | |
| 2013 | | |
| 250,781 | | |
| — | | |
| 105,600 | | |
| 50,156 | | |
| — | | |
| — | | |
| 1,174 | (3) | |
| 407,711 | |
Notes:
| (1) | Ms. Abushakra joined the Corporation on June 1, 2014 and was appointed ELND005 Program Lead and Chief Medical Officer. Ms.
Abushakra’s employment with the Corporation was terminated on July 24, 2015 and as of that date, Ms. Abushakra owned 30,898
common shares of the Corporation. |
| (2) | Mr. Liang joined the Corporation on June 1, 2014 as the Senior Director Clinical Pharmacology. Mr. Liang’s employment
with the Corporation was terminated on July 24, 2015 and as of that date, Mr. Liang owned 23,600 common shares of the Corporation. |
| (3) | Dr. Cruz, Dr. Pastrak and Ms. Rusaw receive subsidized
parking from the Corporation and the subsidy represents the full amount of all other compensation disclosed. |
Outstanding Option-based Awards
The following table sets forth information
with respect to stock option grants exercisable into Common Shares made to the Named Executive Officers that were outstanding at
June 30, 2015:
| | |
Option-based Awards | |
| Name | |
Number of
securities
underlying
unexercised
Options
(#) | | |
Option
exercise
price ($) | | |
Option expiration
date | |
Value of
unexercised
in-the-money
options ($)(1) | |
| Tony Cruz | |
| 150,000 | | |
| 3.22 | | |
May 26, 2021 | |
| — | |
| | |
| 250,000 | | |
| 2.10 | | |
June 1, 2022 | |
| 112,500 | |
| | |
| 75,000 | | |
| 3.66 | | |
June 19, 2023 | |
| — | |
| | |
| 150,000 | | |
| 6.00 | | |
June 12, 2024 | |
| — | |
| | |
| 70,000 | | |
| 8.73 | | |
March 31, 2025 | |
| — | |
| | |
| | | |
| | | |
| |
| | |
| Nicole Rusaw | |
| 16,000 | | |
| 3.22 | | |
May 26, 2021 | |
| — | |
| | |
| 50,000 | | |
| 2.10 | | |
June 1, 2022 | |
| 22,500 | |
| | |
| 35,000 | | |
| 3.66 | | |
June 19, 2023 | |
| — | |
| | |
| 50,000 | | |
| 6.00 | | |
June 12, 2024 | |
| — | |
| | |
| 40,000 | | |
| 8.73 | | |
March 31, 2025 | |
| — | |
| | |
| | | |
| | | |
| |
| | |
| Susan Abushakra | |
| 90,000 | | |
| 6.00 | | |
June 12, 2024 | |
| — | |
| | |
| 45,000 | | |
| 8.73 | | |
March 31, 2025 | |
| — | |
| | |
| | | |
| | | |
| |
| | |
| Earvin Liang | |
| 15,000 | | |
| 6.00 | | |
June 12, 2024 | |
| — | |
| | |
| 15,000 | | |
| 8.73 | | |
March 31, 2025 | |
| — | |
| | |
| | | |
| | | |
| |
| | |
| Aleksandra Pastrak | |
| 85,000 | | |
| 3.22 | | |
May 26, 2021 | |
| — | |
| | |
| 100,000 | | |
| 2.10 | | |
June 1, 2022 | |
| 45,500 | |
| | |
| 40,000 | | |
| 3.66 | | |
June 19, 2023 | |
| — | |
| | |
| 50,000 | | |
| 6.00 | | |
June 12, 2024 | |
| — | |
| | |
| 35,000 | | |
| 8.73 | | |
March 31, 2025 | |
| — | |
Notes:
| (1) | Calculated based on the difference between the closing price of
the Common Shares on the TSX on June 30, 2015 of $2.55 and the exercise price of the
options. |
Incentive Plan Awards – Value Vested
or Earned during the Year
The following table sets forth for option-based
awards, the aggregate dollar value that would have been realized if the options under the option-based award had been exercised
on the vesting date.
| Name | |
Option-based awards – Value
vested during the year
($)(1) | |
| Tony Cruz | |
| 37,500 | |
| Nicole Rusaw | |
| 12,750 | |
| Sawsan Abushakra | |
| — | |
| Earvin Liang | |
| — | |
| Aleksandra Pastrak | |
| 15,000 | |
Notes:
| (1) | Calculated based on the difference between the closing price of the Common Shares on the TSX on June 30, 2015 of $2.55 and
the exercise price of the options which were vested as of June 30, 2015. |
Compensation of Directors
The following table details the total compensation
earned by each non-employee director during the year ended June 30, 2015:
| Name | |
Fees
earned
($) | | |
Option-
based
awards
($) | | |
All other
compensation
($) | | |
Total
($) | |
| Michael Ashton | |
| 53,000 | | |
| 109,482 | | |
| — | | |
| 162,482 | |
| Paul Baehr | |
| 51,250 | | |
| 109,482 | | |
| — | | |
| 160,732 | |
| Christopher Henley | |
| 52,250 | | |
| 109,482 | | |
| — | | |
| 161,732 | |
| Gary W. Pace | |
| 43,000 | | |
| 109,482 | | |
| — | | |
| 152,482 | |
Dr. Tony Cruz, Chief Executive Officer
and a director of the Corporation, does not receive any compensation as a director of the Corporation, but receives compensation
as an executive officer of the Corporation as detailed under the heading “Chief Executive Officer’s Compensation”.
The remaining directors are not employees of the Corporation. Non-employee directors have been remunerated in the following manner.
Standard Arrangements
The Corporation has standard arrangements
for its non-employee directors, which include the following:
| · | Board member annual retainer in the amount of $25,000 and an annual grant of stock options; |
| · | Committee Chair annual retainers – the Audit Committee Chair is paid $10,000 annually and the Corporate Governance and
Nominating Committee and Compensation Committee Chairs are each paid $6,000 annually; |
| · | Board and Committee meeting fees are paid in the amount of $1,500 for each meeting attended and $750 for each conference call
attended; |
| · | Travel fees of $1,000 for each meeting are paid to all non-employee directors who traveled from outside the Greater Toronto
area to attend in person; and |
| · | All reasonable out of pocket expenses incurred by the non-employee directors in respect of their duties as directors are reimbursed
by the Corporation. |
There are no contracts or arrangements
with non-employee directors providing for benefits upon termination of service.
Directors – Outstanding Option-based
Awards
The following table sets forth information
with respect to stock option grants exercisable into Common Shares made to the directors that were outstanding at June 30, 2015.
| | |
Option-based Awards | |
Name | |
Number of
securities
underlying
unexercised
options (#) | | |
Option
exercise price
($) | | |
Option expiration
date | |
Value of unexercised
in-the-money
options ($) (1) | |
| Michael Ashton | |
| 15,000 | | |
| 3.00 | | |
June 30, 2021 | |
| — | |
| | |
| 15,000 | | |
| 2.09 | | |
June 30, 2022 | |
| 6,900 | |
| | |
| 15,000 | | |
| 3.55 | | |
June 30, 2023 | |
| — | |
| | |
| 15,000 | | |
| 7.47 | | |
June 30, 2024 | |
| — | |
| | |
| 15,000 | | |
| 10.19 | | |
June 14, 2025 | |
| — | |
| | |
| | | |
| | | |
| |
| | |
| Paul Baehr | |
| 15,000 | | |
| 3.00 | | |
June 30, 2021 | |
| — | |
| | |
| 15,000 | | |
| 2.09 | | |
June 30, 2022 | |
| 6,900 | |
| | |
| 15,000 | | |
| 3.55 | | |
June 30, 2023 | |
| — | |
| | |
| 15,000 | | |
| 7.47 | | |
June 30, 2024 | |
| — | |
| | |
| 15,000 | | |
| 10.19 | | |
June 14, 2025 | |
| — | |
| | |
| | | |
| | | |
| |
| | |
| Christopher Henley | |
| 15,000 | | |
| 3.00 | | |
June 30, 2021 | |
| — | |
| | |
| 15,000 | | |
| 2.09 | | |
June 30, 2022 | |
| 6,900 | |
| | |
| 15,000 | | |
| 3.55 | | |
June 30, 2023 | |
| — | |
| | |
| 15,000 | | |
| 7.47 | | |
June 30, 2024 | |
| — | |
| | |
| 15,000 | | |
| 10.19 | | |
June 14, 2025 | |
| — | |
| | |
| | | |
| | | |
| |
| | |
| Gary W. Pace | |
| 15,000 | | |
| 3.00 | | |
June 30, 2021 | |
| — | |
| | |
| 15,000 | | |
| 2.09 | | |
June 30, 2022 | |
| 6,900 | |
| | |
| 15,000 | | |
| 3.55 | | |
June 30, 2023 | |
| — | |
| | |
| 15,000 | | |
| 7.47 | | |
June 30, 2024 | |
| — | |
| | |
| 15,000 | | |
| 10.19 | | |
June 14, 2025 | |
| — | |
Notes:
| (1) | Calculated based on the difference between the closing price of the Common Shares on the TSX on June 30, 2015 of $2.55 and
the exercise price of the options which were vested as of June 30, 2015. |
Directors – Incentive Plan Awards
– Value Vested or Earned during the Year
The following table sets forth (i) for
option-based awards, the aggregate dollar value that would have been realized if the options under the option-based award had been
exercised on the vesting.
| Name | |
Option-based awards – Value
vested during the year
($) (1) | |
| Michael Ashton | |
| — | |
| Paul Baehr | |
| — | |
| Christopher Henley | |
| — | |
| Gary W. Pace | |
| — | |
Notes:
| (1) | All options that vested during the year were out of the money based on the closing price of Common Shares on the TSX on June 30,
2015 of $2.55. |
Audit Committee
The Corporation has a separately-designated
standing Audit Committee established in accordance with section 3(a)(58) of the Exchange Act. The members of the Audit Committee
are: Mr. Christopher Henley (chair), Mr. Paul Baehr, Mr. Michael Ashton and Dr. Gary Pace, each of whom is independent under the
TSX and NASDAQ listing standards and financially literate.
Audit Committee Charter
The charter of the Corporation’s
audit committee is attached as Appendix A to our Annual Information Form available at www.sedar.com.
Relevant Education and Experience
Mr. Christopher Henley (Chair):
Mr. Henley has a B.A. from Memorial University
and an MBA from Dalhousie University. He has completed the Institute of Corporate Directors Education Program at the Rotman School
of Management, University of Toronto and holds the professional designation ICD.D. He is currently founder and President of Henley
Capital Corporation, an exempt market dealer and portfolio manager.
Mr.
Henley has been an investment banker for over 25 years and previously was the head of investment banking in Toronto at what was
then Canada’s largest independent employee-owned investment dealer where he also ran the firm’s High Technology and
Communications practice. Mr. Henley is a former board member of the Exempt Market Dealers Association of Canada, a former director
and Chair of the Toronto Port Authority, a former member of the Board and Audit Committee of Ontario Transportation Capital Corporation,
a Government of Ontario Crown Corporation that, through a public partnership, developed Highway 407 in Toronto, Ontario, the first
all-electronic toll highway in the world. Mr. Henley is also a founding member of the National Angel Organization in Canada and
the Ministers’ Technology Advisory Group (“MTAG”) for the Province of Ontario. He is also a former Chair of the
MTAG Task Force on Access to Capital, a former member of the Advisory Board, Faculty of Business Administration, Memorial University
of Newfoundland and is an active member of the Institute of Corporate Directors. Mr. Henley is currently Chair of West Park Healthcare
Centre, a member of the Governance Committee of the Ontario Cancer Research Ethics Board, and is actively involved in many philanthropic
organizations including acting as Chair of the Board of the McMichael Canadian Art Foundation.
Mr. Paul Baehr:
Mr.
Baehr has a B.A. from the University of British Columbia. He is currently President, Chief Executive Officer and Chairman of IBEX
Technologies Inc., a biotechnology company listed on the TSX under the symbol “IBT”. Previously, Mr. Baehr was an Executive
Vice President at Sterling Winthrop and prior thereto a Senior Vice President at CIBA-GEIGY Pharmaceuticals, both of which are
large pharmaceutical companies. In addition, Mr. Baehr currently sits on the board of directors of IBEX Technologies Inc., a public
company.
Mr. Michael Ashton:
In June, 2015, Mr. Ashton retired as the
Chief Executive Officer of Puricore PLC. Mr. Ashton has been an independent consultant to the pharmaceutical industry since March
2006. Prior thereto, he was the Chief Executive Officer of SkyePharma PLC. He has over 30 years of experience in the pharmaceutical
industry having worked for Merck, Pfizer, Purepac and Faulding, where Mr. Ashton was Chairman, President and CEO. Mr. Ashton is
a member of the Board of Directors of Hikma Pharmaceuticals PLC. Mr. Ashton has a Bachelor of Pharmacy degree from Sydney University
and his MBA degree from Rutgers University, New Jersey.
Dr. Gary Pace:
Dr. Pace has more than 40 years of experience
in the development and commercialization of advanced technologies, spanning biotechnology, pharmaceuticals, medical devices and
food industries. He is a serial entrepreneur and has held senior positions in small and large-scale life sciences ventures
and companies in Australia, USA, Europe and Canada. Dr. Pace has long-term board level experience with multi-billion and small
cap companies with an in-depth knowledge of all aspects of technical operations, compensation, and corporate governance. Dr. Pace
has contributed to the development of the biotechnology industry through honorary university appointments and industry and government
committees. He is an elected Fellow of the Australian Academy of Technological Sciences and Engineering, author and co-author
of several research papers, reviews and patents. In 2003, Dr. Pace was awarded a Centenary Medal by the Australian Government
“for service to Australian society in research and development” as well as “Corporate Governance 2011 Director
of the Year” by the San Diego Directors Forum. Dr Pace currently sits on boards of directors of public companies Pacira Pharmaceutical
Inc. and ResMed Inc. and several private companies. Dr. Pace has a B.Sc. from the University of New South Wales and a Ph.D. from
the Massachusetts Institute of Technology.
Pre-Approval Policies and Procedures
The Corporation’s audit committee
is responsible for the oversight of the work of the external auditor. As part of this responsibility, the audit committee is required
to pre-approve all audit, audit related, tax services and non-audit services performed by the external auditor in order to assure
that they do not impair the external auditor’s independence from the Corporation. Accordingly, the audit committee has adopted
a pre-approval policy, which sets forth the procedures and the conditions pursuant to which services proposed to be performed by
the external auditor may be pre-approved.
Under the pre-approval policy, the Corporation’s
audit committee annually reviews and pre-approves specific audit, audit-related and tax services that may be provided by the external
auditor without obtaining specific pre-approval from the audit committee, as well as maximum fees for such services. All services
that are not pre-approved or exceed the pre-approved maximum fees require specific pre-approval by the audit committee before the
service can be performed by the external auditor. The pre-approval policy also includes a list of prohibited services.
Compensation Committee
Compensation of the executive officers
is determined by the Board of Directors upon recommendations made by the Compensation Committee. The following individuals comprise
the Compensation Committee of the Board of Directors: Mr. Michael Ashton (Chair); Mr. Paul Baehr; Mr. Christopher Henley and Dr.
Gary Pace.
The Compensation Committee of the Board
of Directors (the “Compensation Committee”) exercises general responsibility regarding overall compensation of employees
and executive officers of the Corporation. It annually reviews and recommends to the Board (i) executive compensation policies,
practices and overall compensation philosophy, (ii) total compensation packages for all employees who receive aggregate annual
compensation in excess of $150,000, (iii) bonuses and grants of options under the Corporation’s Stock Option Plan, and (iv)
major changes in benefit plans. Final approval of all compensation items rests with the full Board.
As of June 30, 2015, the Corporation had
18 full-time employees.
Please see Items 6.B and 7.A.
| Item 7A. | Major Shareholders and Related Party Transactions |
Securities
Ownership of Certain
Beneficial Owners and Management
The following table sets forth information
with respect to the beneficial ownership of our Common Shares, by (1) each of the Corporation’s shareholders who is
a beneficial owner of more than 5% of the Corporation’s Common Shares, (2) each of the Corporation’s directors and
executive officers, individually, as of August 31, 2015.
| Name of Beneficial Owner | |
Amount and Nature of
Beneficial Ownership | | |
Percent of
Class | |
| Jack Schuler (1) | |
| 7,428,678 | | |
| 18.8 | % |
| Larry N Feinberg (2) | |
| 5,724,399 | | |
| 14.4 | % |
| Renate Schuler (1) | |
| 4,642,668 | | |
| 11.8 | % |
| Schuler Family Foundation (1) | |
| 4,605,668 | | |
| 11.7 | % |
| Fidelity Research and Management Company | |
| 4,103,435 | | |
| 10.6 | % |
| Elan Corporation | |
| 2,255,640 | | |
| 5.8 | % |
| Louis Alexopoulos | |
| 36,003 | | |
| * | |
| Michael Ashton (3) | |
| 86,390 | | |
| * | |
| Tony Cruz (4) | |
| 1,450,949 | | |
| 3.7 | % |
| Paul Baehr (3) | |
| 88,512 | | |
| * | |
| Christopher Henley (3) | |
| 122,754 | | |
| * | |
| Gary Pace (3) | |
| 133,393 | | |
| * | |
| Aleksandra Pastrak (5) | |
| 285,166 | | |
| * | |
| Nicole Rusaw (6) | |
| 142,244 | | |
| * | |
| Carl Damiani (7) | |
| 324,976 | | |
| * | |
| Bruce Connop (8) | |
| 111,180 | | |
| * | |
Notes:
| (1) | Includes the 3,986,117 shares beneficially owned by the Schuler Family Foundation over which Mr. Schuler and Mrs. Renate Schuler
share dispositive power. The number of shares beneficially owned includes 619,551 warrants to purchase common shares which are
exercisable within 60 days of August 31, 2015 and which are beneficially owned by the Schuler Family Foundation. The warrants provide
that they are not exercisable to the extent that the exercise would cause the holder to own or have control over voting securities
which constitute 20% or more of the total issued and outstanding voting securities of the Company, unless both the shareholders
of the Company and the TSX have approved such exercise. Mr. Schuler and Mrs. Schuler disclaim any beneficial interest in the
shares owned by the Schuler Family Foundation. Mr. Schuler disclaims any beneficial interest in the shares owned by Mrs. Schuler.
Mrs. Schuler disclaims any beneficial interest in the shares owned by Mr. Schuler. |
| (2) | The shares reported to be beneficially owned by Mr. Larry Feinberg includes the 3,378,205 shares beneficially owned by Oracle
Associates, LLC, which include 343,985 warrants to purchase common shares which are exercisable within 60 days of August 31, 2015,
and 2,346,194 shares for which beneficial ownership is shared by Oracle Ten Fund Master, L.P. and Oracle Investment Management
Inc., which include 519,093 warrants to purchase common shares which are exercisable within 60 days of August 31, 2015. The 3,378,205
shares beneficially owned by Oracle Associates, LLC, include 478,802 shares beneficially owned by Oracle Institutional Partners,
L.P., which include 51,598 warrants to purchase common shares which are exercisable within 60 days of August 31, 2015, and 2,899,403
shares owned by Oracle Partners, L.P., which include 292,387 warrants to purchase common shares which are exercisable within 60
days of August 31, 2015. |
| (3) | Includes 57,501 options exercisable within 60 days of August 31, 2015. Gary Pace also has 2,293 warrants to purchase common
shares which are exercisable within 60 days of August 31, 2015. |
| (4) | Includes 17,199 warrants to purchase common shares and 593,603 options exercisable within 60 days of August 31, 2015. |
| (5) | Includes 285,139 options exercisable within 60 days of August 31, 2015. |
| (6) | Includes 1,147 warrants to purchase common shares and 138,217 options exercisable within 60 days of August 31, 2015. |
| (7) | Includes 5,733 warrants to purchase common shares and 246,379 options exercisable within 60 days of August 31, 2015. |
| (8) | Includes 110,830 options exercisable within 60 days of August 31, 2015. |
The
Corporation had 19 registered shareholders in the U.S. who held 17,278,090 shares, representing approximately 44.4% of
the Corporation’s common shares outstanding as of August 31, 2015.
Certain
Relationships and Related Transactions
During fiscal 2015, the Company paid legal
fees to a law firm where the Company’s Secretary is a partner and to a corporation controlled by the Company’s Secretary.
Total fees and disbursements charged to the Company by these companies was $45,346 and $49,000 in fiscal 2015 and 2014 respectively
and are included in general and administrative expenses. The balance owing at June 30, 2015 and 2014 is nil.
Members of the Company’s Board of
Directors, management and employees participated in the June, 2014 private placements.
On June 23, 2014, the Company announced
the closing of a private placement financing issuing 3,195,487 common shares of the Company at a price of US$5.32 per common share,
together with warrants to purchase approximately 1,949,250 common shares of the Company. A portion of such shares and warrants
were purchased in the private placement by Gary Pace and Paul Baehr, Directors of the Company, as well as Tony Cruz, Chief Executive
Officer and Chairman of the Board of Directors of the Company, Carl Damiani, President and Chief Operating Officer of the Company
and Nicole Rusaw, Chief Financial Officer of the Company.
The Company executed subscription agreements
with these individuals in connection with such purchases. The form of such subscription agreements is filed as Exhibit 4.7 to this
annual report on Form 20-F. These transactions occurred in the normal cause of operations and were measured at the exchange amount,
which is the amount of consideration established and agreed to by the related parties.
| Item 8. | Financial Information |
| A. | Consolidated Statements and Other Information |
Please see our audited consolidated financial
statements filed as a part of this annual report on page F-1.
Legal Proceedings
As
of June 30, 2015, no litigation, arbitration or claim of material importance was pending and there were no material proceedings
in which any director, member of our senior management or any of our affiliates was a party adverse to us or in which such persons
or entities had a material interest that was adverse to us or any of our subsidiaries.
Dividend Policy
The Corporation has not declared any dividends
to date and does not currently anticipate paying any dividends in the foreseeable future. Any future determination to pay dividends
will be at the discretion of the board of directors of the Corporation and will depend upon the Corporation’s need to finance
growth, its financial condition, results of operations, capital requirements and other factors which the Board of Directors may
consider appropriate in the circumstances.
Except as disclosed elsewhere in this annual
report, we have not experienced any significant changes since the date of our audited consolidated financial statements included
in this annual report.
| Item 9. | The Offer and Listing |
Market Price
The Common Shares are listed and posted
for trading on the TSX under the symbol “TTH” and as of January 7, 2008 on the NASDAQ Global Market under the symbol
“TTHI”.
The following table sets forth, for the
periods indicated, the high and low sales prices for our Common Shares on the NASDAQ (in U.S.$) and TSX (in CAN$).
| | |
NASDAQ | | |
TSX | |
| | |
High | | |
Low | | |
High | | |
Low | |
| Yearly Highs and Lows for the Year Ending June 30, | |
| | | |
| | | |
| | | |
| | |
| 2015 | |
| 9.30 | | |
| 2.23 | | |
| 11.50 | | |
| 2.50 | |
| 2014 | |
| 8.22 | | |
| 2.81 | | |
| 9.25 | | |
| 2.62 | |
| 2013 | |
| 3.84 | | |
| 2.81 | | |
| 3.85 | | |
| 1.74 | |
| 2012 | |
| 3.23 | | |
| 1.15 | | |
| 3.00 | | |
| 1.19 | |
| 2011 | |
| 5.49 | | |
| 1.81 | | |
| 5.28 | | |
| 1.82 | |
| | |
| | | |
| | | |
| | | |
| | |
| Quarterly Highs and Lows | |
| | | |
| | | |
| | | |
| | |
| 2015 | |
| | | |
| | | |
| | | |
| | |
| First Quarter (July-September 2014) | |
| 7.50 | | |
| 5.53 | | |
| 8.15 | | |
| 6.00 | |
| Second Quarter (October-December 2014) | |
| 6.94 | | |
| 6.05 | | |
| 8.08 | | |
| 6.10 | |
| Third Quarter (January-March 2015) | |
| 7.25 | | |
| 6.29 | | |
| 9.47 | | |
| 7.30 | |
| Fourth Quarter (April-June 2015) | |
| 9.30 | | |
| 2.02 | | |
| 11.50 | | |
| 2.50 | |
| 2014 | |
| | | |
| | | |
| | | |
| | |
| First Quarter (July-September 2013) | |
| 4.99 | | |
| 2.81 | | |
| 4.98 | | |
| 2.62 | |
| Second Quarter (October-December 2013) | |
| 5.91 | | |
| 4.00 | | |
| 6.77 | | |
| 4.16 | |
| Third Quarter (January-March 2014) | |
| 8.16 | | |
| 5.67 | | |
| 9.25 | | |
| 6.00 | |
| Fourth Quarter (April-June 2014) | |
| 8.22 | | |
| 4.36 | | |
| 9.00 | | |
| 4.80 | |
| | |
| | | |
| | | |
| | | |
| | |
| Monthly Highs and Lows | |
| | | |
| | | |
| | | |
| | |
| March 2015 | |
| 7.12 | | |
| 6.40 | | |
| 9.05 | | |
| 8.10 | |
| April 2015 | |
| 8.50 | | |
| 6.75 | | |
| 10.29 | | |
| 8.00 | |
| May 2015 | |
| 7.76 | | |
| 6.01 | | |
| 9.60 | | |
| 7.16 | |
| June 2015 | |
| 9.30 | | |
| 2.02 | | |
| 11.50 | | |
| 2.50 | |
| July 2015 | |
| 2.53 | | |
| 1.95 | | |
| 3.30 | | |
| 2.50 | |
| August 2015 | |
| 2.72 | | |
| 1.77 | | |
| 3.87 | | |
| 2.37 | |
| Item 10. | Additional Information |
Not applicable.
| B. | Memorandum and Articles of Association |
Articles of Incorporation
We are governed by our amended articles
of incorporation (the “Articles”) under the Business Corporations Act (Ontario) (the “Act”) and by our
by-laws (the “By-laws”). Our Ontario corporation number is 1303782. Our Articles provide that there are no restrictions
on the business we may carry on or on the powers we may exercise.
Directors
Subject to certain exceptions, including
in respect of voting on any resolution to approve a contract that relates primarily to the director’s remuneration, directors
may not vote on resolutions to approve a material contract or material transaction if the director is a party to such contract
or transaction or is a director or an officer of or has a material interest in any person who is a party to such contract or transaction.
The directors are entitled to remuneration as shall from time to time be determined by the Board of Directors with no requirement
for a quorum of independent directors. The directors have the ability under the Act to exercise our borrowing power, without authorization
of the shareholders. The Act permits shareholders to restrict this authority through a company’s articles or by-laws (or
through a unanimous shareholder agreement), but no such restrictions are in place for us. Our Articles and By-laws do not require
directors to hold shares for qualification.
Rights, Preferences and Dividends Attaching
to Shares
The holders of common shares have the right
to receive dividends if and when declared by the Board of Directors. Each holder of common shares, as of the record date prior
to a meeting, is entitled to attend and to cast one vote for each common share held as of such record date at such annual and/or
special meeting, including with respect to the election or re-election of directors. The numbers of our Board of Directors are
not replaced at staggered intervals but are elected annually.
In the event of the liquidation, dissolution
or winding up of the Corporation or other distribution of assets of the Corporation among its shareholders for the purpose of winding
up its affairs, the holders of common shares shall have a right to receive their pro rata share of such distribution, subject to
the rights of the holders of any other class of shares of the Corporation entitled to receive the assets of the Corporation upon
such a distribution in priority to the common shares. There are no sinking fund or redemption provisions in respect of the common
shares. Our shareholders have no liability to further capital calls as all shares issued and outstanding are fully paid and non-assessable.
No other classes of shares are currently
permitted to be issued.
Action Necessary to Change the Rights of
Shareholders
In order to change the rights of our shareholders,
we would need to amend our articles of incorporation to effect the change. Such an amendment would require approval by a special
resolution passed by at least two-thirds of the votes cast at a duly called special meeting. For certain amendments such as those
creating of a class of preferred shares, a shareholder is entitled to dissent in respect of such a resolution amending our articles
and, if the resolution is adopted and the Corporation implements such changes, demand payment of the fair value of its shares.
Annual and Special Meetings of Shareholders
An annual meeting of shareholders is held
each year for the purpose of receiving the financial statements and report of the auditor, electing directors, appointing the auditor
and for the transaction of other business as may be brought before the meeting. The Board of Directors has the power to call a
special meeting of shareholders at any time. Under the Act and our Bylaws, we are required to mail a Notice of Meeting and Management
Information Circular to registered shareholders not less than 21 days and not more than 50 days prior to the date of the meeting.
Such materials must be filed concurrently with the applicable securities regulatory authorities in Canada and the U.S. Subject
to certain provisions of the Bylaws, a quorum of one or more shareholders in person or represented by proxy holding or representing
by proxy not less than five (5%) percent of the total number of issued and outstanding shares enjoying voting rights at such meeting
is required to properly constitute a meeting of shareholders. Shareholders and their duly appointed proxies and corporate representatives
are entitled to be admitted to our annual and/or special meetings.
Limitations on the Rights to Own Shares
The Articles do not contain any limitations
on the rights to own shares. Except as described below, there are currently no limitations imposed by Canadian federal or provincial
laws on the rights of non-resident or foreign owners of Canadian securities to hold or vote the securities held. There are also
no such limitations imposed by the Articles and By-laws with respect to our common shares.
Investment Canada Act
Under the Investment Canada Act, transactions
exceeding certain financial thresholds, and which involve the acquisition of control of a Canadian business by a non-Canadian,
may be subject to review and cannot be implemented unless the Minister of Industry and/or, in the case of a Canadian business engaged
in cultural activities, the Minister of Canadian Heritage, are satisfied that the transaction is likely to be of “net benefit
to Canada”. If a transaction is subject to review (a “Reviewable Transaction”), an application for review must
be filed with the Investment Review Division of Industry Canada and/or the Department of Canadian Heritage and, generally speaking,
approval must be obtained prior to the implementation of the Reviewable Transaction. The responsible Minister is, upon the filing
of the application, required to determine whether the Reviewable Transaction is likely to be of net benefit to Canada taking into
account, among other things, certain factors specified in the Investment Canada Act and any written undertakings that may have
been given by the applicant. The Investment Canada Act contemplates an initial review period of up to 45 days after filing; however,
if the responsible Minister has not completed the review by that date, the Minister may unilaterally extend the review period by
up to 30 days (or such longer period as may be agreed to by the applicant and the Minister) to permit completion of the review.
At the completion of his or her review, the responsible Minister will either approve or reject the proposed acquisition of control.
Direct acquisitions of control of most Canadian businesses by or from World Trade Organization (“WTO”) investors who
are not state-owned enterprises are reviewable under the Investment Canada Act only if the enterprise value of the Canadian business
(including its worldwide assets) exceeds C$600 million (this threshold will increase to C$800 million in 2017, then to C$1 billion
in 2019). The threshold applicable to WTO investors which are state-owned applies to the value of the worldwide assets of the Canadian
business and is exceeded if the total value of such assets reflected on the balance sheet exceed C$369 million (adjusted annually
to reflect inflation). Indirect acquisitions (e.g., an acquisition of a U.S. corporation with a Canadian subsidiary) of control
of such businesses by or from WTO investors are not subject to review, regardless of the value of the Canadian businesses’
assets. Significantly lower review thresholds apply where neither the investor nor the Canadian business is WTO investor controlled
or where the Canadian business is engaged in certain cultural businesses.
Even if the transaction is not reviewable
because it does not meet or exceed the applicable threshold, the non-Canadian investor must still give notice to Industry Canada
and, in the case of a Canadian business engaged in cultural activities, Canadian Heritage, of its acquisition of control of a Canadian
business within 30 days of its implementation. Finally, the Government of Canada has the power, under the Investment Canada Act,
to review and challenge any acquisition by a non-Canadian of all or part of a Canadian business if the government believes the
transaction could be injurious to Canada’s national security.
Disclosure of Share Ownership
Under applicable securities regulation
in Canada, notice is required to be given to the market in the event of an acquisition of equity or voting securities representing
10% (5% where a take-over bid has already been made) of a class of securities of a target (including shares beneficially owned,
controlled or directed by the purchaser and its joint actors). The purchaser must give this notice to the market by issuing a press
release forthwith and filing, within two business days, an “early warning” report in the prescribed form (which must
include disclosure relating to the purpose of the purchaser in undertaking the transaction and of any intention on the part of
the purchaser to acquire additional securities of the class). A press release is required to be issued and an additional report
is required to be filed if there is a change in a material fact contained in a prior report, or upon the acquisition of a further
2% of the class of securities or securities convertible into an additional 2% of such class of securities.
An alternative monthly reporting system
is available to eligible institutional investors, which requires only the filing of a report within 10 days after the end of the
month in which the security holding percentage of the eligible institutional investor in a class of voting or equity securities
of the issuer, as at the end of the month, increased to 10% or more or increased or decreased past thresholds that are products
of whole numbers multiplied by 2.5% of the outstanding securities of that class and that are in excess of 10% or decreased to less
than 10% or there has been a change in a material fact contained in the report of the eligible institutional investor most recently
filed.
In addition, in Canada, a person or company
(other than an eligible institutional investor) who beneficially owns, directly or indirectly, voting securities of a reporting
issuer or who exercises control or direction over voting securities of a reporting issuer or a combination of both, carrying more
than 10% of the voting rights attached to all the reporting issuer’s outstanding voting securities is a reporting insider
and must, within 10 days of becoming a reporting insider, file an initial report in the required form effective the date on which
the person became a reporting insider. The initial report must disclose any direct or indirect beneficial ownership of, or control
or direction over, securities of the reporting issuer and any interest in, or right or obligation associated with, a related financial
instrument involving a security of the reporting issuer. Additionally, securities regulation in Canada provides for the filing
of a subsequent report by a reporting insider if there is any change in the information contained in the initial report, which
subsequent report must be filed within 5 days from the day on which the change takes place.
The rules in the U.S. governing the ownership
threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13 of the
Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act) of more than 5% of a class of an equity security registered under Section 12 of the Securities Exchange
Act of 1934 (the “Exchange Act”). In general, such persons must file, within 10 days after such acquisition, a report
of beneficial ownership with the Securities and Exchange Commission containing the information prescribed by the regulations under
Section 13 of the Exchange Act. This information is also required to be sent to the issuer of the securities and to each exchange
where the securities are traded.
Other Provisions of Articles and By-laws
There are no provisions of our Articles
or Bylaws that would have an effect of delaying, deferring or preventing a change in control of the Corporation and that would
operate only with respect to a merger, acquisition or corporate restructuring involving the Corporation. Our Bylaws do not contain
a provision governing the ownership threshold above which shareholder ownership must be disclosed. There are no provisions in our
Articles or Bylaws governing changes in capital, where such provisions are more stringent than those required by law.
Other than those listed in the paragraphs
below, we have not entered into any material contracts other than in the ordinary course of business or other than those described
in Item 4 “Information on the Corporation” and elsewhere in this annual report.
The Corporation has entered into the following
material contracts, which were not in the ordinary course of business, in the two-year period immediately preceding that filing
date of this annual report:
Perrigo
On February 28, 2014, after a series of
transactions, Perrigo has transferred all of its ELND005 rights and assets to Transition Ireland. Transition Therapeutics Inc.
acquired Transition Ireland, which is now a 100% wholly-owned subsidiary. Transition Ireland is a party to a Milestone, Royalty
and Sublicense Fee agreement with a subsidiary of Perrigo. Under this agreement, the subsidiary of Perrigo will be eligible to
receive from Transition Ireland up to US$40 million in approval and commercial milestone payments and a 6.5% royalty on net sales
of ELND005 products and sublicense fees received.
The agreement continues through the expiration
of all payment obligations under the agreement.
Eli Lilly
TT401
On March 3, 2010, the Corporation and Lilly
entered into a licensing and collaboration agreement granting the Corporation the rights to a series of preclinical compounds in
the area of diabetes. Under the licensing and collaboration agreement, the Corporation will receive exclusive worldwide rights
to develop and potentially commercialize a class of compounds that, in preclinical models showed potential to provide glycemic
control and other beneficial effects including weight loss.
Under the terms of the agreement, Lilly
received an up-front payment of US$1 million and retained the option to reacquire the rights to the compounds at a later date.
In June 2013, Lilly assumed all development
and commercialization rights to type 2 diabetes drug candidate TT401. In conjunction with this assumption of rights, Transition
received a US$7 million milestone payment. Lilly assumed all costs and will perform all future development and commercialization
activities of TT401, and Transition paid US$14 million to Lilly in three separate installments during the Phase 2 clinical study.
In return, Transition is eligible to receive up to approximately US$240 million in additional milestone payments. Transition will
also be eligible to receive a low double-digit royalty (less than 15%) on sales of TT401 products and a low single digit royalty
on related compounds.
The US$14 million was paid to Lilly in
three instalments in the second half of calendar 2014. The Corporation has no additional funding obligations related to the ongoing
clinical study or any other development or commercialization activities in the future under the Lilly agreement.
The agreement continues until the expiration
of all payment obligations under the agreement. If Transition commercializes the product, Transition can terminate the agreement
on 90 days notice. Either party may terminate for material breach.
TT701
On May 6, 2015, the Company, through its
wholly owned subsidiary, Transition Ireland, exclusively licensed worldwide rights to a novel small molecule drug candidate, TT701
from Lilly. Under the terms of the agreement, the Corporation has acquired rights to develop and commercialize TT701. Transition
will pay Lilly upfront consideration of up to US$1 million, US$500,000 of which has already been paid as of June 30, 2015. Lilly
will also be eligible to receive up to approximately US$100 million in additional commercial milestone payments and a mid-single
digit royalty on annual worldwide net sales.
There are currently no limitations imposed
by Canadian federal or provincial laws on the rights of non-resident or foreign owners of our securities to hold or vote the securities
held. There are also no such limitations imposed by our Articles and By-Laws with respect to our Common Shares.
United States Federal Income Taxation
The following discussion describes the
material U.S. federal income tax consequences to U.S. Holders (defined below) under present law of an investment in our Common
Shares. This summary applies only to investors that hold our Common Shares as capital assets and that have the U.S. dollar as their
functional currency. This discussion assumes that we are not a “controlled foreign corporation” for U.S. federal income
tax purposes. This discussion is based on the tax laws of the United States as in effect on the date of this annual report and
on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and
administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change,
which change could apply retroactively and could affect the tax consequences described below.
The following discussion does not deal
with the tax consequences to any particular investor or to persons in special tax situations such as:
| · | certain financial institutions; |
| · | regulated investment companies; |
| · | real estate investment trusts; |
| · | traders that elect to mark to market; |
| · | persons liable for alternative minimum tax; |
| · | persons liable for the Medicare tax on investment income; |
| · | persons holding a Common Share as part of a straddle, hedging, constructive sale, conversion or integrated transaction; |
| · | persons who acquired Common Shares pursuant to the exercise of any employee share option or otherwise as compensation; or |
| · | persons holding Common Shares through partnerships or other pass-through entities for U.S. federal income tax purposes. |
U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON SHARES.
A “U.S. Holder” includes:
| · | an individual who is a citizen or resident of the United States; |
| · | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under
the laws of the United States, any State or the District of Columbia; |
| · | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
| · | a trust that (1) is subject to the supervision of a court within the United States and the control of one or more U.S. persons
or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
Distributions
The gross amount of any distribution received
by a U.S. Holder with respect to our Common Shares (including amounts withheld to pay Canadian withholding taxes) will be included
in the gross income of such U.S. Holder as a dividend to the extent attributable to our current or accumulated earnings and profits,
as determined under U.S. federal income tax principles. To the extent that the amount of any distribution exceeds our current and
accumulated earnings and profits, such distribution will be treated first as a tax-free return of capital to the extent of a U.S.
Holder’s adjusted tax basis in its Common Shares, causing a reduction in the adjusted basis of such Common Shares. To the
extent that such distribution exceeds a U.S. Holder’s adjusted tax basis in its Common Shares, the distribution will be treated
as gain from the sale or exchange of such Common Shares. Provided that we are not treated as a PFIC, as described below, we believe
that we are considered to be a “qualified foreign corporation,” and therefore distributions, if any, to non-corporate
U.S. Holders (including individuals) that are treated as dividends should qualify for a reduced rate of tax. If we are a PFIC under
the rules discussed below, distributions treated as dividends will be taxable at the higher ordinary income tax rates. Dividends
on our Common Shares paid to corporate shareholders will not be eligible for the dividends received deduction allowed with respect
to dividends from domestic corporations under the Code.
Generally, the amount of any dividend paid
in Canadian dollars (including amounts withheld to pay Canadian withholding taxes) will equal the U.S. dollar value of the Canadian
dollars calculated by reference to the spot rate in effect on the date the dividend is received by the U.S. Holder, regardless
of whether the Canadian dollars are converted into U.S. dollars. If the Canadian dollars received as a dividend are converted into
U.S. dollars on the date of receipt, the U.S. Holder generally should not be required to recognize foreign currency gain or loss
in respect of the dividend income. If the Canadian dollars received as a dividend are not converted into U.S. dollars on the date
of receipt, a U.S. Holder will have a tax basis in the Canadian dollars equal to their U.S. dollar value on the date of receipt.
Any gain or loss realized on a subsequent conversion or other disposition of the Canadian dollars by a U.S. Holder will generally
be treated as U.S.-source ordinary income or loss (or foreign source ordinary income or loss if the U.S. Holder is an individual
with a tax home located outside the United States).
A U.S. Holder may be entitled to deduct
or credit the amount of Canadian withholding tax imposed on dividends paid to such U.S. Holder, subject to applicable limitations
in the Code. For purposes of calculating the foreign tax credit, dividends paid on our Common Shares generally will be treated
as income from foreign sources and generally will constitute “passive category income.” The rules governing the foreign
tax credit are complex. U.S. Holders are urged to consult their own tax advisors regarding the availability of the foreign tax
credit in their particular circumstances.
Sale, Exchange or Other Taxable Disposition
A U.S. Holder will recognize gain or loss
on the sale, exchange or other taxable disposition of our Common Shares in an amount equal to the difference between the amount
realized for our Common Shares and the U.S. Holder’s adjusted tax basis in our Common Shares. Subject to the discussion below
under “Passive Foreign Investment Company Rules,” the gain or loss will be capital gain or loss. Capital gains of non-corporate
U.S. Holders derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The
deductibility of capital losses is subject to limitations. Any capital gain or loss recognized by a U.S. Holder generally will
be treated as U.S.-source gain or loss for U.S. foreign tax credit purposes.
Passive Foreign Investment Company Rules
Adverse U.S. federal income tax rules generally
apply to U.S. Holders owning shares of a PFIC. A non-U.S. corporation generally will be classified as a PFIC for U.S. federal income
tax purposes in any taxable year in which, after applying relevant look-through rules with respect to the income and assets of
subsidiaries, either at least 75% of its gross income is “passive income” (the “income test”), or on average
at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held for the production
of passive income (the “asset test”). For this purpose, passive income generally includes, among other things, dividends,
interest, certain rents and royalties, certain gains from the sales of commodities, and gains from the disposition of passive assets.
Based on the composition of our income
and the valuation of our assets, we do not believe we were a PFIC for the taxable year ended June 30, 2015. However, because the
PFIC determination is made annually at the close of the taxable year in question on the basis of facts and circumstances that may
be beyond our control and because the principles and methodology for applying the PFIC tests are not entirely clear, there can
be no assurance that we will not be a PFIC in subsequent taxable years or that the IRS will not challenge our determination concerning
our PFIC status.
If we were a PFIC in any taxable year during
a U.S. Holder’s holding period for our Common Shares, the U.S. Holder generally would be subject to special rules with respect
to “excess distributions” made by us on our Common Shares and with respect to gain from the sale, exchange or disposition
of our Common Shares. An “excess distribution” generally is defined as the excess of distributions with respect to
the Common Shares received by a U.S. Holder in any taxable year over 125% of the average annual distributions the U.S. Holder has
received from us during the shorter of the three preceding taxable years or the U.S. Holder’s holding period for the Common
Shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the sale, exchange or disposition
of our Common Shares ratably over its holding period for the Common Shares. The amounts allocated to the taxable year of the sale,
exchange or disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each
other taxable year would be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for
the other taxable year, and an interest charge would be imposed on the amount allocated to the taxable year. These rules would
apply to a U.S. Holder that held our Common Shares during any year in which we were a PFIC, even if we were not a PFIC in the year
in which the U.S. Holder sold our Common Shares or received an excess distribution in respect of its Common Shares.
If we were a PFIC in any taxable year,
then, provided certain requirements were met, a U.S. Holder might be able to make a mark-to-market election to alleviate certain
of the tax consequences referred to above. A “qualified electing fund” election would not be available to U.S. Holders,
because we do not intend to provide the necessary information to allow U.S. Holders to make such an election for any tax year in
which we are a PFIC. If we were a PFIC in any taxable year, special IRS reporting requirements would apply to a U.S. Holder in
respect of its Common Shares. U.S. Holders are urged to consult their own tax advisors regarding the tax consequences and reporting
obligations that would arise if we were treated as a PFIC for any year as well as the availability of any elections to mitigate
the adverse tax consequences to a U.S. Holder if we were a PFIC.
Information Reporting and Backup Withholding
Information reporting requirements will
apply to the payment of dividends on our Common Shares or the proceeds received on the sale, exchange, or other taxable disposition
of Common Shares paid within the U.S. (and in certain cases, outside the U.S.) to U.S. Holders other than certain exempt recipients
(such as corporations). In addition, a backup withholding tax may apply to such amounts if the U.S. Holder fails to timely provide
an accurate taxpayer identification number or is notified by the IRS that it has failed to report dividends or interest required
to be shown on its U.S. federal income tax returns. Backup withholding is not an additional tax. The amount of any backup
withholding from a payment to a U.S. Holder generally will be allowed as a credit against the U.S. Holder’s U.S. federal
income tax liability, and may entitle the U.S. Holder to a refund, provided that the required information is provided to the IRS
in a timely manner.
Information Reporting with Respect to Foreign
Financial Assets
U.S. individuals that own “specified
foreign financial assets” with an aggregate value in excess of US$50,000 (or such higher dollar amount as prescribed by the
Secretary of Treasury) are generally required to file an information report with respect to such assets with their tax returns. “Specified
foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well as any of
the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued
by non-U.S. persons; (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties;
and (iii) interests in foreign entities. Under these rules, our Common Shares may be treated as “specified foreign
financial assets”. U.S. Holders are urged to consult their own tax advisors regarding the possible implications
of the reporting rules described above.
The above summary is not intended to
constitute a complete analysis of all tax consequences relating to the purchase, ownership and disposition of our Common Shares.
Each prospective investor should consult with its own tax advisor concerning the particular tax consequences with regard to its
particular circumstances.
Material Canadian Federal Tax Considerations
General
The following is a summary of the material
Canadian federal tax implications applicable to a holder (a “U.S. Holder”) who holds our Common Shares (the “Common
Shares”) and who, at all relevant times, for purposes of the Income Tax Act (Canada) (the “Canadian Tax Act”)
(i) has not been, is not and will not be resident (or deemed resident) in Canada at any time while such U.S. Holder has held or
holds the Common Shares; (ii) holds the Common Shares as capital property and as beneficial owner; (iii) deals at arm’s length
with and is not affiliated with us; (iv) does not use or hold, and is not deemed to use or hold, the Common Shares in the course
of carrying on a business in Canada; (v) did not acquire the Common Shares in respect of, in the course of or by virtue of employment
with our company; (vi) is not a financial institution, specified financial institution, partnership or trust as defined in the
Canadian Tax Act; (vii) is a resident of the United States for purposes of the Canada-United States Income Tax Convention (1980),
as amended (the “Convention”) who is fully entitled to the benefits of the Convention; and (viii) has not, does not
and will not have a fixed base or permanent establishment in Canada within the meaning of the Convention at any time while such
U.S. Holder has held or holds the Common Shares. Special rules, which are not addressed in this summary, may apply to a U.S. Holder
that is a “registered non-resident insurer” or “authorized foreign bank”, as defined in the Canadian Tax
Act, carrying on business in Canada and elsewhere.
This summary is based on the current provisions
of the Canadian Tax Act, and the regulations thereunder, the Convention, and counsel’s understanding of the published administrative
practices and policies of the Canada Revenue Agency all in effect as of the date of this annual report on Form 20-F. This summary
takes into account all specific proposals (the “Proposals”) to amend the Canadian Tax Act and the regulations thereunder
publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date of this annual report on Form 20-F. No
assurances can be given that such Proposals will be enacted in the form proposed, or at all. This summary is not exhaustive of
all potential Canadian federal tax consequences to a U.S. Holder and does not take into account or anticipate any other changes
in law or administrative practices, whether by judicial, governmental or legislative action or decision, nor does it take into
account provincial, territorial or foreign tax legislation or considerations, which may differ from the Canadian federal tax considerations
described herein.
This summary assumes that we are a resident
of Canada for purposes of the Canadian Tax Act.
TAX MATTERS ARE VERY COMPLICATED AND
THE CANADIAN FEDERAL TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF COMMON SHARES WILL DEPEND ON THE SHAREHOLDER’S
PARTICULAR SITUATION. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE ANALYSIS OF OR DESCRIPTION OF ALL POTENTIAL CANADIAN FEDERAL
TAX CONSEQUENCES, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE DIRECTED AT ANY PARTICULAR HOLDER OR PROSPECTIVE
PURCHASER OF COMMON SHARES. ACCORDINGLY, HOLDERS OR PROSPECTIVE PURCHASERS OF COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS
FOR ADVICE WITH RESPECT TO THE CANADIAN FEDERAL TAX CONSEQUENCES OF AN INVESTMENT IN COMMON SHARES BASED ON THEIR PARTICULAR CIRCUMSTANCES.
Dividends
Amounts paid or credited, or deemed under
the Canadian Tax Act to be paid or credited, on account of, in lieu of payment of, or in satisfaction of, dividends to a U.S. Holder
will be subject to Canadian non-resident withholding tax at the reduced rate of 15% under the Convention. This rate is further
reduced to 5% in the case of a U.S. Holder that is a company for purposes of the Convention that owns at least 10% of our voting
shares at the time the dividend is paid or deemed to be paid. Under the Convention, dividends paid or credited to certain religious,
scientific, literary, educational or charitable organizations and certain pension organizations that are resident in the United
States and that have complied with certain administrative procedures may be exempt from Canadian withholding tax.
Disposition of Our Common Shares
A U.S. Holder will not be subject to tax
under the Canadian Tax Act in respect of any capital gain realized on the disposition or deemed disposition of the Common Shares
unless, at the time of disposition, the Common Shares constitute “taxable Canadian property” of the U.S. Holder for
the purposes of the Canadian Tax Act and the U.S. Holder is not otherwise entitled to an exemption under the Convention.
Provided that the Common Shares are, at
the time of disposition, listed on a designated stock exchange for purposes of the Canadian Tax Act (which currently includes Nasdaq
and the TSX), and under the Canadian Tax Act currently in force, the Common Shares will not constitute “taxable Canadian
property” to a U.S. Holder unless; (i) at any time during the 60-month period immediately preceding the disposition of the
Common Shares the U.S. Holder, persons with whom the U.S. Holder did not deal at arm’s length, partnerships in which the
U.S. Holder or a person with whom the U.S. Holder did not deal at arm’s length holds a membership interest (either directly
or indirectly through one or more partnerships), or the U.S. Holder together with such persons, owned 25% or more of the issued
shares of any class or series of our capital stock; and at any time during the 60-month period immediately preceding the disposition
of the Common Shares more than 50% of the fair market value of the Common Shares was derived directly or indirectly, from one or
any combination of real or immovable property situated in Canada, Canadian resource property, timber resource property, or any
option in respect of, or interest in, such properties, as such terms are used for purposes of the Canadian Tax Act; or (ii) if
the Common Shares are otherwise deemed under the Canadian Tax Act to be taxable Canadian property.
Pursuant to the Convention, even if the
Common Shares constitute “taxable Canadian property” of a particular U.S. Holder, any capital gain realized on the
disposition of the Common Shares by the U.S. Holder generally will be exempt from tax under the Canadian Tax Act, unless, at the
time of disposition, the Common Shares derive their value principally from real property situated in Canada within the meaning
of the Convention. U.S. Holders whose Common Shares may constitute taxable Canadian property should consult their own tax advisors.
| F. | Dividends and Paying Agents |
Not applicable.
Not applicable.
Additional information relating to the
Corporation may be found on SEDAR at www.sedar.com and on the SEC’s website at www.sec.gov.
Specifically, additional information, including
directors’ and officers’ remuneration and indebtedness, principal holders of securities of the Corporation and securities
authorized for issuance under the Corporation’s stock option plan is contained in the Corporation’s Management Information
Circular for its most recent annual meeting of securities holders that involved the election of directors dated November 4, 2014.
Our corporate Internet address is http://www.transitiontherapeutics.com.
We make available free of charge on or through our website our annual reports, current reports, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We may from time
to time provide important disclosures to investors by posting them in the investor relations section of our website, as allowed
by Securities and Exchange Commission (“SEC”) rules. Information contained on our website is not part of this report
or any other report filed with the SEC. You may read and copy any public reports we filed with the SEC at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site http://www.sec.gov that contains reports, proxy
and information statements, and other information that we filed electronically.
For a listing of our subsidiaries, see
“Item 4. Information on the Corporation” and Exhibit 8.1.
| Item 11. | Quantitative and Qualitative Disclosures About Market
Risk. |
Qualitative and Quantitative Disclosures
about Market Risk
We are exposed to various types of market
risks in the normal course of business, including foreign exchange risk and interest rate risk. We have not in the past used derivatives
to manage our exposure to interest rate risk or foreign exchange risk. For additional information please see Note 4.2 of the Corporation’s
audited consolidated financial statements for the year ended June 30, 2015.
Foreign Exchange Risk
The Company operates in Canada and has
relationships with entities in other countries. Foreign exchange risk arises from purchase transactions, as well as recognized
financial assets and liabilities denominated in foreign currencies, mainly the US dollar. The Company does not enter into hedging
or other contracts to mitigate its exposure to foreign exchange risk and maintains sufficient US dollars to meet the Company’s
planned US dollar expenses.
Interest Rate Risk
The Corporation is exposed to interest
rate risk to the extent that the short term investments are at a fixed rate of interest and their fair value can vary with the
change in market interest rates. The Corporation’s maximum exposure to interest rate risk is based on the effective interest
rate of the current carrying value of these assets. The Corporation does not speculate on interest rates and holds all deposits
until their date of maturity.
| Item 12. | Description of Securities Other than Equity Securities. |
Not applicable.
Part
II
| Item 13. | Defaults, Dividend Arrearages and Delinquencies. |
Not applicable.
| Item 14. | Material Modifications to the Rights of Security Holders
and Use of Proceeds. |
Not applicable.
| Item 15. | Controls and Procedures. |
Management’s
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation
of management, including the Company’s CEO and CFO, the Company conducted an evaluation of the effectiveness of its disclosure
controls and procedures as of June 30, 2015 as required by Canadian securities legislation. Disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are designed to ensure that the information required to
be disclosed by the Company in the reports it files or submits under securities legislation is recorded, processed, summarized
and reported on a timely basis and that such information is accumulated and reported to management, including the Company’s
CEO and CFO, as appropriate, to allow required disclosures to be made in a timely fashion. Based on their evaluation, the CEO and
CFO have concluded that as of June 30, 2015, the Company’s disclosure controls and procedures were effective.
Management’s Report on Internal
Control over Financial Reporting
The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934). The Company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The Company’s management assessed
the effectiveness of the Company’s internal control over financial reporting as of June 30, 2015. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013) (“COSO”)
in the updated Internal Control-Integrated Framework. The Company’s management, including the CEO and CFO, concluded that,
as of June 30, 2015, the Company’s internal control over financial reporting was effective based on the criteria in Internal
Control — Integrated Framework issued by COSO.
The effectiveness of the Company’s
internal control over financial reporting as of June 30, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in its report in the Company’s audited consolidated financial statements for the year ended
June 30, 2015.
Changes in Internal Control
over Financial Reporting.
There was no change in the Corporation’s
internal control over financial reporting that occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
The design of any system of controls and
procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
| Item 16A. | Audit committee financial expert. |
The
Corporation’s Board of Directors has determined that it has one “audit committee financial expert” (as such term
is defined in Form 20-F) serving on its Audit Committee. Such audit committee financial expert is Mr. Christopher Henley.
Mr. Henley is “independent” as defined in NASDAQ Rule 5605(a)(2). Mr. Henley’s business experience is included
under the heading “Audit Committee – Relevant Education and Experience” in this Annual Report on Form 20-F. The
Securities and Exchange Commission (the “Commission”) has indicated that the designation of Mr. Henley as an audit
committee financial expert does not make Mr. Henley an “expert” for any purpose, impose any duties, obligations
or liability on Mr. Henley that are greater than those imposed on members of the Audit Committee and the Corporation’s Board
of Directors who do not carry this designation or affect the duties, obligations or liability of any other member of the Audit
Committee.
The Corporation has adopted a “code
of ethics” (as that term is defined in Form 20-F) that applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions (the “Ethics Code”). A copy of
the Ethics Code entitled “Code of Business Ethics” is available for viewing on the Corporation’ website at www.transitiontherapeutics.com.
A copy of the Ethics Code may be obtained free of charge upon request to the Corporation in writing at the Corporation’s
address at 101 College Street, Suite 220, Toronto, Ontario, Canada M5G1L7, Attention: Secretary.
During the fiscal year ended June 30, 2015,
there were no amendments to the Ethics Code or waivers, including implicit waivers, from any provision of the Ethics Code.
| Item 16C. | Principal Accountant Fees and Services. |
Audit Fees
The aggregate fees billed for each of the
last two fiscal years for professional services rendered by PricewaterhouseCoopers LLP for the audit of the Corporation’s
annual consolidated financial statements, and the effectiveness of internal controls over financial reporting is included under
the heading “Audit Fees” below.
Audit-Related Fees
The aggregate fees billed for each of the
last two fiscal years for professional services rendered by PricewaterhouseCoopers LLP for audit-related services is included under
the heading “Audit Related Fees” below.
Tax Fees
The aggregate fees billed for each of the
last two fiscal years for professional services rendered by PricewaterhouseCoopers LLP for tax compliance, tax advice and tax planning
is included under the heading “Tax Fees” below.
All Other Fees
The aggregate fees billed for each of the
last two fiscal years for professional services rendered by PricewaterhouseCoopers LLP for services provided other than the services
described above is included under the heading “Non-Audit” below.
| | |
During the Year Ended
June 30, 2015
$ | | |
During the Year Ended
June 30, 2014
$ | |
| Audit Fees (1) | |
| 304,775 | | |
| 238,150 | |
| Audit Related Fees (2) | |
| 80,000 | | |
| 40,000 | |
| Tax Fees (3) | |
| 167,202 | | |
| 114,914 | |
| Non-Audit(4) | |
| 4,763 | | |
| 4,346 | |
| Total | |
| 556,740 | | |
| 397,410 | |
Notes:
| (1) | During the years ended June 30, 2015 and 2014, Audit Fees” include fees for the annual
audit, quarterly reviews, accounting consultations related to accounting, financial reporting or disclosure matters and assistance
with understanding and implementing new accounting and financial reporting guidance from regulatory authorities. |
| (2) | During the years ended June 30, 2015 and 2014, “Audit Related Fees” include fees relating
to the Corporations February 2015 public offering and August 15, 2013 and June 23, 2014 private placements. |
| (3) | During the years ended June 30, 2015 and 2014 “Tax Fees” include fees for assistance
in the preparation and review of tax returns and related items, assistance with tax audits, general tax planning and advice relating
to tax items such as withholding tax, SR&ED eligibility, and US and Ireland tax considerations. |
| (4) | For the years ended June 30, 2015 and 2014, the category “Non-Audit” includes
a charge from the Corporation’s external auditors for a levy from the Canadian Public Accountability Board |
Pre-Approval Policies and Procedures
The Corporation’s audit committee
is responsible for the oversight of the work of the external auditor. As part of this responsibility, the audit committee is required
to pre-approve all audit, audit related, tax services and non-audit services performed by the external auditor in order to assure
that they do not impair the external auditor’s independence from the Corporation. Accordingly, the audit committee has adopted
a pre-approval policy, which sets forth the procedures and the conditions pursuant to which services proposed to be performed by
the external auditor may be pre-approved.
Under the pre-approval policy, the Corporation’s
audit committee annually reviews and pre-approves specific audit, audit-related and tax services that may be provided by the external
auditor without obtaining specific pre-approval from the audit committee, as well as maximum fees for such services. All services
that are not pre-approved or exceed the pre-approved maximum fees require specific pre-approval by the audit committee before the
service can be performed by the external auditor. The pre-approval policy also includes a list of prohibited services.
| Item 16D. | Exemptions from the Listing Standards for Audit Committees. |
We have not been granted an exemption from
the applicable listing standards for the audit committee of our board of directors.
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated
Purchasers. |
None.
| Item 16F. | Change in Registrant’s Certifying Accountant. |
None.
| Item 16G. | Corporate Governance. |
The Corporation is a foreign private issuer
and its common shares are listed on the NASDAQ Stock Market (“NASDAQ”).
NASDAQ Rule 5615(a)(3) permits a foreign
private issuer to follow its home country practice in lieu of the requirements of the Rule 5600 Series, the requirement to distribute
annual and interim reports set forth in Rule 5250(d), and the Direct Registration Program requirement set forth in Rules 5210(c)
and 5255, provided, however, that such a company shall: comply with the Notification of Material Noncompliance requirement ( Rule
5625), the Voting Rights requirement ( Rule 5640), have an audit committee that satisfies Rule 5605(c)(3), and ensure that such
audit committee’s members meet the independence requirement in Rule 5605(c)(2)(A)(ii). The Corporation does not follow Rule
5620(c) (shareholder quorum) but instead follows its home country practice, as described below.
Shareholder
Meeting Quorum Requirements: The NASDAQ minimum quorum requirement under Rule 5620(c) for a shareholder meeting is 33 1/3%
of the outstanding shares of common stock. In addition, a registrant listed on NASDAQ is required to state its quorum requirement
in its by laws. The Corporation’s quorum requirement is set forth in its by laws. A quorum for a meeting of shareholders
of the Corporation is shareholders or proxyholders holding five percent of the issued and outstanding shares entitled to be voted
at the meeting.
The foregoing is consistent with the laws,
customs and practices in Canada.
| Item 16H. | Mine Safety Disclosure. |
Not applicable.
Part
III
| Item 17. | Financial Statements. |
Not applicable.
| Item 18. | Financial Statements. |
Not applicable.
Exhibit
Number |
|
Description |
| 1.1 |
|
Articles of Incorporation of Transition Therapeutics Inc., as amended (incorporated by reference to Exhibit 99.110 of Form 40-F filed on June 5, 2007, File No. 001-33514). |
| |
|
|
| 1.2 |
|
Bylaws of Transition Therapeutics Inc., as amended (incorporated by reference to Exhibit 99.111 of Form 40-F filed on June 5, 2007, File No. 001-33514). |
| |
|
|
| 2.1 |
|
Form of Warrant. |
| |
|
|
| 4.1 |
|
Share Purchase Agreement, dated February 24, 2006, among Registrant, 1255205 Ontario Inc., Ellipsis Neurotherapeutics Inc., and other parties named therein (incorporated by reference to Exhibit 99.47 of Form 40-F filed on June 5, 2007, File No. 001-33514). |
| |
|
|
| 4.2 |
|
License Agreement dated May 28, 2003, by and between Ellipsis Biotherapeutics Corp. and JoAnne McLaurin, PHD, as amended on April 1, 2005. (incorporated by reference to Exhibit 99.2 of Form 6-K filed on March 17, 2008, File No. 001-33514). |
| |
|
|
| 4.3 |
|
Consent to License – JoAnne McLaurin Novel Treatment for Alzheimer’s Disease and Amyloid Disorders using Inositol-Based Compounds dated May 29, 2003, by the University of Toronto. (incorporated by reference to Exhibit 99.3 of Form 6-K filed on March 17, 2008, File No. 001-33514). |
| |
|
|
| 4.4 |
|
Consent to Assignment dated November 2, 2004, by and between JoAnne McLaurin, Ellipsis Biotherapeutics Corp. and Ellipsis Neurotherapeutics Inc. (incorporated by reference to Exhibit 99.4 of Form 6-K filed on March 17, 2008, File No. 001-33514). |
| |
|
|
| 4.5 |
|
Collaboration and License Agreement effective as of February 25, 2010, among Waratah Pharmaceuticals Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 99.2 of Form 6-K filed on March 12, 2010, File No. 001-33514). |
| |
|
|
| 4.6 |
|
Collaboration and License Agreement effective as of July 23, 2013, between Transition Therapeutics Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 99.2 of Form 6-K filed on July 26, 2013, File No. 001-33514). |
| |
|
|
| 4.7 |
|
Form of Subscription Agreement (Canada) dated June 23, 2014 between Transition Therapeutics Inc. and certain directors and officers of the Company. |
| |
|
|
| 4.8 |
|
Form of Subscription Agreement (U.S.) dated June 23, 2014 between Transition Therapeutics Inc. and certain shareholders of the Company. |
| |
|
|
| 4.9 |
|
Milestone, Royalty and Sublicensing Fee Deed effective as of February 27, 2014 between Transition Therapeutics Ireland Limited (formerly Elan Science Ten Limited) and Elan Pharma International Limited. |
| |
|
|
| 4.10 |
|
Purchase and Sale Agreement, dated February 28, 2014, by and among Elan Pharma International Limited, the Company and Perrigo Company PLC. |
Exhibit
Number |
|
Description |
| 4.11 |
|
License Agreement effective as of May 5, 2015 between Transition Therapeutics Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 99.1 of Form 6-K filed on May 8, 2015, File No. 001-33514). |
| |
|
|
| 8.1 |
|
Subsidiaries |
| |
|
|
| 12.1 |
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| |
|
|
| 12.2 |
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| |
|
|
| 13.1 |
|
Section 1350 Certification of the Chief Executive Officer. |
| |
|
|
| 13.2 |
|
Section 1350 Certification of the Chief Financial Officer. |
| |
|
|
| 15.1 |
|
Consent of PricewaterhouseCoopers LLP. |
Signatures
The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
| |
TRANSITION THERAPEUTICS INC. |
| |
|
| |
By |
/s/ Nicole Rusaw |
|
| |
Name: |
Nicole Rusaw |
|
| |
Title: |
Chief Financial Officer |
|
Date: September 15, 2015
MANAGEMENT’S RESPONSIBILITY FOR
FINANCIAL STATEMENTS
The accompanying consolidated financial
statements of Transition Therapeutics Inc. have been prepared by management and have been approved by the Board of Directors.
Management is responsible for the information and representation contained in these consolidated financial statements.
The consolidated financial statements have
been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board and include some amounts that are based on best estimates and judgments.
Management, to meet its responsibility
for integrity and objectivity of the data in the consolidated financial statements, has developed and maintains a system of internal
accounting controls. Management believes that this system of internal accounting controls provides reasonable assurance that the
financial records are reliable and form a proper basis for preparation of the consolidated financial statements, and that the assets
are properly accounted for and safeguarded.
The Audit Committee reviews the consolidated
financial statements, adequacy of internal controls, audit process and financial reporting with management. The Audit Committee,
which consists of four directors not involved in the daily operations of the Company, reports to the Board of Directors prior to
their approval of the audited consolidated financial statements for publication.
The shareholders’ auditors have full
access to the Audit Committee, with and without management being present, to discuss the consolidated financial statements and
to report their findings from the audit process. The consolidated financial statements have been examined by the shareholders’
independent auditors, PricewaterhouseCoopers LLP Chartered Professional Accountants, and their report is provided herein.
 |
 |
| |
|
| Tony Cruz |
Nicole Rusaw |
| Chief Executive Officer |
Chief Financial Officer |
September 11, 2015
Independent Auditor’s Report
To the Shareholders of
Transition Therapeutics Inc.
We have completed integrated audits of Transition Therapeutics
Inc. and its subsidiaries’ June 30, 2015 and June 30, 2014 consolidated financial statements and their internal control over
financial reporting as at June 30, 2015 and an audit of their June 30, 2013 consolidated financial statements. Our opinions, based
on our audits, are presented below.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements
of Transition Therapeutics Inc. and its subsidiaries, which comprise the consolidated balance sheets as at June 30, 2015 and June
30, 2014 and the consolidated statements of income (loss) and comprehensive income (loss), shareholders’ equity and cash
flows for each of the three years in the period ended June 30, 2015, and the related notes, which comprise a summary of significant
accounting policies and other explanatory information.
Management’s responsibility for the consolidated
financial statements
Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits as at June 30, 2015 and June 30, 2014 and for each of the three
years in the period ended June 30, 2015 in accordance with Canadian generally accepted auditing standards and the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally
accepted auditing standards also require that we comply with ethical requirements.
An audit involves performing procedures to obtain audit evidence,
on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained in our audits
is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Transition Therapeutics Inc. and its subsidiaries as at June 30, 2015
and June 30, 2014 and their financial performance and their cash flows for each of the three years in the period ended June 30,
2015 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Report on internal control over financial reporting
We have also audited Transition Therapeutics Inc. and its subsidiaries’
internal control over financial reporting as at June 30, 2015, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management’s responsibility for internal control over
financial reporting
Management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting appearing
in the 2015 Annual Report to Shareholders in the section entitled “Item 15 - Controls and Procedures”.
Auditor’s responsibility
Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
audit opinion on the Company’s internal control over financial reporting.
Definition of internal control over financial reporting
A company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Inherent limitations
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies
or procedures may deteriorate.
Opinion
In our opinion, Transition Therapeutics Inc. and its subsidiaries
maintained, in all material respects, effective internal control over financial reporting as at June 30, 2015, based on criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
September 14, 2015
Audited Consolidated Financial
Statements
Transition Therapeutics Inc.
For the years ended June 30, 2015, 2014 and 2013
Transition Therapeutics Inc.
CONSOLIDATED BALANCE SHEETS
| In Canadian Dollars | |
Note | |
June 30, 2015 | | |
June 30, 2014 | |
| | |
| |
| | |
| |
| Assets | |
| |
| | | |
| | |
| Current assets | |
| |
| | | |
| | |
| Cash | |
| |
| 40,510,758 | | |
| 57,212,004 | |
| Short term investments | |
5 | |
| - | | |
| 3,059,562 | |
| Other receivables | |
| |
| 265,189 | | |
| 220,514 | |
| Income tax and investment tax credits receivable | |
| |
| 399,668 | | |
| 212,393 | |
| Prepaid expenses and deposits | |
| |
| 259,143 | | |
| 36,656 | |
| | |
| |
| 41,434,758 | | |
| 60,741,129 | |
| | |
| |
| | | |
| | |
| Non-current assets | |
| |
| | | |
| | |
| Property and equipment | |
| |
| 191,944 | | |
| 158,926 | |
| Intangible assets | |
6 | |
| 8,022,383 | | |
| 8,007,181 | |
| Total assets | |
| |
| 49,649,085 | | |
| 68,907,236 | |
| | |
| |
| | | |
| | |
| Liabilities | |
| |
| | | |
| | |
| Current liabilities | |
| |
| | | |
| | |
| Trade and other payables | |
7 | |
| 8,549,895 | | |
| 5,963,258 | |
| Contingent consideration payable | |
8 | |
| 858,257 | | |
| - | |
| | |
| |
| 9,408,152 | | |
| 5,963,258 | |
| Non-current liabilities | |
| |
| | | |
| | |
| Contingent consideration payable | |
8 | |
| 3,503,344 | | |
| 3,838,286 | |
| Leasehold inducement | |
| |
| - | | |
| 11,432 | |
| Total liabilities | |
| |
| 12,911,496 | | |
| 9,812,976 | |
| | |
| |
| | | |
| | |
| Equity attributable to owners of the Company | |
| |
| | | |
| | |
| Share capital | |
10 | |
| 233,633,493 | | |
| 207,374,493 | |
| Warrants | |
10 | |
| 5,176,397 | | |
| 5,176,397 | |
| Contributed surplus | |
| |
| 14,771,907 | | |
| 14,768,221 | |
| Share-based payment reserve | |
10 | |
| 5,892,305 | | |
| 2,866,292 | |
| Accumulated other comprehensive income | |
| |
| (281,814 | ) | |
| 24,028 | |
| Deficit | |
| |
| (222,454,699 | ) | |
| (171,115,171 | ) |
| Total equity | |
| |
| 36,737,589 | | |
| 59,094,260 | |
| | |
| |
| | | |
| | |
| Total liabilities and equity | |
| |
| 49,649,085 | | |
| 68,907,236 | |
| | |
| |
| | | |
| | |
| Contingencies and commitments | |
15 | |
| | | |
| | |
The notes are an integral part of these
consolidated financial statements
On behalf of the Board:
 |
 |
| |
|
| Tony Cruz |
Christopher Henley |
| Director |
Director |
Transition Therapeutics Inc.
CONSOLIDATED
STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
For the years ended June 30, 2015, 2014 and 2013
| In Canadian Dollars | |
Note | |
2015 | | |
2014 | | |
2013 | |
| | |
| |
| | |
| | |
| |
| Revenues | |
| |
| | | |
| | | |
| | |
| Licensing fees | |
9 | |
| - | | |
| - | | |
| 17,933,500 | |
| | |
| |
| | | |
| | | |
| | |
| Expenses | |
| |
| | | |
| | | |
| | |
| Research and development | |
13 | |
| 49,209,703 | | |
| 17,367,385 | | |
| 8,862,872 | |
| Selling, general and administrative expenses | |
13 | |
| 5,514,272 | | |
| 4,726,574 | | |
| 3,557,792 | |
| Impairment of intangible assets | |
6 | |
| | | |
| | | |
| 6,545,821 | |
| Change in fair value of contingent consideration payable | |
8 | |
| 65,787 | | |
| (2,911,218 | ) | |
| - | |
| Settlement of pre-existing relationship | |
8 | |
| - | | |
| 3,096,186 | | |
| - | |
| | |
| |
| | | |
| | | |
| | |
| Operating loss | |
| |
| (54,789,762 | ) | |
| (22,278,927 | ) | |
| (1,032,985 | ) |
| Interest income | |
| |
| 196,073 | | |
| 220,119 | | |
| 146,209 | |
| Foreign exchange gain | |
| |
| 3,331,026 | | |
| 284,523 | | |
| 910,073 | |
| Loss on disposal of property and equipment | |
| |
| (76,865 | ) | |
| (7,970 | ) | |
| - | |
| Net income (loss) for the year | |
| |
| (51,339,528 | ) | |
| (21,782,255 | ) | |
| 23,297 | |
| Other comprehensive income (loss) for the year | |
| |
| | | |
| | | |
| | |
| Items that may be subsequently reclassified to net income: | |
| |
| | | |
| | | |
| | |
| Cumulative translation adjustment | |
| |
| (305,842 | ) | |
| 24,028 | | |
| - | |
| | |
| |
| | | |
| | | |
| | |
| Comprehensive income (loss) for the year | |
| |
| (51,645,370 | ) | |
| (21,758,227 | ) | |
| 23,297 | |
| Basic and diluted net income (loss) per common share | |
14 | |
| (1.41 | ) | |
| (0.72 | ) | |
| 0.00 | |
The notes are an integral part of these consolidated financial
statements.
Transition Therapeutics Inc.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
For the years ended June 30, 2015, 2014 and 2013
| | |
| |
| | |
Attributable to equity holders of the Company | | |
| | |
| | |
| |
| In Canadian Dollars | |
Note | |
Number of
common
shares | | |
Share
capital | | |
Warrants | | |
Contributed
surplus | | |
Share-based
payment
reserve | | |
Accumulated
Other
Comprehensive
Income | | |
Deficit | | |
Total equity | |
| | |
| |
# | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | |
| Balance, July 1, 2014 | |
| |
| 35,303,913 | | |
| 207,374,493 | | |
| 5,176,397 | | |
| 14,768,221 | | |
| 2,866,292 | | |
| 24,028 | | |
| (171,115,171 | ) | |
| 59,094,260 | |
| Net loss for the year | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (51,339,528 | ) | |
| (51,339,528 | ) |
| Cumulative translation adjustment | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (305,842 | ) | |
| - | | |
| (305,842 | ) |
| Issued pursuant to public offering, net | |
10 | |
| 3,538,461 | | |
| 26,069,390 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 26,069,390 | |
| Share options exercised, expired or cancelled | |
10 | |
| 36,505 | | |
| 189,610 | | |
| - | | |
| 3,686 | | |
| (81,524 | ) | |
| - | | |
| - | | |
| 111,772 | |
| Share-based payment compensation expense | |
10 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,107,537 | | |
| - | | |
| - | | |
| 3,107,537 | |
| Balance, June 30, 2015 | |
| |
| 38,878,879 | | |
| 233,633,493 | | |
| 5,176,397 | | |
| 14,771,907 | | |
| 5,892,305 | | |
| (281,814 | ) | |
| (222,454,699 | ) | |
| 36,737,589 | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, July 1, 2013 | |
| |
| 26,930,634 | | |
| 165,367,524 | | |
| - | | |
| 14,768,002 | | |
| 2,352,002 | | |
| - | | |
| (149,332,916 | ) | |
| 33,154,612 | |
| Net loss for the year | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (21,782,255 | ) | |
| (21,782,255 | ) |
| Cumulative translation adjustment | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 24,028 | | |
| - | | |
| 24,028 | |
| Issued pursuant to private placements, net | |
10 | |
| 8,076,427 | | |
| 40,317,595 | | |
| 5,176,397 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 45,493,992 | |
| Share options exercised, expired or cancelled | |
10 | |
| 296,852 | | |
| 1,689,374 | | |
| - | | |
| 219 | | |
| (623,836 | ) | |
| - | | |
| - | | |
| 1,065,757 | |
| Share-based payment compensation expense | |
10 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,138,126 | | |
| - | | |
| - | | |
| 1,138,126 | |
| Balance, June 30, 2014 | |
| |
| 35,303,913 | | |
| 207,374,493 | | |
| 5,176,397 | | |
| 14,768,221 | | |
| 2,866,292 | | |
| 24,028 | | |
| (171,115,171 | ) | |
| 59,094,260 | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, July 1, 2012 | |
| |
| 26,921,302 | | |
| 165,334,259 | | |
| - | | |
| 13,168,411 | | |
| 2,977,032 | | |
| - | | |
| (149,356,213 | ) | |
| 32,123,489 | |
| Net income and comprehensive income for the year | |
| |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 23,297 | | |
| 23,297 | |
| Share options exercised, expired or cancelled | |
10 | |
| 9,332 | | |
| 33,265 | | |
| - | | |
| 1,599,591 | | |
| (1,613,259 | ) | |
| - | | |
| - | | |
| 19,597 | |
| Share-based payment compensation expense | |
10 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 988,229 | | |
| - | | |
| - | | |
| 988,229 | |
| Balance, June 30, 2013 | |
| |
| 26,930,634 | | |
| 165,367,524 | | |
| - | | |
| 14,768,002 | | |
| 2,352,002 | | |
| - | | |
| (149,332,916 | ) | |
| 33,154,612 | |
The notes are an integral part of these consolidated financial
statements.
Transition Therapeutics Inc.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
For the years ended June 30, 2015, 2014 and 2013
| In Canadian Dollars | |
Note | |
2015 | | |
2014 | | |
2013 | |
| | |
| |
| | |
| | |
| |
| Cash flows from (used in) operating activities | |
| |
| | | |
| | | |
| | |
| Net income (loss) for the year | |
| |
| (51,339,528 | ) | |
| (21,782,255 | ) | |
| 23,297 | |
| Adjustments for: | |
| |
| | | |
| | | |
| | |
| Change in fair value of contingent consideration payable | |
| |
| 65,787 | | |
| (2,911,218 | ) | |
| - | |
| Settlement of a pre-existing relationship | |
| |
| - | | |
| 3,096,186 | | |
| - | |
| Depreciation and amortization | |
| |
| 652,253 | | |
| 946,897 | | |
| 1,820,101 | |
| Share-based payment compensation expense | |
| |
| 3,107,537 | | |
| 1,138,126 | | |
| 988,229 | |
| Loss on disposal of property and equipment | |
| |
| 76,865 | | |
| 7,970 | | |
| - | |
| Accrued interest | |
| |
| 34,562 | | |
| 5,140 | | |
| 524 | |
| Unrealized foreign exchange gain | |
| |
| (1,774,842 | ) | |
| (491,535 | ) | |
| (410,226 | ) |
| Change in working capital | |
16 | |
| 1,373,886 | | |
| 5,257,439 | | |
| (278,479 | ) |
| Impairment of intangible assets | |
| |
| - | | |
| - | | |
| 6,545,821 | |
| Net cash used in operating activities | |
| |
| (47,803,480 | ) | |
| (14,733,250 | ) | |
| 8,689,267 | |
| | |
| |
| | | |
| | | |
| | |
| Cash flows from (used in) investing activities | |
| |
| | | |
| | | |
| | |
| Maturity of short term investments | |
| |
| 3,025,000 | | |
| 5,018,000 | | |
| 9,023,910 | |
| Purchase of short term investments | |
| |
| - | | |
| (3,025,000 | ) | |
| (8,024,872 | ) |
| Purchase of intangible assets | |
| |
| (624,500 | ) | |
| - | | |
| - | |
| Purchase of property and equipment | |
| |
| (164,270 | ) | |
| (34,697 | ) | |
| (10,772 | ) |
| Proceeds on disposal of property and equipment | |
| |
| - | | |
| 9,000 | | |
| 5,500 | |
| Net cash provided by investing activities | |
| |
| 2,236,230 | | |
| 1,967,303 | | |
| 993,766 | |
| | |
| |
| | | |
| | | |
| | |
| Cash flows from financing activities | |
| |
| | | |
| | | |
| | |
| Net proceeds from issuance of common shares and warrants | |
10 | |
| 26,069,390 | | |
| 45,493,992 | | |
| - | |
| Net proceeds from exercise of options | |
| |
| 111,772 | | |
| 1,065,757 | | |
| 19,597 | |
| Net cash provided by financing activities | |
| |
| 26,181,162 | | |
| 46,559,749 | | |
| 19,597 | |
| | |
| |
| | | |
| | | |
| | |
| Foreign exchange gains on cash | |
| |
| 2,684,842 | | |
| 350,265 | | |
| 410,226 | |
| | |
| |
| | | |
| | | |
| | |
| Net increase (decrease) in cash | |
| |
| (16,701,246 | ) | |
| 34,144,067 | | |
| 10,112,856 | |
| Cash and cash equivalents, beginning of year | |
| |
| 57,212,004 | | |
| 23,067,937 | | |
| 12,955,081 | |
| Cash at end of year | |
| |
| 40,510,758 | | |
| 57,212,004 | | |
| 23,067,937 | |
The notes are an integral part of these consolidated financial
statements.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| 1. | GENERAL INFORMATION AND NATURE OF OPERATIONS |
Transition Therapeutics
Inc. and its subsidiaries (together the Company or Transition) was incorporated by Articles of Incorporation under the Business
Corporations Act (Ontario) on July 6, 1998. The Company is a public company with common shares listed on both the NASDAQ and Toronto
Stock Exchange and is incorporated and domiciled in Canada. The address of its registered office is 101 College Street, Suite 220,
Toronto, Ontario, Canada.
The Company is a product-focused
biopharmaceutical company developing therapeutics for disease indications with large markets. The Company’s lead technologies
are focused on the treatment of agitation and aggression in Alzheimer’s disease and diabetes.
The success of the Company is dependent on bringing its products
to market, obtaining the necessary regulatory approvals and achieving future profitable operations. The continuation of the research
and development activities and the commercialization of its products are dependent on the Company’s ability to successfully
complete these activities and to obtain adequate financing through a combination of financing activities and operations. It is
not possible to predict either the outcome of future research and development programs or the Company’s ability to fund these
programs going forward.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The principal
accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have
been consistently applied to all periods presented.
These
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB). The consolidated financial statements have been prepared using the historical
cost convention except for the revaluation of contingent consideration payable to fair value.
The
preparation of financial statements in conformity with IFRS requires use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher
degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements
are disclosed in Note 3.
The consolidated
financial statements were approved for issuance by the Board of Directors on September 11, 2015.
These
consolidated financial statements incorporate the assets and liabilities of Transition and its wholly owned subsidiaries: Transition
Therapeutics Leaseholds Inc., Waratah Pharmaceuticals Inc., Transition Therapeutics (USA) Inc. and Transition Therapeutics Ireland
Limited. Intercompany transactions, balances and unrealized gains/losses on transactions between group companies are eliminated.
Subsidiaries
are all those entities over which the Company has power over the investee, is exposed or has rights to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are
fully consolidated from the date on which control is transferred to the Company and de-consolidated from the date that control
ceases.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
The
purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as
the fair value of the assets given, equity instruments issued and liabilities assumed at the date of exchange. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values
at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair
value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition
is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated
statement of comprehensive income (loss).
| 2.3 | Foreign currency translation |
| (i) | Functional and presentation currency |
Items included in the consolidated
financial statements of each entity of the Company are measured using the currency of the primary economic environment in which
the entity operates (the functional currency). These consolidated financial statements are presented in Canadian dollars, which
is the Company’s functional currency.
The Company has determined
that its foreign operations located in the United States and Ireland have a functional currency of U.S. dollars. Consequently,
revenue and expenses of these foreign operations are recorded using the rate of exchange in effect at the dates of the transactions
and the translation of assets and liabilities uses the rates of exchange in effect at the period-end date, with the resulting net
unrealized gains and losses arising from the translation of these foreign operations included as part of the currency translation
adjustment in other comprehensive income (loss).
| (ii) | Transactions and balances |
Foreign currency transactions
are translated into the functional currency using the rate of exchange in effect at the dates of the transactions. Foreign exchange
gains and losses arising from translating monetary foreign currency balances are included in foreign exchange gain.
| 2.4 | Property and equipment |
Property and equipment is recorded at historical
cost less depreciation. Historical cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent
costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
The carrying amount of a replaced asset is derecognized when it is replaced. Repairs and maintenance costs are charged to the consolidated
statement of comprehensive income (loss) during the period in which they are incurred. Depreciation of property and equipment is
calculated using either the straight-line or diminishing balance methods to allocate the cost of each item over its estimated useful
life, as follows:
| Asset class | |
Percentage | |
Method |
| Computer equipment | |
30% - 45% | |
Diminishing balance |
| Office equipment and furniture | |
20% | |
Diminishing balance |
| Laboratory equipment | |
20% | |
Diminishing balance |
| Leasehold improvements | |
Term of lease plus one renewal period | |
Straight-line |
The assets’ residual values and useful
lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
On disposal of items of property and equipment,
the cost and related accumulated depreciation and impairments are removed from the consolidated balance sheet and the net amount,
less any proceeds, is taken to the consolidated statement of comprehensive income (loss).
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
Intangible assets consist of intellectual
property in the form of technology, patents, licenses and compounds. Separately acquired intangible assets are recorded at historical
cost. Intangible assets acquired in a business combination are recognized at fair value at the acquisition date. All intangible
assets have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line
method to allocate the cost of the intangible assets over their estimated useful lives of up to 20 years.
| 2.6 | Impairment of non-financial assets |
Property
and equipment and intangible assets that are subject to amortization or depreciation are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash generating units). Non-financial assets that suffered impairment are
reviewed for possible reversal of the impairment at each reporting date.
| 2.7 | Financial Instruments: Classification and Measurement |
IFRS
9 was issued in November, 2009 and replaces parts of IAS 39 that relate to the classification and measurement of financial assets.
IFRS 9 (2009) requires financial assets to be classified into two measurement categories: those measured at fair value and those
measured at amortized cost. The classification depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition. The Company has adopted IFRS 9 from July 1, 2010
as well as the related consequential amendments to other IFRSs, because this new accounting policy provides reliable and more relevant
information for users to assess the amounts, timing and uncertainty of future cash flows.
The
Company has assessed the financial assets held by the Company at July 1, 2010, the date of initial application of IFRS 9. Financial
assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial
assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company
has transferred substantially all risks and rewards of ownership.
Financial
assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right
to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability
simultaneously.
Financial
assets measured at amortized cost
Cash
and cash equivalents, short term investments and trade and other receivables meet the requirements of IFRS 9 (2009) and are measured
at amortized cost as these assets are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market and have fixed maturities that the Company intends to hold until maturity. They are included in current assets,
except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.
Financial
liabilities measured at fair value
The
Company’s contingent consideration payable is measured at fair value at each reporting period with changes in the fair value
being recorded in the consolidated statement of comprehensive income (loss). The estimate of fair value is based on management’s
best estimate of the timing and probability of having to make the contingent payments, discounted at the Company’s weighted
average cost of capital.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
Fair
Value Hierarchy
The Company categorizes its financial assets
and liabilities that are recognized at fair value in the consolidated financial statements into one of three different levels.
The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable
in the market. Each fair value measurement is reported in one of the three levels, which is determined by the lowest level input
that is significant to the fair value measurement in its entirety. These levels are:
Level 1 – inputs
are based upon unadjusted quoted prices for identical instruments traded in active markets;
Level 2 – inputs
are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or
can be corroborated by observable market data for substantially the full term of the assets or liabilities;
Level 3 – inputs
are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use
in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing
models, discounted cash flow models, and similar techniques.
| 2.8 | Impairment of financial assets |
The
Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there
is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset
(a loss event) and that the loss event has an impact on the estimated future cash flows of the financial asset or group of financial
assets that can be reliably estimated.
The
amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced
and the amount of the loss is recognized in the consolidated statement of comprehensive income (loss).
If,
in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment was recognized, the reversal of the previously recognized impairment is recognized in the consolidated statement
of comprehensive income (loss).
| 2.9 | Investment tax credits |
Investment
tax credits (ITCs) are accounted for as government assistance and are accrued when qualifying expenditures are made and there is
reasonable assurance that the credits will be realized. Government assistance is accounted for using the cost reduction method,
whereby they are netted against the related research and development expenses or capital expenditures to which they relate.
Trade
and other receivables are amounts due for services performed in the ordinary course of business. If collection is expected in one
year or less, they are classified as current assets. If not, they are presented as non-current assets.
Trade
and other receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest
method, less provision for impairment.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| 2.11 | Cash and cash equivalents |
Cash
and cash equivalents include cash on hand, deposits held with banks and other short-term highly liquid investments with original
maturities of three months or less.
Common shares are classified as equity.
Incremental costs directly attributable to the issuance of new shares, warrants or options are shown in equity as a deduction,
net of income tax, from the proceeds received.
| 2.13 | Trade and other payables |
Trade and other payables are obligations
to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables
are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
| 2.14 | Current and deferred income tax |
The income tax expense for the period comprises
current and deferred tax. Income tax is recognized in the consolidated statement of comprehensive income (loss) except to the extent
that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.
The current income tax charge is calculated
on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and
its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect
to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the
basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized, using
the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts
in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition
of an asset or liability in a transaction other than a business combination that at the time of the transaction affects either
accounting, taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially
enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred
income tax liability is settled.
Deferred income tax assets are recognized only to the extent
that it is probable that the assets can be recovered.
Deferred
income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority
on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
The
Company has a stock option plan which is an equity settled, share-based payment compensation plan, under which the Company receives
services from employees or consultants as consideration for equity instruments of the Company. The stock option plan is open to
directors, officers, employees, members of the Scientific Advisory Board and consultants of the Company. The fair value of the
employees or consultants services received in exchange for the grant of the options is recognized as an expense over the service
period using the graded vesting method.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
The
fair value of stock options is estimated using the Black-Scholes option pricing model. This model requires the input of a number
of assumptions, including expected dividend yield, expected share price volatility, expected time until exercise and risk-free
interest rates. Although the assumptions used reflect management’s best estimates, they involve inherent uncertainties based
on conditions outside of the Company’s control. Changes in these assumptions could significantly impact share-based payment
compensation.
The
share-based payment reserve, included in equity, is reduced as the options are exercised or when the options expire unexercised.
If the share options are exercised, cancelled or forfeited, the amount initially recorded for the options in share-based payment
reserve is credited to common shares or contributed surplus, along with the proceeds received on the exercise. If the share options
expire unexercised, the amount initially recorded for the options in the share based payment reserve is credited to contributed
surplus.
Revenue comprises the fair value of consideration
received or receivable for the sale of services in the ordinary course of the Company’s activities. The Company recognizes
revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity
and when specific criteria have been met for each of the Company’s activities as described below.
The Company generally enters into two types
of revenue producing arrangements with pharmaceutical companies: licensing arrangements and collaboration / co-development arrangements
(“collaborations”).
Licensing arrangements
Under a licensing arrangement the Company
transfers the rights of a compound or series of compounds to a counterparty who directs the development, manufacture and commercialization
of the product. The Company’s additional involvement is limited to involvement in a joint steering committee which the Company
generally considers protective in nature. In return, the Company will generally receive an upfront fee, additional payments based
on specifically defined developmental, regulatory, and commercial milestones, and a royalty based on a percentage of future sales
of the product.
Revenue related to up-front payments received in licensing arrangements
are deferred and amortized into income over the estimated term of the arrangement. Revenue from milestone payments are recognized
when the milestones are achieved.
Collaboration arrangements
Under a collaboration arrangement the Company
participates in the development by paying a fixed share of the development and commercialization costs in return for a fixed percentage
of the product’s future profits. For contributing rights to the intellectual property the co-collaborator will pay the Company
an upfront fee and additional payments based on specifically defined developmental and regulatory milestones. Collaboration agreements
generally require the Company to participate in joint steering committees and to participate actively in the research and development
of the product.
The Company accounts for collaboration
arrangements using the percentage of completion model. Under this method, revenue is recorded as related costs are incurred, on
the basis of the proportion of actual costs incurred to date, related to the estimated total costs to be incurred under the arrangement.
The cumulative impact of any revisions in cost and earnings estimates are reflected in the period in which the need for a revision
becomes known. In the event that there are significant uncertainties with respect to the outcome of the contract, the Company uses
a zero profit model whereby revenue will be recognized equal to direct costs incurred, but not in excess of cash received or receivable.
Losses on these contracts are recorded in the period in which management has determined that a loss is expected.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
The Company uses an input based measure,
primarily direct costs or other appropriate inputs, to determine the percent complete because the Company believes that the inputs
are representative of the value being conveyed through the research and development activities. The Company believes that using
direct costs as the unit of measure of percentage complete also most closely reflects the level of effort related to the Company's
performance under the arrangement. Direct costs are those costs that directly result in the culmination of an earnings process
for which the counterparty to the arrangement receives a direct benefit. The nature of these costs are third party and internal
costs associated with conducting clinical trial activities, allocated payroll related costs for representatives participating on
the joint steering committee and sales and marketing costs during the co-commercialization period. Direct costs specifically exclude
costs that are of a general and administrative nature.
Amounts resulting from payments received
in advance of revenue recognized are recorded as deferred revenue.
The Company is required to assess the profitability
of the overall arrangement on a periodic basis throughout the life of the arrangement when events or circumstances indicate a potential
change in facts. Such assessment is based on estimates to determine the most likely outcome based on available facts and circumstances
at each assessment date. The estimates include the consideration of factors such as the progress and timing of clinical trials,
competition in the market, the development progress of other potential competitive therapies, drug related serious adverse events
and other safety issues in the clinical trials, pricing reimbursement in relevant markets and historical costs incurred compared
to original estimates. When the periodic assessment or other events or circumstances indicate a loss will result from performance
under the arrangement, the entire amount of the loss is charged to the statement of comprehensive consolidated income (loss) in
the period in which the determination is made.
| 2.17 | Research and development |
Research
and development expenses include salaries, share-based payments, clinical trial costs, manufacturing and research inventory. Research
and development expenditure is charged to the consolidated statement of comprehensive income (loss) in the period in which it is
incurred. Development expenditure is capitalized when the criteria for recognizing an asset are met.
Research
inventories
Inventories consist of materials that are
used in future studies and clinical trials, and are measured at the lower of cost and net realizable value. Net realizable value
is measured at the estimated selling price of the inventory less estimated costs of completion and estimated costs to make the
sale. The amount of the write-down of inventories is included in research and development expense in the period the loss occurs,
which is currently at the time the inventory is acquired since the Company does not intend to sell the material used in studies
and clinical trials.
Leases
in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases are expensed on a straight-line basis over the term of the lease.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| 2.19 | IFRS issued but not yet adopted |
IFRS 15 –
Revenue from Contracts with Customers
IFRS
15 specifies how and when to recognize revenue as well as requiring entities to provide users of financial statements with some
informative, relevant disclosures. The standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts, and a number of revenue-related
interpretations. Application of the standard is mandatory for all IFRS reporters and it applies to nearly all contracts with customers:
the main exceptions are leases, financial instruments and insurance contracts. Currently IFRS 15 must be applied in an entity’s
first annual IFRS financial statements for periods beginning on or after January 1, 2017, however the IASB has proposed to defer
the date of adoption to periods beginning on or after January 1, 2018, with early adoption permitted. Management is evaluating
the standard and has not yet determined the impact on its consolidated financial statements.
| 3. | CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS |
The preparation of the consolidated financial
statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results can differ from those estimates. We have identified
the following areas which we believe require management’s most subjective estimates and judgments, often requiring the need
to make estimates about the effects of matters are inherently uncertain and may change in subsequent periods.
Valuation and Amortization of Intangible Assets
The Company’s intangible assets are
comprised of purchased or licensed pharmaceutical compounds, technology and patents. The costs of the Company’s intangible
assets are amortized over the estimated useful life of up to 20 years. Factors considered in estimating the useful life of the
intangible asset include the expected use of the asset by the Company, legal, regulatory and contractual provisions that may limit
the useful life, the effects of competition and other economic factors, and the level of expenditures required to obtain the expected
future cash flows from the intangible asset. The Company re-evaluates the useful life when there has been a change in these factors.
See note 6 for additional information on charges in useful life and impairment testing. The Company assesses its intangible assets
for recoverability whenever indicators of impairment exist. When the carrying value of an asset is greater than its recoverable
amount, which is the higher of its value in use or fair value less costs to sell, an impairment loss is recognized.
Valuation of Contingent Consideration
Payable
The contingent consideration is measured
at fair value based on level 3 inputs. The contingent consideration is not based on observable inputs and is measured using a discounted
cash flow analysis of expected payments in future periods. The significant estimates used in the fair value calculations are as
follows:
| (a) | Management has estimated the timing of the milestone payments based on current expectations and
plans for the development of ELND005. The milestone payments are assigned a probability based on industry statistics for the successful
development of pharmaceutical products including regulatory approval and achievement of revenue targets. An increase of 10% applied
to the probability assumptions, with all other variables held constant, will increase the contingent consideration payable by $1,428,951.
Conversely a decrease of 10% applied to the probability assumptions, with all other variables held constant, would reduce the contingent
consideration payable by $1,858,858; |
| (b) | The probability adjusted cash flows are discounted at a rate of 20% which is management’s
best estimate of the Company’s cost of capital. An increase of 5% to the discount rate would decrease the contingent consideration
payable by $1,080,299. Conversely, a decrease of 5% to the discount rate would increase the contingent consideration payable by
$1,538,400. |
Management revisited the assumptions used
in the valuation of the contingent consideration payable and accordingly, the Company has recognized a change in fair value of
contingent consideration payable of $65,787 during the fiscal year ended June 30, 2015.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
Share Based Payments and Warrants
When the Company issues stock options and
warrants, an estimate of fair value is derived for the equity instrument using the Black-Scholes option pricing model. The application
of this option pricing model requires management to make assumptions regarding several variables, including the period for which
the instrument will be outstanding, the price volatility of the Company’s stock over a relevant timeframe, the determination
of a relevant risk free interest rate and an assumption regarding the Company’s dividend policy in the future. If other assumptions
are used, the value derived for the equity instruments could be significantly impacted. Assumptions used to estimate the fair value
of stock options granted and warrants issued are disclosed in notes 11 and 10, respectively.
Settlement of a Pre-Existing Relationship
The Company has determined that the transactions
entered into with Perrigo Company plc on February 28, 2014 resulted in the re-acquisition of the rights for the development and
commercialization of ELND005 previously licensed to Elan Pharmaceuticals plc (“Elan”) which in accordance with IFRS
must be accounted for as a settlement of a pre-existing relationship (the collaboration agreement between Waratah and Elan). Accordingly,
the company has expensed $3,096,186 during the year ended June 30, 2014 as the cost related to the settlement of the pre-existing
relationship.
| 4. | FINANCIAL RISK MANAGEMENT |
| 4.1 | Categories of financial assets and liabilities |
All financial instruments are measured
at amortized cost except for the contingent consideration payable which is at fair value. The following table outlines the Company’s
financial instruments, their classification, carrying value and fair value.
| Financial Instruments as at June 30, 2015 | |
Classification | |
Carrying
Value ($) | | |
Fair Value
($) | |
| Cash | |
Loans and receivables | |
| 40,510,758 | | |
| 40,510,758 | |
| Other receivables | |
Loans and receivables | |
| 265,189 | | |
| 265,189 | |
| Accounts payable and accrued liabilities | |
Other liabilities | |
| 8,549,895 | | |
| 8,549,895 | |
| Contingent consideration payable | |
Fair value through profit and loss | |
| 4,361,601 | | |
| 4,361,601 | |
| Financial Instruments as at June 30, 2014 | |
Classification | |
Carrying
Value ($) | | |
Fair Value
($) | |
| Cash | |
Loans and receivables | |
| 57,212,004 | | |
| 57,212,004 | |
| Short term investments | |
Loans and receivables | |
| 3,059,562 | | |
| 3,059,562 | |
| Other receivables | |
Loans and receivables | |
| 220,574 | | |
| 220,574 | |
| Accounts payable and accrued liabilities | |
Other liabilities | |
| 5,963,258 | | |
| 5,963,258 | |
| Contingent consideration payable | |
Fair value through profit and loss | |
| 3,838,286 | | |
| 3,838,286 | |
The Company has determined the estimated
fair values of its financial instruments based on appropriate valuation methodologies; however, considerable judgment is required
to develop these estimates. Fair value of short term investments is determined based on a valuation model that uses daily pricing
reports to determine the amount the holder would receive if the instrument were sold on that day. The fair value of the contingent
consideration payable is determined using a valuation model as discussed in note 3.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| 4.2 | Financial risk factors |
The
Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange and interest rate
risks), credit risk and liquidity risk. Risk management is the responsibility of the Company’s finance function which identifies,
evaluates and where appropriate, mitigates financial risks.
The Company operates
in Canada and has relationships with entities in other countries. Foreign exchange risk arises from purchase transactions, as well
as recognized financial assets and liabilities denominated in foreign currencies, mainly the US dollar. The Company does not enter
into hedging or other contracts to mitigate its exposure to foreign exchange risk and maintains sufficient US dollars to meet the
Company’s planned US dollar expenses.
Financial instruments
in foreign currencies at June 30, 2015 and 2014 are approximately:
| | |
2015 | | |
2014 | |
| | |
US$ | | |
US$ | |
| Cash | |
| 30,544,014 | | |
| 48,722,203 | |
| Trade and other payables | |
| (102,464 | ) | |
| (711,490 | ) |
| | |
| 30,441,550 | | |
| 48,010,713 | |
Fluctuations in the US dollar exchange
rate could potentially have a significant impact on the Company’s results. At June 30, 2015, if the Canadian dollar weakened
10% against the US dollar, with all other variables held constant, comprehensive income for the year ended June 30, 2015 would
have increased by approximately $1,551,000. Conversely, if the Canadian dollar strengthened 10% against the US dollar, with all
other variables held constant, comprehensive income for the year ended June 30, 2015 would have decreased by approximately $1,551,000.
Interest rate risk is
the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s
short term investments are at a fixed rate of interest and accordingly are not exposed to changes in market interest rates, however,
their fair value can vary with the change in market interest rates. The Company’s cash is exposed to changes in market interest
rates. An increase (decrease) in the market interest rate of 1% would decrease (increase) net loss by $435,632 and ($196,035) respectively.
Although the Company
monitors market interest rates, the Company’s investment policies are designed to maintain safety of principal and provide
adequate liquidity to meet all current payment obligations and future planned expenditures. The Company does not speculate on interest
rates and holds all deposits until their date of maturity.
Interest income from
cash, cash equivalents and short term investments was $196,104 for the year ended June 30, 2015 (2014 - $219,273; 2013 - $144,432).
Credit risk is the risk
of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
The Company’s exposure
to credit risk at the period end is the carrying value of its cash and short term investments. The Company manages credit risk
by maintaining bank accounts with financial institutions of high creditworthiness. Short term investments consist of bankers’
acceptances and other debentures maturing in less than 12 months and ratings of R-1 or higher.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
Liquidity risk is the
risk that the Company will not be able to meet its obligations as they become due.
The Company’s investment
policies are designed to maintain safety of principal and provide sufficient readily available cash in order to meet liquidity
requirements. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing
activities. All cash and short term investments have maturities less than one year.
At June
30, 2015 the Company’s financial liabilities which include trade and other payables are current and are expected to be repaid
within 1 to 3 months of the period end date.
The contingent
consideration payable is expected to be paid as follows:
| Fiscal year ending June 30, 2016 | |
$ | 2,847,759 | |
| Fiscal year ending June 30, 2021 | |
$ | 3,797,096 | |
| Fiscal year ending June 30, 2022 | |
$ | 16,761,664 | |
| Fiscal year ending June 30, 2023 | |
$ | 18,735,000 | |
| Fiscal year ending June 30, 2024 | |
$ | 18,735,000 | |
| 4.3 | Capital risk management |
The Company’s primary objective when
managing capital is to ensure its ability to continue as a going concern in order to pursue the development of its drug candidates
and the out-license of these drug candidates to pharmaceutical companies. The Company attempts to maximize return to shareholders
by minimizing shareholder dilution and, when possible, utilizing non-dilutive arrangements such as interest income and collaborative
partnership arrangements.
The Company includes equity comprised of
issued share capital, warrants, contributed surplus and deficit in the definition of capital. The Company has financed its capital
requirements primarily through share issuances since inception and collaborative partnership agreements.
The Company manages its capital structure
and makes adjustments to it in light of changes in economic conditions and risk characteristics of the underlying assets. The Company
monitors its cash requirements and market conditions to anticipate the timing of requiring additional capital to finance the development
of its drug candidates. The Company is not subject to externally imposed capital requirements and there has been no change with
respect to the overall capital management strategy during the year ended June 30, 2015 from the year ended June 30, 2014.
The Company’s current cash projection
indicates that the current cash resources should enable the Company to execute its core business plan and meet its projected cash
requirements beyond the next 12 months. However, the Company’s working capital may not be sufficient to meet its stated business
objectives in the event of unforeseen circumstances or a change in the strategic direction of the Company. When, or if, the Company
requires additional capital, there can be no assurance that the Company will be able to obtain further financing on favourable
terms, if at all.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
At June 30, 2014, short term investments
consisted of two medium term note debentures totaling $3,059,562 with ratings of R1 or higher that matured on October 25, 2014
and November 28, 2014. There were no gains or losses realized on the disposal of the short term investments during the years ended
June 30, 2015 and 2014 as all the financial assets were held to their redemption date. The maximum exposure to credit risk at the
reporting date is the carrying amount of cash and short term investments.
Intangible
assets consist of the following:
| | |
Technology
acquired
(ELND005) | | |
Lilly
Licenses
acquired
(TT401/402) | | |
Lilly
SARM
License
acquired
(TT701)
(note 9a) | | |
Total | |
| | |
$ | | |
$ | | |
$ | | |
$ | |
| | |
| | |
| | |
| | |
| |
| As at July 1, 2014 | |
| | | |
| | | |
| | | |
| | |
| Cost | |
| 20,547,993 | | |
| 1,055,900 | | |
| - | | |
| 21,603,893 | |
| Accumulated amortization | |
| (13,367,489 | ) | |
| (229,223 | ) | |
| - | | |
| (13,596,712 | ) |
| Net book value | |
| 7,180,504 | | |
| 826,677 | | |
| - | | |
| 8,007,181 | |
| | |
| | | |
| | | |
| | | |
| | |
| As at June 30, 2015 | |
| | | |
| | | |
| | | |
| | |
| Cost | |
| 20,547,993 | | |
| 1,055,900 | | |
| 624,500 | | |
| 22,228,393 | |
| Accumulated amortization | |
| (13,919,829 | ) | |
| (282,019 | ) | |
| (4,162 | ) | |
| (14,206,010 | ) |
| Net book value June 30, 2015 | |
| 6,628,164 | | |
| 773,881 | | |
| 620,338 | | |
| 8,022,383 | |
| | |
| | | |
| | | |
| | | |
| | |
| Year ended June 30, 2015 | |
| | | |
| | | |
| | | |
| | |
| Opening net book value | |
| 7,180,504 | | |
| 826,677 | | |
| - | | |
| 8,007,181 | |
| Acquisition of intangible assets | |
| - | | |
| - | | |
| 624,500 | | |
| 624,500 | |
| Amortization charge | |
| (552,340 | ) | |
| (52,796 | ) | |
| (4,162 | ) | |
| (609,298 | ) |
| Net book value June 30, 2015 | |
| 6,628,164 | | |
| 773,881 | | |
| 620,338 | | |
| 8,022,383 | |
| | |
Technology
acquired
(ELND005) | | |
Lilly
Licenses
acquired
(TT401/402) | | |
Total | |
| | |
$ | | |
$ | | |
$ | |
| | |
| | |
| | |
| |
| As at July 1, 2013 | |
| | | |
| | | |
| | |
| Cost | |
| 20,547,993 | | |
| 1,055,900 | | |
| 21,603,893 | |
| Accumulated amortization | |
| (12,488,792 | ) | |
| (176,427 | ) | |
| (12,665,219 | ) |
| Net book value | |
| 8,059,201 | | |
| 879,473 | | |
| 8,938,674 | |
| | |
| | | |
| | | |
| | |
| As at June 30, 2014 | |
| | | |
| | | |
| | |
| Cost | |
| 20,547,993 | | |
| 1,055,900 | | |
| 21,603,893 | |
| Accumulated amortization | |
| (13,367,489 | ) | |
| (229,223 | ) | |
| (13,596,712 | ) |
| Net book value June 30, 2014 | |
| 7,180,504 | | |
| 826,677 | | |
| 8,007,181 | |
| | |
| | | |
| | | |
| | |
| Year ended June 30, 2014 | |
| | | |
| | | |
| | |
| Opening net book value | |
| 8,059,201 | | |
| 879,473 | | |
| 8,938,674 | |
| Amortization charge | |
| (878,697 | ) | |
| (52,796 | ) | |
| (931,493 | ) |
| Net book value June 30, 2014 | |
| 7,180,504 | | |
| 826,677 | | |
| 8,007,181 | |
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
As ELND005 did not meet its primary efficacy
endpoint in the Phase 2/3 clinical study in agitation and aggression in Alzheimer’s disease, management performed an impairment
test and noted there is no impairment of the ELND005 asset as at June 30, 2015. The Company is performing a thorough review of
the data from the completed study in agitation and aggression. An external clinical advisory board is working with the Company
to evaluate the data and consider potential future clinical development paths for ELND005.
In light of the series of agreements the
Company entered into with Perrigo Company plc in fiscal 2014 relating to the ELND005 technology, management reviewed the estimate
of the remaining useful life of the ELND005 technology and extended the remaining useful life to 12 years. Accordingly, the change
in estimate resulted in a decrease in amortization expense of $108,774 being recognized during the year ended June 30, 2014.
During the year ended June 30, 2013, the
Company decided to no longer develop TT-301 and TT-302, the compounds acquired from NMX. As the Company no longer expects to receive
any benefits from the technology, the Company assessed the compounds for impairment and determined that the recoverable amount
of the compounds was nil at June 30, 2013. Accordingly, the Company has recognized an impairment loss of $6,545,821. The Company
has terminated the licensing agreement with Northwestern University and has no further commitments relating to this technology.
The amortization of all intangible assets
relates to the research and development efforts of the Company and has therefore been included in the “research and development”
line in the consolidated statement of comprehensive loss.
7. TRADE AND OTHER PAYABLES
Trade and other payables consist
of the following:
| | |
June 30, 2015 | | |
June 30, 2014 | |
| | |
$ | | |
$ | |
| Accounts payable | |
| 2,594 | | |
| 1,591,128 | |
| Accrued expenses: | |
| | | |
| | |
| Clinical trials and manufacturing | |
| 7,769,521 | | |
| 3,320,992 | |
| Salaries and benefits | |
| 398,017 | | |
| 224,879 | |
| Professional fees and services | |
| 235,477 | | |
| 628,827 | |
| Other | |
| 144,286 | | |
| 197,432 | |
| | |
| 8,547,301 | | |
| 4,372,130 | |
| | |
| 8,549,895 | | |
| 5,963,258 | |
| 8. | CONTINGENT CONSIDERATION PAYABLE |
| (a) | Under the terms of the ENI step-acquisition agreement, the Company is committed to pay the former
shareholders of ENI contingent clinical milestones potentially totaling $10.9 million payable in cash or Transition common shares
at the then market price and a royalty of up to 1% on net sales of the ELND005 product. On February 28, 2014, the Company became
responsible for the development of ELND005 and accordingly has re-evaluated the development program timelines and adjusted the
estimate relating to the timing of the milestone payments. Accordingly, the Company has recognized a liability as at June 30, 2015
of $1,429,884 (June 30, 2014 - $1,030,775) which represents the fair value of the contingent consideration payable to the former
shareholders of ENI. |
| (b) | Under the terms of the ELND005 milestone and royalty agreement, the Company is committed to pay
Perrigo contingent approval and commercialization milestones potentially totaling US$40 million and a royalty of up to 6.5% on
net sales of the ELND005 product. Accordingly, the Company has recognized a liability as at June 30, 2015 of $2,931,717 (June 30,
2014 - $2,807,511) which represents the fair value of the contingent consideration payable to Perrigo. |
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| | |
Payable to
ENI | | |
Payable to
Perrigo | | |
Total | |
| Contingent Consideration Payable | |
$ | | |
$ | | |
$ | |
| Balance at July 1, 2013 | |
| 3,756,331 | | |
| - | | |
| 3,756,331 | |
| Settlement of pre-existing relationship (note 3) | |
| - | | |
| 3,096,186 | | |
| 3,096,186 | |
| Change in contingent consideration payable | |
| (2,725,556 | ) | |
| (185,662 | ) | |
| (2,911,218 | ) |
| Foreign exchange | |
| - | | |
| (103,013 | ) | |
| (103,013 | ) |
| Balance at June 30, 2014 | |
| 1,030,775 | | |
| 2,807,511 | | |
| 3,838,286 | |
| Change in contingent consideration payable | |
| 399,109 | | |
| (333,322 | ) | |
| 65,787 | |
| Foreign exchange | |
| - | | |
| 457,528 | | |
| 457,528 | |
| Balance at June 30, 2015 | |
| 1,429,884 | | |
| 2,931,717 | | |
| 4,361,601 | |
Significant
assumptions and the sensitivity of changes to these assumptions are discussed in Note 3.
| 9. | LICENSING AND COLLABORATION AGREEMENTS WITH ELI LILLY AND COMPANY |
| (a) | On March 3, 2010, Transition and Eli Lilly and Company (“Lilly”) entered into a licensing
and collaboration agreement granting Transition the rights to a series of preclinical compounds in the area of diabetes. Under
the licensing and collaboration agreement, Transition will receive exclusive worldwide rights to develop and potentially commercialize
a class of compounds that, in preclinical models showed potential to provide glycemic control and other beneficial effects including
weight loss. |
Under the terms of the agreement,
Lilly received an up-front payment of US$1 million and retained the option to reacquire the rights to the compounds at a later
date. The up-front payment of $1,055,900 (US$1 million) has been capitalized as a license acquired from Lilly and will be amortized
over 20 years which represents the estimated remaining life of the underlying compounds and patents.
In June 2013, Lilly exercised
their option and assumed all development and commercialization rights to type 2 diabetes drug candidate TT401. In conjunction with
this assumption of rights, Transition received a milestone payment of $7,118,300 (US$7 million) which has been recognized as revenue
during the year ended June 30, 2013. Lilly has assumed all costs and will perform all future development and commercialization
activities of TT401. In fiscal 2015, Transition has paid US$14 million ($15,491,600) to Lilly in three separate installments during
the Phase 2 clinical study. In return, Transition is eligible to receive up to approximately US$240 million in additional milestone
payments and will also be eligible to receive a double-digit royalty on sales of TT401 products and a low single digit royalty
on related compounds. The Company has no further funding obligations under the Agreement.
| (b) | On May 6, 2015, the Company, through its wholly owned subsidiary TTIL, exclusively licensed worldwide
rights to a novel small molecule drug candidate, TT701 from Lilly. Under the terms of the agreement, TTIL has acquired the rights
to develop and commercialize TT701. Transition will pay Lilly upfront consideration of up to US$1 million. As of June 30, 2015,
Transition has paid Lilly $624,500 (US$500,000) of the upfront consideration and this payment has been capitalized as a license
acquired from Lilly and will be amortized over the estimated remaining life of 12.5 years. The remaining upfront payment of US$500,000
is due upon first patient enrollment in a clinical trial and is expected to be paid in fiscal 2016 once the milestone is achieved. |
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
At June 30, 2015, the authorized
share capital of the Company consists of an unlimited number of no par value common shares. The common shares are voting and are
entitled to dividends if, as and when declared by the Board of Directors.
| [b] | Common shares issued and outstanding during the period |
On February 18, 2015, the Company
announced the closing of its underwritten public offering of an aggregate of 3,538,461 common shares at a price to the public of
US$6.50 per share, including 461,538 common shares issued upon the exercise of the underwriters’ over-allotment option, raising
gross proceeds of $28,561,400 (US$23.0 million). The Company incurred total share issuance costs of $2,492,010, resulting in net
cash proceeds of $26,069,390.
On June 23, 2014, the Company
announced the closing of its private placement financing issuing 3,195,487 units of the Company to existing shareholders, board
members and management at a price of US$5.32 per unit, raising gross proceeds of $18,319,000 (US$17.0 million). Each unit consists
of one common share and 0.61 Common Share purchase warrant with a purchase price of US$7.10 per whole warrant. The Company incurred
total share issuance costs of $106,000, resulting in net cash proceeds of approximately $18,213,000.
On February 28, 2014, the Company
issued 2,255,640 common shares to a subsidiary of Perrigo for gross proceeds of $16,422,000 (US$15.0 million). The Company incurred
total share issuance costs of $59,000, resulting in net cash proceeds of approximately $16,363,000.
On August 15, 2013, the Company
announced the closing of its private placement financing issuing 2,625,300 units of the Company to existing shareholders, board
members and management at a price of US$4.19 per unit, raising gross proceeds of $11,439,000 (US$11.0 million). Each unit consists
of (i) one common share, (ii) 0.325 Common Share purchase warrant with a purchase price of US$4.60 per whole warrant and (iii)
0.4 Common Share purchase warrant with a purchase price of US$6.50 per whole warrant. The Company incurred total share issuance
costs of $521,000, resulting in net cash proceeds of approximately $10,918,000.
At June 30, 2015, there were
38,878,879 common shares issued and outstanding [June 30, 2014 – 35,303,913].
Warrants
Details
of whole warrants outstanding at June 30, 2015 are as follows:
| | |
| | |
Fair
Value at Date
of Issuance | | |
Expiry Date |
| Warrants | |
# | | |
$ | | |
|
| US$4.60 Warrants issued at August 15, 2013 | |
| 853,223 | | |
| 1,108,107 | | |
August 15, 2015 |
| US$6.50 Warrants issued August 15, 2013 | |
| 1,050,118 | | |
| 917,732 | | |
August 15, 2015 |
| US$7.10 Warrants issued June 23, 2014 | |
| 1,949,250 | | |
| 3,150,558 | | |
June 23, 2016 |
| Warrants outstanding June 30, 2015 and 2014 | |
| 3,852,591 | | |
| 5,176,397 | | |
|
The outstanding warrants at
June 30, 2015 have a total fair value at date of issuance of $5,176,397 which was calculated using the Black-Scholes pricing model
with the following assumptions:
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| Warrants Issued: | |
August 15, 2013 | | |
June 23, 2014 | |
| | |
| | |
| |
| Risk free interest rate | |
| 1.18 | % | |
| 1.03 | % |
| Expected dividend yield | |
| 0 | % | |
| 0 | % |
| Stock price volatility | |
| 0.6348 | | |
| 0.6694 | |
| Expected life of warrants | |
| 2.0 years | | |
| 2.0 years | |
Subsequent
to year end, the warrants issued on August 15, 2013 expired unexercised and accordingly, the carrying value of the expired warrants
of $2,025,839 will be reclassified to contributed surplus during the three month period ending September 30, 2015.
If
and when all of the remaining warrants are exercised, the Company may realize up to an additional US$13.8 million in proceeds.
| | |
| | |
| | |
Weighted Average
Exercise Price | |
| Stock options | |
# | | |
$ | | |
$ | |
| Stock options outstanding, July 1, 2014 | |
| 2,305,589 | | |
| 2,866,292 | | |
| 3.91 | |
| Stock options issued [i] | |
| 518,500 | | |
| - | | |
| 8.80 | |
| Stock options exercised [ii] | |
| (36,505 | ) | |
| (77,838 | ) | |
| 3.07 | |
| Stock options expired [iii] | |
| (832 | ) | |
| (3,686 | ) | |
| 6.00 | |
| Stock options forfeited or cancelled [iv] | |
| (30,988 | ) | |
| - | | |
| 5.75 | |
| Stock based compensation expense | |
| - | | |
| 3,107,537 | | |
| - | |
| Stock options outstanding, June 30, 2015 | |
| 2,755,764 | | |
| 5,892,305 | | |
| 4.82 | |
| | |
| | |
| | |
Weighted Average
Exercise Price | |
| Stock options | |
# | | |
$ | | |
$ | |
| Stock options outstanding, July 1, 2013 | |
| 1,872,000 | | |
| 2,352,002 | | |
| 2.97 | |
| Stock options issued [i] | |
| 742,000 | | |
| - | | |
| 6.12 | |
| Stock options exercised [ii] | |
| (296,852 | ) | |
| (623,617 | ) | |
| 3.59 | |
| Stock options forfeited or cancelled [iv] | |
| (11,559 | ) | |
| (219 | ) | |
| 2.82 | |
| Stock based compensation expense | |
| - | | |
| 1,138,126 | | |
| - | |
| Stock options outstanding, June 30, 2014 | |
| 2,305,589 | | |
| 2,866,292 | | |
| 3.91 | |
| | |
| | |
| | |
Weighted Average
Exercise Price | |
| Stock options | |
# | | |
$ | | |
$ | |
| Stock options outstanding, July 1, 2012 | |
| 1,949,919 | | |
| 2,977,032 | | |
| 4.10 | |
| Stock options issued [i] | |
| 325,000 | | |
| - | | |
| 3.64 | |
| Stock options exercised [ii] | |
| (9,332 | ) | |
| (13,668 | ) | |
| 2.10 | |
| Stock options expired [iii] | |
| (210,920 | ) | |
| (1,190,334 | ) | |
| 13.62 | |
| Stock options forfeited or cancelled [iv] | |
| (182,667 | ) | |
| (409,257 | ) | |
| 3.56 | |
| Stock based compensation expense | |
| - | | |
| 988,229 | | |
| - | |
| Stock options outstanding, June 30, 2013 | |
| 1,872,000 | | |
| 2,352,002 | | |
| 2.97 | |
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| [i] | The fair value of the stock options issued during the year ended
June 30, 2015 was $3,211,700 [2014 - $3,346,000; 2013 - $853,800]. |
| [ii] | During the year ended June 30, 2015, 36,505 stock options were exercised. These stock options had
a fair value of $77,838 at the grant date and resulted in cash proceeds to the Company of $111,772. |
| |
|
During the year ended June 30,
2014, 296,852 stock options were exercised. These stock options had a fair value of $623,617 at the grant date and resulted in
cash proceeds to the Company of $1,065,757. |
| |
|
During the year ended June 30,
2013, 9,332 stock options were exercised. These stock options had a fair value of $13,668 at the grant date and resulted in cash
proceeds to the Company of $19,597. |
| [iii] | During the year ended June 30, 2015, 832 stock options expired unexercised. These stock options
had a fair value of $3,686 which was reclassified to contributed surplus. No stock options expired unexercised during the year
ended June 30, 2014. |
| |
|
During the year ended June 30,
2013, 210,920 stock options expired unexercised. These stock options had a fair value of $1,190,334 which has been reclassified
to contributed surplus. |
| [iv] | During the year ended June 30, 2015, 30,988 stock options
were forfeited or cancelled. These options had a fair value of $131,363 and were unvested at the date of forfeit. |
| |
|
In the year ended June 30, 2014,
11,559 stock options were forfeited or cancelled, of which 83 were fully vested. The vested options had a fair value of $219 which
has been reclassified to contributed surplus. |
| |
|
During the year ended June 30,
2013, 182,667 stock options were forfeited or cancelled, of which 178,000 were fully vested. The vested options had a fair value
of $409,257 which has been reclassified to contributed surplus. |
| [v] | The maximum possible cash proceeds to the Company from the exercise of the stock options outstanding
at June 30, 2015 are $13,274,428 [June 30, 2014 - $9,005,578]. |
| 11. | STOCK-BASED COMPENSATION PLANS |
The Company’s stock option plan is
designed to attract and retain key individuals and recognize individual and overall corporate performance. In terms of performance,
the Company’s policy is to establish annual goals with respect to business strategy and the individual’s area of direct
responsibility. The Company grants options to its employees at the time when they join the organization and then subsequent grants
are issued at the discretion of the Board of Directors. Grants issued are based on the level of the position that the employee
is hired for and their overall experience and subsequent grants are based on the level of position, the Company’s performance,
and the employee’s performance. Stock option grants are approved by the Board of Directors. The Board of Directors considers
the amount and the terms of outstanding options when determining whether and how many new option grants will be made.
Options granted to employees generally
vest monthly or annually over a 3 to 4 year period. The exercise price of the options is equal to the greater of (1) the closing
price the day prior to the grant; (2) the weighted average trading price for five trading days prior to grant; and (3) the price
determined by the Board of Directors at the time of the grant. All grants expire 10 years after the grant date or generally terminate
3 to 6 months after the employee leaves the Company depending on the circumstances of their departure.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
The fair value of each option award is
estimated on the date of the grant using the Black-Scholes option pricing model. The expected volatilities have been computed based
on trailing 8 year historical share price trading data of week ending closing prices. The risk-free rate is based on the 8 year
Government of Canada marketable bond rates in effect at the time of the grants. The expected life of the option is estimated to
be 8 years based on historical option exercising patterns.
All stock options granted under the Plan
must be exercised within a maximum period of ten years following the grant date thereof (5 years for options granted prior to December
7, 2010). Options expiring during a blackout period are extended until 10 trading days after the blackout period is lifted. The
maximum number of common shares that may be issued pursuant to stock options granted under the Plan shall not exceed 10% of the
issued and outstanding common shares.
As at June 30, 2015, there are 1,132,124
options available for issuance under the Plan. The maximum number of common shares that may be issued to any individual pursuant
to stock options granted under the Plan will not exceed 5% of the outstanding common shares and the total number of common shares
that may be issued to consultants pursuant to stock options granted under the Plan will not exceed 2% of the issued and outstanding
common shares in any twelve month period. The vesting period is determined at the time of each option grant but must not exceed
five years.
A summary of options outstanding as at
June 30, 2015 under the plans are presented below:
| Outstanding |
|
|
Exercisable |
|
Range of
exercise
prices
$ |
|
Number of
options
# |
|
|
Weighted
average
remaining
contractual
life
[years] |
|
|
Weighted
average
exercise price
$ |
|
|
Number of
options
# |
|
|
Weighted
average
remaining
contractual
life
[years] |
|
|
Weighted
average
exercise price
$ |
|
| 2.09-3.00 |
|
|
702,601 |
|
|
6.85 |
|
|
2.18 |
|
|
|
702,601 |
|
|
6.85 |
|
|
2.18 |
|
| 3.22-3.66 |
|
|
824,663 |
|
|
5.47 |
|
|
3.44 |
|
|
|
739,951 |
|
|
5.18 |
|
|
3.41 |
|
| 6.00-7.70 |
|
|
755,000 |
|
|
8.98 |
|
|
6.21 |
|
|
|
269,322 |
|
|
8.99 |
|
|
6.27 |
|
| 8.73-10.19 |
|
|
473,500 |
|
|
9.79 |
|
|
8.93 |
|
|
|
34,069 |
|
|
9.76 |
|
|
8.73 |
|
| |
|
|
2,755,764 |
|
|
|
|
|
|
|
|
|
1,745,943 |
|
|
|
|
|
|
|
A summary of options outstanding as at
June 30, 2014 under the plans are presented below:
| Outstanding |
|
|
Exercisable |
|
Range of
exercise
prices
$ |
|
Number of
options
# |
|
|
Weighted
average
remaining
contractual
life
[years] |
|
|
Weighted
average exercise
price
$ |
|
|
Number of
options
# |
|
|
Weighted
average
remaining
contractual
life
[years] |
|
|
Weighted
average
exercise price
$ |
|
| 2.09-2.10 |
|
|
658,174 |
|
|
7.93 |
|
|
2.10 |
|
|
|
455,544 |
|
|
7.94 |
|
|
2.10 |
|
| 3.00-3.22 |
|
|
403,187 |
|
|
6.92 |
|
|
3.19 |
|
|
|
315,610 |
|
|
6.93 |
|
|
3.18 |
|
| 3.42-3.66 |
|
|
502,228 |
|
|
6.08 |
|
|
3.58 |
|
|
|
299,524 |
|
|
4.11 |
|
|
3.54 |
|
| 6.00-7.67 |
|
|
742,000 |
|
|
9.96 |
|
|
6.12 |
|
|
|
- |
|
|
- |
|
|
- |
|
| |
|
|
2,305,589 |
|
|
|
|
|
|
|
|
|
1,070,678 |
|
|
|
|
|
|
|
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
A summary of options outstanding as at
June 30, 2013 under the plans are presented below:
| Outstanding | |
Exercisable |
Range of
exercise
prices
$ | |
Number of
options
# | | |
Weighted
average
remaining
contractual
life
[years] | |
Weighted
average exercise
price
$ | |
Number of
options
# | | |
Weighted
average
remaining
contractual
life
[years] | |
Weighted
average
exercise price
$ |
| 2.09-2.10 | |
| 730,000 | | |
8.93 | |
2.10 | |
| 267,403 | | |
8.93 | |
2.10 |
| 3.00-3.22 | |
| 442,000 | | |
7.92 | |
3.19 | |
| 258,909 | | |
7.93 | |
3.17 |
| 3.42-3.66 | |
| 510,000 | | |
7.12 | |
3.58 | |
| 151,232 | | |
2.09 | |
3.48 |
| 4.15-4.29 | |
| 190,000 | | |
0.97 | |
4.18 | |
| 190,000 | | |
0.97 | |
4.18 |
| | |
| 1,872,000 | | |
| |
| |
| 867,544 | | |
| |
|
For the year ended June 30, 2015, total
stock based compensation expense was $3,107,537 [2014 - $1,138,126; 2013 - $988,229], split between general and administrative
expense of $1,329,909 [2014 - $636,531; 2013 - $579, 291] and research and development of $1,777,628 [2014 - $501,595; 2013 - $408,938].
The fair value of options granted during
fiscal 2015 is $3,211,700 [2014 - $3,346,000; 2013 - $853,800]. The fair value of the options at the date of grant for the year
ended June 30, 2015 was estimated using the Black-Scholes option pricing model based on the following assumptions: expected option
life of 8 years [2014 and 2013 - 8 years], volatility between 0.7324 and 0.7673 [2014 – between 0.7679 and 0.7691; 2013 –
0.743], risk free interest rate between 0.95 and 1.75% [2014 –1.79%; 2013 – 1.75%] and a dividend yield of 0% [2014
and 2013 - 0%].
The weighted average grant date fair value
of options granted during the year ended June 30, 2015 was $6.19 [2014 - $4.51; 2013 - $2.63].
As at June 30, 2015, 2014 and 2013, total
compensation cost related to non-vested awards not yet recognized is $2,354,038, $3,282,863 and $1,202,255, respectively. The weighted
average period over which it is expected to be recognized is 27, 32 and 28 months, respectively.
For fiscal 2015, the weighted average exercise
price and the weighted average remaining contractual life of the outstanding stock options are $4.82 and 7.53 years [2014 - $3.91
and 8.01 years; 2013 $2.97 and 7.39 years]. The weighted average exercise price and the weighted average remaining contractual
life of the exercisable stock options are $3.46 and 6.53 years [2014 - $2.82 and 6.57 years; 2013 - $3.11 and 5.70 years].
The intrinsic value of options exercised
during fiscal 2015 is $328,169 [2014 - $506,341; 2013 - $17,596] and the intrinsic value of options granted for fiscal 2015, 2014
and 2013 is nil.
| [a] | As at June 30, 2015, the Company has total non-capital losses of approximately $78,156,000 [2014-
$64,969,000] available for carry forward to reduce future taxable income in Canada, the United States of America and Ireland. The
non-capital losses will begin to expire as follows: |
| | |
$ | |
| 2026 | |
| 1,168,000 | |
| 2027 | |
| 5,239,000 | |
| 2028 | |
| 4,470,000 | |
| 2029 | |
| 5,481,000 | |
| 2030 | |
| 7,006,000 | |
| 2031 | |
| 5,677,000 | |
| 2032 | |
| 6,565,000 | |
| 2033 | |
| 925,000 | |
| 2034 | |
| 6,722,000 | |
| 2035 | |
| 34,903,000 | |
| | |
| 78,156,000 | |
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
As at June 30, 2015, the Company also
has approximately $41,445,000 [2014 - $40,243,000] in Canadian scientific research and experimental development expenditures which
can be carried forward indefinitely to reduce future years’ taxable income. During fiscal 2015 the Company recorded nil
[2014 - $193,000] refundable provincial ITCs which was recorded as a reduction to research and development, net. The Company has
approximately $9,035,000 [2014 - $9,044,000] in federal ITCs and $865,000 [2014 - $700,000] of non-refundable Ontario Research
Development Tax Credits that can be carried forward for up to twenty years and used to reduce the Company’s taxes payable.
| [b] | Significant components of the Company’s unrecognized
deferred tax assets and deferred tax liabilities are as follows: |
| | |
2015 $ | | |
2014
$ | |
| Deferred tax assets not recognized | |
| | | |
| | |
| Capital and intangible assets | |
| 7,054,767 | | |
| 2,098,064 | |
| Non-capital loss carryforwards | |
| 15,192,929 | | |
| 16,470,897 | |
| Canadian scientific research and experimental development expenditures | |
| 10,982,806 | | |
| 10,664,292 | |
| Investment tax credits | |
| 7,601,282 | | |
| 7,321,900 | |
| Contingent consideration payable | |
| 745,384 | | |
| 624,094 | |
| Financing and share issuance costs | |
| 652,472 | | |
| 175,602 | |
| Loss on disposal of SCT shares | |
| 33,681 | | |
| 33,681 | |
| Total deferred tax assets not recognized | |
| 42,263,321 | | |
| 37,388,530 | |
| | |
| | | |
| | |
| Deferred tax assets and liabilities | |
| | | |
| | |
| Intangible assets | |
| - | | |
| (284,718 | ) |
| Leasehold inducement | |
| - | | |
| (3,028 | ) |
| Non-capital loss carryforwards | |
| - | | |
| 287,746 | |
| Net deferred tax liability | |
| - | | |
| - | |
| [c] | The reconciliation of income tax attributable to continuing operations computed at the statutory
tax rates to income tax recovery is as follows: |
| | |
2015 | | |
2014 | | |
2013 | |
| | |
$ | | |
$ | | |
$ | |
| Tax expense (recovery) at combined federal and provincial rates of 26.5% (2014 – 26.5%) | |
| (13,604,975 | ) | |
| (5,772,298 | ) | |
| 6,174 | |
| Non-deductible permanent differences: | |
| | | |
| | | |
| | |
| Stock-based compensation | |
| 823,498 | | |
| 301,603 | | |
| 261,881 | |
| Other permanent and non-deductible items | |
| 28,969 | | |
| 6,831 | | |
| 8,576 | |
| Difference in foreign tax rates | |
| 4,873,673 | | |
| 889,481 | | |
| - | |
| Deferred tax assets (recognized) not recognized for accounting | |
| 7,878,835 | | |
| 4,574,383 | | |
| (276,631 | ) |
| | |
| - | | |
| - | | |
| - | |
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| | |
2015 | | |
2014 | | |
2013 | |
| | |
$ | | |
$ | | |
$ | |
| Research and development | |
| | | |
| | | |
| | |
| Clinical trials and manufacturing | |
| 41,810,031 | | |
| 13,327,761 | | |
| 5,084,737 | |
| Salaries and benefits | |
| 4,202,745 | | |
| 2,432,519 | | |
| 1,506,136 | |
| Stock compensation expense | |
| 1,777,628 | | |
| 501,595 | | |
| 408,938 | |
| Amortization | |
| 617,167 | | |
| 937,441 | | |
| 1,803,037 | |
| Facility lease costs and utilities | |
| 290,440 | | |
| 196,307 | | |
| 176,153 | |
| Insurance | |
| 176,800 | | |
| 85,825 | | |
| 90,475 | |
| General laboratory supplies and materials | |
| 334,892 | | |
| 132,493 | | |
| 86,288 | |
| Ontario investment tax credits | |
| - | | |
| (246,556 | ) | |
| (292,892 | ) |
| | |
| 49,209,703 | | |
| 17,367,385 | | |
| 8,862,872 | |
| | |
| | | |
| | | |
| | |
| Selling, general and administrative expenses | |
| | | |
| | | |
| | |
| Salaries and benefits | |
| 2,039,328 | | |
| 1,601,891 | | |
| 1,569,777 | |
| Stock compensation expense | |
| 1,329,909 | | |
| 636,531 | | |
| 579,291 | |
| Professional fees and services | |
| 775,597 | | |
| 987,997 | | |
| 394,549 | |
| Insurance | |
| 261,173 | | |
| 223,943 | | |
| 250,252 | |
| Facility lease costs and utilities | |
| 156,852 | | |
| 151,192 | | |
| 149,046 | |
| Business development, corporate communication and investor relations | |
| 505,297 | | |
| 798,954 | | |
| 354,511 | |
| Regulatory and stock transfer fees | |
| 137,412 | | |
| 138,975 | | |
| 94,481 | |
| Office and related expenses | |
| 274,495 | | |
| 177,635 | | |
| 148,821 | |
| Amortization | |
| 34,209 | | |
| 9,456 | | |
| 17,064 | |
| | |
| 5,514,272 | | |
| 4,726,574 | | |
| 3,557,792 | |
| 14. | EARNINGS (LOSS) PER SHARE |
Basic and diluted loss per share is calculated
by dividing the profit attributable to equity holders of the Company by the weighted average number of common shares outstanding
during the year. Outstanding options to purchase common shares of 2,755,764 [June 30, 2014 – 2,305,589; June 30, 2013 -
$1,872,000] and the warrants to purchase 1,903,341 common shares [June 30, 2014 – 853,223; June 30, 2013 - nil] are not
included in the calculation of diluted earnings per share as the effect is anti-dilutive due to the losses incurred in the period.
For the year ended June 30, 2015, 2014
and 2013, 79,908 contingently returnable common shares were excluded from the basic and diluted net loss per common share calculation.
The contingently returnable common shares relate to employment contracts and will be released from escrow based on the achievement
of certain corporate milestones.
| | |
2015 | | |
2014 | | |
2013 | |
| Income (Loss) attributable to equity holders
of the Company | |
| (51,339,528 | ) | |
| (21,782,255 | ) | |
$ | 23,297 | |
| | |
| | | |
| | | |
| | |
| Weighted average number of common shares outstanding | |
| 36,523,897 | | |
| 30,094,825 | | |
| 26,841,528 | |
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| 15. | CONTINGENCIES AND COMMITMENTS |
| [a] | As at June 30, 2015, the Company is committed to aggregate expenditures of nil [2014 -$14,976,412]
under its collaboration agreements. In addition, at June 30, 2015, the Company is committed to aggregate expenditures of approximately
$3,541,000 [2014 - $13,613,000] for clinical and toxicity studies to be completed during fiscal 2016, approximately $215,000 [2014
- $128,049] for manufacturing agreements and approximately $327,000 for consulting and other agreements [2013 – $482,000]. |
| [b] | The Company leases premises under an operating lease which originally expired on June 30,
2011 but has been extended to 2020. The Company also sub-leases premises under an operating lease which expires on December 31,
2015. In addition, the Company leases photocopiers under operating leases that expire on various dates to August 2018. Future minimum
annual lease payments under these operating leases, in aggregate and over the next five years are as follows: |
| | |
$ | |
| | |
| |
| 2016 | |
| 238,179 | |
| 2017 | |
| 173,651 | |
| 2018 | |
| 169,514 | |
| 2019 | |
| 154,293 | |
| 2020 | |
| 153,160 | |
| | |
| 888,797 | |
During the year, the rental expense
for the various premises under operating leases was $273,071 [2014 - $187,762; 2013- $163,660].
| [c] | The Company’s technology related commitments are as follows: |
| [i] | ELND005 Technology License: |
The Company
has a worldwide exclusive license to intellectual property relating to ELND005 with the inventor, an Alzheimer’s disease
researcher at the University of Toronto. Under the agreement, the inventor may receive milestone payments of up to $150,000. For
therapeutic products, a royalty of 2.5% will be due on the first $100,000,000 of revenues received by the Company and 1.5% of revenues
thereafter. For diagnostic products, a royalty of 10% will be due on the first $100,000,000 of revenues received by the Company
and 7% of revenues thereafter. Also, the inventor may receive up to $25,000 for additional patent applications under this license.
The agreement remains in force until the expiration of the last to expire patent.
In addition,
under the terms of the ENI acquisition agreement, the Company is committed to pay the former shareholders of ENI contingent clinical
milestones potentially totaling $10.9 million payable in cash or Transition common shares at the then market price and a royalty
of up to 1% on net sales of ELND005 product (see note 8a).
In light
of the series of transactions entered into on February 28, 2014, the Company is also committed to pay Perrigo Company plc up to
US$40,000,000 in approval and commercial milestone payments and 6.5% royalties on net sales of ELND005 products and sublicense
fees received (see note 8b).
| [ii] | TT701 Selective Androgen Receptor Molecule (“SARM”) |
On May 6,
2015, the Company exclusively licensed worldwide rights to a novel small molecule drug candidate TT701 from Lilly. TT701 is a selective
androgen receptor modulator that has been shown in a Phase 2 study to significantly increase lean body mass and a measurement of
muscle strength in male subjects. Under the terms of the agreement, TTIL has acquired rights to develop and commercialize TT701.
Lilly will receive contingent upfront consideration of up to US$1 million of which US$500,000 ($624,500) has been paid as at June
30, 2015. In addition, Lilly is eligible to receive up to US$100 million in commercial milestones and a mid-single digit royalty
on sales of TT701 products should such products be successfully commercialized.
Notes to the Audited Consolidated Financial Statements
June 30, 2015
(In Canadian Dollars)
| 16. | CHANGE IN WORKING CAPITAL |
The change in working capital consists
of the following:
| | |
2015 | | |
2014 | | |
2013 | |
| | |
$ | | |
$ | | |
$ | |
| Trade and other receivables | |
| (44,675 | ) | |
| (186,493 | ) | |
| 7,866 | |
| Income tax and investment tax credits receivable | |
| (187,275 | ) | |
| (31,741 | ) | |
| 61,299 | |
| Prepaid expenses and deposits | |
| (222,487 | ) | |
| 322,508 | | |
| (42,878 | ) |
| Trade and other payables | |
| 1,828,323 | | |
| 5,153,165 | | |
| (304,766 | ) |
| | |
| 1,373,886 | | |
| 5,257,439 | | |
| (278,479 | ) |
| 17. | RELATED PARTY TRANSACTIONS |
Key management compensation
Key management includes the Company’s
directors, and members of the senior management team. The compensation paid or payable to key management for employee services
is shown below:
| | |
2015 | | |
2014 | | |
2013 | |
| | |
$ | | |
$ | | |
$ | |
| Salaries and other short-term employee benefits | |
| 2,525,182 | | |
| 1,849,886 | | |
| 1,714,325 | |
| Stock-compensation expenses | |
| 1,856,849 | | |
| 964,237 | | |
| 860,897 | |
| | |
| 4,382,031 | | |
| 2,814,123 | | |
| 2,575,222 | |
During fiscal 2015, the Company paid legal
fees to a law firm where the Company’s Secretary is a partner and to a corporation controlled by the Company’s Secretary.
Total fees and disbursements charged to the Company by these companies was $45,346 [2014 – $49,000; 2013 - $45,000] and are
included in general and administrative expenses. The balance owing at June 30, 2015, 2014 and 2013 is nil.
Members of the Company’s Board of Directors,
management and employees participated in both the August, 2013 and June, 2014 private placements (see note 10).
These transactions occurred in the normal
course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by
the related parties.
The Company indemnifies its directors and
officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to the extent
permitted by law. The Company has acquired and maintains liability insurance for its directors and officers.
The Company operates in one operating segment,
the research and development of therapeutic agents. Total revenue recognized during the year ended June 30, 2013 amounted to $17,933,500.
The Company received $10,815,200 from Elan, a company based in Ireland and received the balance of $7,118,300 from Eli Lilly and
Company, a company based in the United States of America.
EXHIBIT INDEX
Exhibit
Number |
Description |
| 1.1 |
Articles of Incorporation of Transition Therapeutics Inc., as amended (incorporated by reference to Exhibit 99.110 of Form 40-F filed on June 5, 2007, File No. 001-33514). |
| |
|
| 1.2 |
Bylaws of Transition Therapeutics Inc., as amended (incorporated by reference to Exhibit 99.111 of Form 40-F filed on June 5, 2007, File No. 001-33514). |
| |
|
| 2.1 |
Form of Warrant. |
| |
|
| 4.1 |
Share Purchase Agreement, dated February 24, 2006, among Registrant, 1255205 Ontario Inc., Ellipsis Neurotherapeutics Inc., and other parties named therein (incorporated by reference to Exhibit 99.47 of Form 40-F filed on June 5, 2007, File No. 001-33514). |
| |
|
| 4.2 |
License Agreement dated May 28, 2003, by and between Ellipsis Biotherapeutics Corp. and JoAnne McLaurin, PHD, as amended on April 1, 2005. (incorporated by reference to Exhibit 99.2 of Form 6-K filed on March 17, 2008, File No. 001-33514). |
| |
|
| 4.3 |
Consent to License – JoAnne McLaurin Novel Treatment for Alzheimer’s Disease and Amyloid Disorders using Inositol-Based Compounds dated May 29, 2003, by the University of Toronto. (incorporated by reference to Exhibit 99.3 of Form 6-K filed on March 17, 2008, File No. 001-33514). |
| |
|
| 4.4 |
Consent to Assignment dated November 2, 2004, by and between JoAnne McLaurin, Ellipsis Biotherapeutics Corp. and Ellipsis Neurotherapeutics Inc. (incorporated by reference to Exhibit 99.4 of Form 6-K filed on March 17, 2008, File No. 001-33514). |
| |
|
| 4.5 |
Collaboration and License Agreement effective as of February 25, 2010, among Waratah Pharmaceuticals Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 99.2 of Form 6-K filed on March 12, 2010, File No. 001-33514). |
| |
|
| 4.6 |
Collaboration and License Agreement effective as of July 23, 2013, between Transition Therapeutics Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 99.2 of Form 6-K filed on July 26, 2013, File No. 001-33514). |
| |
|
| 4.7 |
Form of Subscription Agreement (Canada) dated June 23, 2014 between Transition Therapeutics Inc. and certain directors and officers of the Company. |
| |
|
| 4.8 |
Form of Subscription Agreement (U.S.) dated June 23, 2014 between Transition Therapeutics Inc. and certain shareholders of the Company. |
| |
|
| 4.9 |
Milestone, Royalty and Sublicensing Fee Deed effective as of February 27, 2014 between Transition Therapeutics Ireland Limited (formerly Elan Science Ten Limited) and Elan Pharma International Limited. |
| |
|
| 4.10 |
Purchase and Sale Agreement, dated February 28, 2014, by and among Elan Pharma International Limited, the Company and Perrigo Company PLC. |
| |
|
| 4.11 |
License Agreement effective as of May 5, 2015 between Transition Therapeutics Inc. and Eli Lilly and Company (incorporated by reference to Exhibit 99.1 of Form 6-K filed on May 8, 2015, File No. 001-33514). |
| |
|
| 8.1 |
Subsidiaries |
Exhibit
Number |
Description |
| 12.1 |
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| |
|
| 12.2 |
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |
| |
|
| 13.1 |
Section 1350 Certification of the Chief Executive Officer. |
| |
|
| 13.2 |
Section 1350 Certification of the Chief Financial Officer. |
| |
|
| 15.1 |
Consent of PricewaterhouseCoopers LLP. |
Exhibit 2.1
These Warrants shall not be exercisable
by the holder, in whole or in part, and Transition Therapeutics Inc. (the Corporation) shall not give effect to any such
exercise, if, after giving effect to such exercise, the holder, together with any person or company acting jointly or in concert
with the holder (the Joint Actors) would in the aggregate beneficially own, or exercise control or direction over, that
number of voting securities of the Corporation which is twenty percent (20%) or greater of the total issued and outstanding voting
securities of the Corporation, immediately after giving effect to such exercise, unless and until, subject to Toronto Stock Exchange
approval, the shareholders of the Corporation have approved such exercise.
THESE WARRANTS WILL BE VOID AND OF
NO VALUE UNLESS EXERCISED BEFORE TIME OF EXPIRY (AS DEFINED HEREIN).
Unless
permitted under securities legislation, the holder of this security must not trade the security before ·,
2014.
THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR ANY STATE
SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING OR OTHERWISE HOLDING SUCH SECURITIES, AGREES FOR THE BENEFIT OF TRANSITION THERAPEUTICS
INC (THE "CORPORATION") THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, (C) PURSUANT
TO THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 OR RULE 144A THEREUNDER, IF AVAILABLE, AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES, OR (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE
REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES, AFTER THE HOLDER HAS,
IN THE CASE OF (C) OR (D) ABOVE, FURNISHED TO THE CORPORATION AN OPINION OF COUNSEL OR OTHER EVIDENCE OF EXEMPTION, IN EITHER
CASE REASONABLY SATISFACTORY TO THE CORPORATION. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.
TRANSITION THERAPEUTICS INC.
(Existing under the Business Corporations
Act (Ontario))
Common Share Purchase Warrants
| CERTIFICATE
NO. |
2014
- · |
|
|
·
WARRANTS |
THIS IS TO CERTIFY THAT, FOR VALUE
RECEIVED,
·
(the
holder) is entitled to subscribe for and purchase, upon and subject to the terms and conditions hereinafter set forth,
one fully paid and non-assessable common share (a Common Share) in the capital of Transition Therapeutics Inc. (the Corporation)
(as constituted on the date hereof) for each whole warrant (a Warrant) represented hereby, at any time on or after the
date hereof but prior to 5:00 p.m. (Toronto time) on [·],
2016 (the Time of Expiry) at and for a price of US$7.10 per Common Share (the Exercise Price, as applicable).
The right to purchase Common Shares hereunder
may only be exercised during the period herein specified by:
| 1. | completing, in the manner indicated,
and executing the attached subscription form for that number of Common Shares which the
holder is entitled and wishes to purchase; |
| 2. | surrendering this Warrant Certificate
to the Corporation at its head office at 101 College Street, Suite 220, Toronto, Ontario,
Canada M5G 1L7; and |
| 3. | paying the appropriate subscription
price for the Common Shares so subscribed for either by cash, certified cheque, money
order or such other manner acceptable to the Corporation. |
Upon surrender and payment as aforesaid,
the Corporation will, subject to the terms hereof, issue to the person or persons named in the subscription form the number of
Common Shares subscribed for and such person or persons will be shareholders of the Corporation in respect of such Common Shares
as at the date of surrender and payment notwithstanding any delay in the issuance of a share certificate in respect thereof. As
soon as practicable after surrender and payment, the Corporation will cause to be mailed to such person or persons, at the address
or addresses specified in the subscription form, a certificate or certificates evidencing the Common Shares subscribed for. If
the holder subscribes for a number of Common Shares which is less than the maximum number of Common Shares which could be subscribed
for as the result of the exercise of all of the Warrants evidenced by this Warrant Certificate, the holder shall be entitled to
receive a new Warrant Certificate (substantially in the form hereof) for that number of the Warrants not exercised so as to allow
the purchase of those Common Shares that might have been subscribed for hereunder but which were not then subscribed for and purchased
by the holder. In no event shall fractional Common Shares be issued in connection with the exercise of the Warrants evidenced
by this Warrant Certificate. If any fractional interest in Common Shares would, except for the provisions hereof, be deliverable
upon the exercise of any of the Warrants represented hereby, the Corporation shall, in lieu of such fractional interest, pay to
the holder who would otherwise be entitled to receive such fractional interest upon such exercise, an amount in lawful money of
the United States of America equal to the Current Market Price (as hereinafter defined) of the Common Shares multiplied by an
amount equal to the fractional interest of Common Shares such holder would otherwise be entitled to receive upon such exercise,
provided that the Corporation shall not be required to make any payment, calculated as aforesaid, that is less than US$10.00,
and provided further that no compensation need be paid to or for the benefit of holders with respect to fractional interests in
Common Shares.
The Warrants evidenced by this Warrant
Certificate are exercisable at any time and from time to time on or after the date hereof up to, but not after, the Time of Expiry,
upon payment in the manner and at the place provided for above.
Nothing contained herein shall confer
on the holder or any other person any right to subscribe for or purchase Common Shares in the capital of the Corporation at any
time subsequent to the Time of Expiry and, from and after such time, the Warrants evidenced by this Warrant Certificate and all
rights hereunder shall expire and be of no further force or effect.
If this Warrant Certificate is stolen,
lost, mutilated or destroyed, the Corporation may, on such reasonable terms as to indemnity or otherwise as it may impose, deliver
a replacement Warrant Certificate of like denomination, tenor and date as the Warrant Certificate so stolen, lost, mutilated or
destroyed.
The Warrants evidenced by this Warrant
Certificate shall not entitle the holder to any rights whatsoever as a shareholder of the Corporation.
The Warrants evidenced by this Warrant
Certificate are non-transferable, except in a transaction in which there is no change in beneficial ownership.
The Exercise Price or the number of Common
Shares or other securities or property purchasable upon exercise of the Warrants shall be subject to adjustment from time to time
in the events and in the manner provided for below.
| (a) | If and whenever at any time after
the date hereof and prior to the Time of Expiry the Corporation shall: |
| (i) | issue Common Shares or securities
exchangeable for or convertible into Common Shares without the payment of further consideration
(in this paragraph (a) referred to as Convertible Securities) to all or substantially
all of the holders of outstanding Common Shares as a stock dividend or make a distribution
on its outstanding Common Shares payable in Common Shares or Convertible Securities (other
than, in each case, the issue of Common Shares or Convertible Securities to holders of
outstanding Common Shares pursuant to the exercise of an option to receive dividends
in the form of Common Shares or Convertible Securities in lieu of dividends paid in the
ordinary course on the outstanding Common Shares); |
| (ii) | subdivide, redivide or change its
outstanding Common Shares into a greater number of shares; or |
| (iii) | consolidate, reduce or combine
its outstanding Common Shares into a smaller number of shares; |
(each of the events enumerated
in the clauses (i), (ii) and (iii), above, being hereinafter referred to as a Common Share Reorganization), the Exercise
Price shall be adjusted effective immediately after the record date or effective date, as the case may be, which is used to determine
the holders of outstanding Common Shares for the happening of a Common Share Reorganization, by multiplying the Exercise Price
in effect immediately prior to such record date or effective date by a fraction, the numerator of which shall be the number of
Common Shares outstanding on such record date or effective date before giving effect to such Common Share Reorganization, and
the denominator of which shall be the number of Common Shares outstanding immediately after giving effect to such Common Share
Reorganization (including, in the case where Convertible Securities are issued or distributed, the number of Common Shares that
would have been issued had all such securities been exchanged for or converted into Common Shares on such effective date or record
date).
| (b) | If and whenever at any time after
the date hereof and prior to the Time of Expiry, the Corporation shall issue rights,
options or warrants to all or substantially all of the holders of the outstanding Common
Shares, pursuant to which such shareholders are entitled, directly or indirectly, during
a period expiring not more that 45 days after the date of such issue (the Rights Period),
to subscribe for or purchase Common Shares at a price per share to the shareholder less
than 95% of the Current Market Price for the Common Shares on such record date or to
subscribe for or purchase securities (in this paragraph (b) referred to as Convertible
Securities) exchangeable for or convertible into Common Shares at an effective subscription
price per Common Share (giving effect to the terms of such subscription or purchase and
of such exchange or conversion privilege) less than 95% of the Current Market Price for
the Common Shares on such record date (any of such events being hereinafter called a
"Rights Offering"), then the Exercise Price shall be adjusted effective immediately
after the end of the Rights Period to a price determined by multiplying the Exercise
Price in effect immediately prior to the end of the Rights Period by a fraction: |
| (i) | the numerator of which shall be the
aggregate of : |
| (A) | the number of Common Shares outstanding
as of the record date for the Rights Offering, and |
| (B) | a number determined by dividing:
(I) either (1) the product of the number of Common Shares issued or subscribed
for during the Rights Period upon the exercise of the rights, warrants, or options distributed
under the Rights Offering and the price per share at which such Common Shares are acquired;
or, as the case may be, (2) the product of the price of the Convertible Securities
and the number of such Convertible Securities distributed under the Rights Offering following
the expiry of the Rights Period; by (II) the Current Market Price of the Common
Shares as of the record date for the Rights Offering; and |
| (ii) | the denominator of which shall be
the number of Common Shares outstanding immediately after the end of the Rights Period
(after giving effect to the Rights Offering, including the number of Common Shares actually
issued or subscribed for during the Rights Period upon exercise of the rights, warrants
or options distributed under the Rights Offering and the number of Common Shares that
would have been issued had all Convertible Securities distributed under the Rights Offering
following the expiry of the Rights Period been exchanged for or converted into Common
Shares). |
| (c) | If and whenever at any time after
the date hereof and prior to the Time of Expiry the Corporation shall fix a record date
for the issue or the distribution to all or substantially all of the holders of outstanding
Common Shares of: (i) shares of the Corporation of any class other than Common Shares
(other than the issue of shares to holders of Common Shares pursuant to the exercise
of an option to receive dividends in the form of such shares in lieu of dividends paid
in the ordinary course on the Common Shares); (ii) rights, options or warrants to
acquire Common Shares or securities exchangeable for or convertible into Common Shares
(excluding those exercisable for a period expiring not more than 45 days after such record
date); (iii) evidences of indebtedness; or (iv) any property or other assets, and
if such issuance or distribution does not constitute a dividend paid in the ordinary
course, a Common Share Reorganization or a Rights Offering (any of such non-excluded
events referred to in (i) through (iv) being herein called a "Special Distribution"),
the Exercise Price shall be adjusted effective immediately after such record date to
a price determined by multiplying the Exercise Price in effect on such record date by
a fraction: |
| (A) | the numerator of
which shall be: |
| (i) | the product obtained when the number
of Common Shares outstanding on such record date is multiplied by the Current Market
Price of the Common Shares on such record date; less |
| (ii) | the fair market value, as determined
by action by the directors (whose determination shall be conclusive), to the holders
of the Common Shares of the shares, rights, options, warrants, evidences of indebtedness
or property or other assets issued or distributed in the Special Distribution; and |
| (B) | the denominator of which shall be
the product obtained when the number of Common Shares outstanding on such record date
is multiplied by the Current Market Price of the Common Shares on such record date. |
| (d) | If and whenever at any time after
the date hereof and prior to the Time of Expiry there shall be a reclassification of
the Common Shares at any time outstanding or a change of the outstanding Common Shares
into other shares or into other securities (other than a Common Share Reorganization),
or a consolidation, amalgamation or merger of the Corporation with or into any other
corporation or other entity (other than a consolidation, amalgamation or merger which
does not result in any reclassification of the outstanding Common Shares or a change
of the Common Shares into other shares), or a transfer of the undertaking or assets of
the Corporation as an entirety or substantially as an entirety to another corporation
or other entity (any of such events being herein called a Capital Reorganization),
the holder, upon any exercise of its right hereunder to purchase Common Shares after
the effective date of such Capital Reorganization, shall be entitled to receive, and
shall accept, for the same aggregate consideration, in lieu of the number of Common Shares
to which the holder was theretofore entitled upon such exercise, the aggregate number
of shares, other securities or other property which the holder would have been entitled
to receive as a result of such Capital Reorganization if, on the effective date thereof,
the holder had been the registered holder of the number of Common Shares that the holder
was theretofore entitled to acquire upon such exercise. If determined appropriate by
the board of directors of the Corporation, appropriate adjustments shall be made following
any such Capital Reorganization in the application of the provisions set forth herein,
with respect to the rights and interest thereafter of the holder and the adjustments
to the Exercise Price and/or number or type of shares, to the end that such provisions
shall thereafter correspondingly be made applicable as nearly as may reasonably be possible
in relation to any shares, other securities or other property thereafter deliverable
upon the exercise of any of the Warrants evidenced by this Warrant Certificate. |
| (e) | If and whenever at any time after
the date hereof and prior to the Time of Expiry a Common Share Reorganization shall occur
and any such event results in an adjustment in the Exercise Price, the number of Common
Shares purchasable pursuant to each of the Warrants evidenced by this Warrant Certificate
shall be adjusted contemporaneous with the adjustment of the Exercise Price, by multiplying
the number of Common Shares theretofore purchasable on the exercise thereof by a fraction,
the numerator of which shall be the Exercise Price in effect immediately prior to such
adjustment and the denominator of which shall be the Exercise Price resulting from such
adjustment. |
| (f) | The adjustments to the Exercise
Price and number or type of Common Shares or other securities or property of the Corporation
provided for herein are cumulative and such adjustments shall be made successively whenever
any of the relevant events referred to herein shall occur. For purposes of this Warrant
Certificate, the following provisions shall apply: |
| (i) | no adjustment in the Exercise Price
shall be required unless such adjustment would result in a change of at least 1% of the
then prevailing Exercise Price and no adjustment shall be made pursuant to clause (e)
in the number of Common Shares purchasable upon exercise of any of the Warrants evidenced
hereby unless a corresponding adjustment to the Exercise Price is required hereunder;
provided, however, that any adjustment which, except for the provisions of this clause,
would otherwise have been required to be made, shall be carried forward and taken into
account in any subsequent adjustment; |
| (ii) | if a dispute shall at any time arise
with respect to adjustments provided for herein, such dispute shall be conclusively determined
by the Corporation's auditors (except in cases where any determination relating to adjustments
is to be made by the board of directors of the Corporation) or, if they are unable or
unwilling to act, by such other firm of independent chartered accountants as may be selected
by action of the directors and any such determination shall be binding upon the Corporation
and the holder; |
| (iii) | in case the Corporation, after
the date hereof and prior to the Time of Expiry, shall take any action affecting the
outstanding Common Shares, other than an action described herein, which in the opinion
of the board of directors of the Corporation would materially affect the rights of the
holder, the Exercise Price or the number of Common Shares or other securities or property
purchasable upon exercise of the Warrants evidenced hereby (or both, as the case may
be) shall be adjusted in such manner, if any, and at such time, as the directors in their
sole discretion may determine to be equitable in the circumstances; |
| (iv) | if the Corporation shall set a record
date to determine holders of outstanding Common Shares entitled to receive any dividend
or distribution or any subscription or purchase rights and shall, thereafter and before
the distribution to such shareholders of any such dividend, distribution or subscription
or purchase rights, legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then no adjustment in the Exercise Price or the number
of Common Shares purchasable upon exercise of any of the Warrants evidenced hereby shall
be required solely by reason of the setting of such record date; |
| (v) | "Current Market Price"
of the Common Shares at any date means a price per share equal to the volume weighted
average price at which the Common Shares have traded on the NASDAQ, or on another stock
exchange where the majority of the trading volume and value of the Common Shares occurs,
during the period of 20 consecutive trading days immediately before such date and, if
the Common Shares are not then listed on a stock exchange, the fair market value of the
Common Shares as determined in good faith by the board of directors of the Corporation; |
| (vi) | in the absence of a resolution of
the directors fixing a record date for a Rights Offering or Special Distribution, the
Corporation shall be deemed to have fixed as the record date therefor the date on which
the Rights Offering or Special Distribution is effected; |
| (vii) | as a condition precedent to the
taking of any action which would require any adjustment in any attribute of the Warrants,
including the Exercise Price and the number or class of shares or other securities which
are to be received upon the exercise thereof, the Corporation shall take any corporate
action which may, in the opinion of counsel, be necessary in order that the Corporation
have unissued and reserved in its authorized capital and may validly and legally issue
as fully paid and non-assessable all shares or other securities that the holder is entitled
to receive on the total exercise thereof in accordance with the provisions thereof; and |
| (viii) | "dividends paid in the ordinary
course" means cash dividends declared payable on the Common Shares in any fiscal
year of the Corporation to the extent that such cash dividends do not exceed, in the
aggregate, the greatest of: (i) 125% of the aggregate amount of cash dividends declared
payable by the Corporation on the outstanding Common Shares in its immediately preceding
fiscal year; (ii) 150% of the arithmetic mean of the aggregate amounts of cash dividends
declared payable by the Corporation on the outstanding Common Shares in its three immediately
preceding fiscal years; and (iii) 50% of the aggregate consolidated net income of the
Corporation, before extraordinary items, for its immediately preceding fiscal year. |
| (g) | No adjustment in the Exercise Price
or in the number of Common Shares purchasable upon exercise shall be made in respect
of any event described in paragraphs (a), (b) or (c), other than the events referred
to in clauses (ii) and (iii) of paragraph (a), if the holders of Warrants are
entitled to participate in such event on the same terms mutatis mutandis as if
such holders had exercised their Warrants prior to or on the effective date or record
date of such event. |
| (h) | In any case in which the terms
of the Warrants evidenced by this certificate shall require that an adjustment become
effective as of a particular time, the Corporation may defer, until such time, issuing
to the holder in respect of any Warrants exercised after the record date for the event
giving rise to the adjustment and before such time the kind and amount of shares, other
securities or property to which the holder would be entitled upon such exercise by reason
of the relevant adjustment, provided, however, that the Corporation shall deliver to
the holder an appropriate instrument evidencing such holder's right, upon the occurrence
of any event requiring the adjustment, to the relevant adjustment. |
| (i) | At least 10 days prior to the effective
date or record date, as the case may be, of any event which requires or might require
an adjustment in any attribute of the Warrants evidenced by this certificate, including
the Exercise Price and the number of Common Shares or other securities or property that
are purchasable upon the exercise thereof, the Corporation shall give notice to the holder
of the particulars of such event and, if determinable, the Corporation shall promptly
after such adjustment is determinable give notice to the holder of the adjustment. |
On the happening of each and every event
referred to above that gives rise to an adjustment, the applicable provisions of these Warrants shall, ipso facto, be deemed
to be amended accordingly and the Corporation shall take all necessary action so as to comply with such provisions as so amended.
Notwithstanding any provision to the contrary
contained herein, no Common Shares will be issued pursuant to the exercise of any Warrant if the issuance of such securities would
constitute a violation of the securities laws of any applicable jurisdiction, and the certificates evidencing the Common Shares
issued hereunder may bear such legend as may, in the opinion of legal counsel to the Corporation, be necessary in order to avoid
a violation of any securities laws of any applicable jurisdiction or to comply with the requirements of any stock exchange on
which the Common Shares are listed, provided that, at any time, in the opinion of legal counsel to the Corporation, such legends
are no longer necessary in order to avoid a violation of any such laws, or the holder of any such legended certificate, at that
holder's expense, provides the Corporation with evidence satisfactory in form and substance to the Corporation (which may include
an opinion of legal counsel satisfactory to the Corporation) to the effect that such holder is entitled to sell or otherwise transfer
such Common Shares in a transaction in which such legends are not required, such legended certificate may thereafter be surrendered
to the Corporation in exchange for a certificate which does not bear such legend. The Corporation shall, as soon as practicable
after such issuance would not constitute a violation of the securities laws of any applicable jurisdiction, issue such Common
Shares and shall use its best efforts to remove any restriction or circumstances which might give rise to such violation.
The Corporation represents and warrants
that it is duly authorized to create and deliver these Warrants and to issue the Common Shares that may be issued hereunder and
that these Warrants, when signed by the Corporation as herein provided, will be a valid obligation of the Corporation enforceable
against the Corporation in accordance with the provisions hereof. The Corporation hereby covenants and agrees that, subject to
the provisions hereof, it will cause the Common Shares from time to time duly subscribed for and purchased in the manner herein
provided, and the certificates evidencing such Common Shares, to be duly issued and delivered, and that at all times up to and
including the Time of Expiry, while these Warrants remain outstanding, it shall have sufficient authorized capital to satisfy
its obligations hereunder should the holder determine to exercise the right in respect of all the Common Shares for the time being
purchasable pursuant to the Warrants. Certificates for Common Shares issued upon the exercise of these Warrants may bear such
legend or legends as to transfer as may be considered necessary by the Corporation and its counsel, acting reasonably. All Common
Shares issued upon the exercise of the right to purchase herein provided (upon payment therefor of the amount at which such Common
Shares may at the time be purchased pursuant to the provisions hereof), shall be issued as fully paid and non-assessable Common
Shares and the holders thereof shall not be liable to the Corporation or its creditors in respect thereof.
Notwithstanding anything contained herein
to the contrary, the rights represented by this Warrant Certificate shall not be exercisable by the holder, in whole or in part,
and the Corporation shall not give effect to any such exercise, if, after giving effect to such exercise, the holder, together
with any person or company acting jointly or in concert with the holder (the Joint Actors) would in the aggregate beneficially
own, or exercise control or direction over, that number of voting securities of the Corporation which is twenty percent (20%)
or greater of the total issued and outstanding voting securities of the Corporation, immediately after giving effect to such exercise,
unless and until, subject to Toronto Stock Exchange approval, the shareholders of the Corporation have approved such exercise.
Prior to exercising the rights represented by this Warrant Certificate, the holder shall provide the Corporation with a certificate
of an authorized officer stating the number of voting securities of the Corporation held by the holder and its Joint Actors as
of the date provided for in the subscription form (the Officer's Certificate) and the Corporation shall be entitled to
rely on the Officer's Certificate in making any determinations regarding the total issued and outstanding voting securities of
the Corporation to be held by the holder and its Joint Actors immediately after giving effect to the exercise.
Notwithstanding anything contained herein
to the contrary, in no event will the value allocated to each Warrant evidenced by this Warrant Certificate be less than US$0.125
per Common Share.
Time shall be of the essence hereof.
The Warrants evidenced by this Warrant
Certificate shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable
therein and shall be treated in all respects as an Ontario contract.
The Warrants evidenced by this Warrant
Certificate shall not be valid for any purpose whatsoever until signed by the Corporation.
IN WITNESS WHEREOF the Corporation
has caused this Warrant Certificate to be executed and delivered by an officer of the Corporation, duly authorized in that regard.
DATED
as of the [·]
day of [·], 2014.
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TRANSITION THERAPEUTICS
INC. |
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Per: |
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Name: |
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Title: |
These Warrants shall not be exercisable
by the holder, in whole or in part, and Transition Therapeutics Inc. (the Corporation) shall not give effect to any such
exercise, if, after giving effect to such exercise, the holder, together with any person or company acting jointly or in concert
with the holder (the Joint Actors) would in the aggregate beneficially own, or exercise control or direction over, that
number of voting securities of the Corporation which is twenty percent (20%) or greater of the total issued and outstanding voting
securities of the Corporation, immediately after giving effect to such exercise, unless and until, subject to Toronto Stock Exchange
approval, the shareholders of the Corporation have approved such exercise.
SUBSCRIPTION FORM
| TO: | TRANSITION
THERAPEUTICS INC. |
The undersigned holder of the within Warrants
hereby subscribes for ________________ Common Shares without nominal or par value in the capital of the Corporation at a price
of US$7.10 per share (or such other number of other securities or property to which such Warrants entitle the undersigned in lieu
thereof or in addition thereto) on the terms specified in the within Warrant Certificate and encloses and tenders herewith a certified
cheque, bank draft or money order payable to or to the order of the Corporation in lawful money of the United States of America
for the aggregate subscription price of US$___________________.
The undersigned hereby directs that the
Common Shares hereby subscribed for be issued and delivered as follows:
| Name
in Full |
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Address
in Full |
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Number
of Common Shares |
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(Please state full names in which share
certificates are to be issued, stating whether Mr., Mrs. or Miss)
The undersigned confirms that as of the
date hereof, the undersigned holds __________ Common Shares (which amount includes any and all Common Shares held by Joint Actors,
if applicable). The undersigned certifies that all reasonable inquires have been made to ensure that the information provided
in this Subscription Form is accurate as of the date hereof. The undersigned acknowledges that the confirmations and certifications
of this paragraph of the Subscription Form are being made pursuant to the provisions in the within Warrant Certificate restricting
exercise in the event that if, after giving effect to such exercise, the holder, together with any Joint Actors would in the aggregate
beneficially own, or exercise control or direction over, that number of voting securities of the Corporation which is twenty percent
(20%) or greater of the total issued and outstanding voting securities of the Corporation, immediately after giving effect to
such exercise, unless and until, subject to Toronto Stock Exchange approval, the shareholders of the Corporation have approved
such exercise.
The undersigned acknowledges that the
Corporation may refuse, in totality or in part, the exericse of the within Warrants pursuant to this Subscription Form if such
exercise may materially affect control of the Corporation.
No certificates will be registered or
delivered to an address in the United States unless an opinion of counsel to the effect that an exemption from registration under
the United States Securities Act of 1933, as amended (the 1933 Act) and applicable state securities laws
is available in connection with the exercise of the Warrants. The undersigned understands such opinion must be acceptable to Transition
Therapeutics Inc. and that the exercise of the Warrants in the United States or by or for the account or benefit of a person in
the United States or a U.S. Person as defined in Rule 902 of Regulation S under the 1933 Act is limited by the terms of
the Warrants.
[remainder of page intentionally left
blank]
DATED this day
of ,
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| Name
of holder of Warrants |
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Authorized
Signature |
The undersigned, a senior officer of the
Corporation, certifies that such officer has verified, to the best of such officer's knowledge, and without personal liability,
the information provided by the holder of the within Warrants in the Subscription Form.
DATED this day
of ,
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| Name
of Officer of Corporation |
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Authorized
Signature |
Exhibit 4.7
CANADA/OFFSHORE
SUBSCRIPTION AGREEMENT FOR
UNITS
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INSTRUCTIONS:
To properly complete this Subscription Agreement:
(1) All subscribers must complete
all boxes on these two face pages.)
(2) All
subscribers should return their completed documents by email or fax to the Corporation at nrusaw@transitiontherapeutics.com or
416-260-2886, Attention: N. Nicole Rusaw
This Subscription
Agreement is comprised of 8 pages |
| TO: | Transition Therapeutics (the Corporation) |
The undersigned (hereinafter referred to
as the Subscriber) hereby irrevocably subscribes for and agrees to purchase the number of units of the Corporation (Units)
set forth below for the aggregate subscription price set forth below (the Aggregate Subscription Price), representing a
subscription price of US$5.32 per Unit, upon and subject to the terms and conditions set forth in "Terms and Conditions of
Subscription for Units of Transition Therapeutics" attached hereto (together with the face pages and the attached Exhibits,
the Subscription Agreement). Each Unit consists of (i) one common share in the capital of the Corporation (a Common Share)
and (ii) 0.61 Common Share purchase warrant with a purchase price of US$7.10 per whole Warrant (a Warrant), with each whole
Warrant entitling the holder thereof to purchase one Common Share for a period of twenty four months from the Closing Date (as
defined herein).
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Number of Units: |
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(Name of Subscriber - please print) |
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Aggregate Subscription Price: |
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(No. of Units x US$5.32 per Unit) |
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(Official Capacity or Title - please print) |
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(Please print name of individual whose signature appears above if different than the name of the Subscriber printed above.) |
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Register the Units as set forth below: |
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Deliver the Units as set forth below: |
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CANADA/OFFSHORE
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Subscriber's Present Holdings:
The Subscriber represents that securities
of the Corporation presently owned (beneficially, directly or indirectly) by the Subscriber (or the Disclosed Beneficial Purchaser,
if applicable) or over which the Subscriber (or the Disclosed Beneficial Purchaser, if applicable) exercises control or direction,
are as follows (please indicate "nil" if you (or the Disclosed Beneficial Purchaser, if applicable) do not currently
own or control any securities of the Corporation): |
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Number or Amount |
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The Subscriber
represents that the Subscriber is ¨
or is not ¨ (check one) an insider
of the Corporation. An "insider" means: (a) a director or an officer of an issuer; (b) a director or an officer of a
person that is itself an insider or a subsidiary of an issuer; (c) a person that has (i) beneficial ownership of, or control or
direction over, directly or indirectly, or (ii) a combination of beneficial ownership of, and control or direction over, directly
or indirectly, securities of an issuer carrying more than 10% of the voting rights attached to all the issuer's outstanding voting
securities, excluding, for the purpose of the calculation of the percentage held, any securities held by the person as underwriter
in the course of a distribution; (d) an issuer that has purchased, redeemed or otherwise acquired a security of its own issue,
for so long as it continues to hold that security; (e) a person designated as an insider in an order made under the Securities
Act (British Columbia); or (f) a person that is in a prescribed class of persons;
The Subscriber
represents that the Subscriber is ¨
or is not ¨ (check one) a promoter
of the Corporation. A "promoter" means a person who (a) acting alone or in concert with one or more other persons, directly
or indirectly, takes the initiative in founding, organizing or substantially reorganizing the business of the issuer, or (b) in
connection with the founding, organization or substantial reorganization of the business of the issuer, directly or indirectly
receives, in consideration of services or property or both, 10% or more of a class of the issuer's own securities or 10% or more
of the proceeds from the sale of a class of the issuer's own securities of a particular issue, but does not include a person who
(c) receives securities or proceeds referred to in paragraph (b) solely (i) as underwriting commissions, or (ii) in consideration
for property, and (d) does not otherwise take part in founding, organizing or substantially reorganizing the business; |
ACCEPTANCE: The Corporation hereby
accepts the subscription as set forth above on the terms and conditions contained in this Subscription Agreement.
,
2014.
| TRANSITION THERAPEUTICS INC. |
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Subscription No.: |
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TERMS AND CONDITIONS OF SUBSCRIPTION
FOR
UNITS OF TRANSITION THERAPEUTICS
Terms of the Offering
1. The Subscriber
acknowledges that this subscription is subject to rejection, acceptance or allotment by the Corporation in whole or in part.
2. The Subscriber
acknowledges that the Units subscribed for by it hereunder form part of a larger issuance and sale by the Corporation of up to
3,195,487 Units at a subscription price of US$5.32 per Unit (the Offering) but that completion of the Offering is not subject
to the Corporation receiving any minimum amount of subscriptions.
Representations and Warranties
of the Corporation
| 3. | The Corporation hereby represents and warrants to the Subscriber (and acknowledges that the Subscriber
is relying thereon) that: |
| (a) | the Corporation is a duly incorporated and validly subsisting corporation under the laws of its
jurisdiction of incorporation and is duly registered to carry on business in each jurisdiction where such registration is necessary; |
| (b) | the Corporation has full corporate power and authority to execute, deliver and perform each of
its obligations under this Subscription Agreement, including the issue of the Common Shares, the Warrants and the Common Shares
issuable upon exercise of the Warrants (collectively, the Securities); |
| (c) | the Corporation is and will be at the Closing Time a “reporting issuer” as such term
is defined under the Applicable Securities Laws (as defined below) in the provinces of British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario and Quebec (the Canadian Reporting Jurisdictions) and files reports with the U.S. Securities and Exchange
Commission (the SEC and together with the Canadian Reporting Jurisdictions, the Reporting Jurisdictions) and is not
and at the Closing Time will not be in default of any requirement in relation thereto. For purposes hereof the term Applicable
Securities Laws means, collectively, all applicable securities legislation and the respective rules and regulation made thereunder,
together with applicable published policy statements, instruments, orders and rulings of the securities regulatory authorities
in the Reporting Jurisdictions; |
| (d) | the Common Shares of the Corporation are listed and posted for trading on the Toronto Stock Exchange
(the TSX) under the symbol “TTH” and on The Nasdaq Stock Market (Nasdaq) under the symbol “TTHI”; |
| (e) | no order by any securities commission or similar regulatory body preventing, ceasing or suspending
trading in any securities of the Corporation or prohibiting the issue and sale of securities by the Corporation has been issued
which remains outstanding and no proceedings for such purposes have been instituted or, to the knowledge of the Corporation threatened; |
| (f) | except as disclosed in the Public Record (as defined below), there has been no material adverse
effect on, or material adverse change in, or a group of such effects on or changes in (i) the assets, business, properties, prospects,
operations, or financial condition of the Corporation and its subsidiaries, taken as a whole, or (ii) the ability of the Corporation
to perform its obligations under this Agreement, since the date of the most recently restated audited financial statements (the
“Financial Statements”) other than as has been disclosed in the forms, reports, schedules, statements, certifications,
material change reports and other documents filed with the applicable securities regulatory authorities in the Reporting Jurisdictions
in compliance or intended compliance with Applicable Securities Laws (such form, reports, schedules, statements, certifications,
material change reports and other documents referred to in this Subsection as Public Record); |
| (g) | the Financial Statements were prepared in accordance with International Financial Reporting Standards
consistently applied (except as otherwise stated therein or in the notes thereto) and fairly present in all material respects the
financial condition of the Corporation and other entities covered thereby at the respective dates of such statements, and the results
of their operations for the periods covered thereby, subject in the case of interim statements to normal year-end audit adjustments
and the absence of footnotes thereto; |
| (h) | the Public Record did not contain any misrepresentation within the meaning of Applicable Securities
Laws as of the respective dates of filing; |
| (i) | this Subscription Agreement, when accepted by the Corporation, will constitute a valid and binding
obligation of the Corporation, enforceable in accordance with its terms; |
| (j) | the Common Shares and the Common Shares issuable upon the exercise of the Warrants, when issued
in accordance with this Subscription Agreement will be duly and validly created, authorized and issued, and be fully paid and non-assessable
shares in the capital of the Corporation; |
| (k) | the Corporation is not in default or breach of, and the execution and delivery of, and the performance
of and compliance with the terms of this Subscription Agreements by the Corporation or any of the transactions contemplated thereby,
does not and will not result in any breach of or constitute a default under, and does not and will not create a state of facts
which, after notice or lapse of time or both, would result in a breach of or constitute a default under, any term or provision
of the articles, by-laws or resolutions of shareholders or directors of the Corporation, or any indenture, mortgage, note, contract,
agreement (written or oral), instrument, lease or other document to which the Corporation is a party or by which it is bound, or
any law, judgment, decree, order, statute, rule or regulation applicable to the Corporation, which default or breach might reasonably
be expected to materially adversely affect the business, operations, assets, capital or condition (financial or otherwise) of the
Corporation; and |
| (l) | there are no actions, suits, proceedings or inquiries pending or threatened against or affecting
the Corporation at law or in equity or before or by any federal, provincial, municipal or other governmental department, commission,
board, bureau, agency or instrumentality which in any way materially adversely affects, or may in any way materially adversely
affect, the business, operations, capital or condition (financial or otherwise) of the Corporation or its assets or which affects
or may affect the distribution of the Units and the Corporation is not aware of any existing ground on which such action, suit,
proceeding or inquiry might by commenced with any reasonable likelihood of success. |
Representations, Warranties and Covenants
of the Subscriber
4. The Subscriber
represents, warrants and covenants to the Corporation (and acknowledges that the Corporation and its counsel are relying thereon)
that both at the date hereof and at the Closing Time (as defined herein):
| (a) | it has been independently advised as to restrictions with respect to trading in the Securities
imposed by applicable securities laws, confirms that no representation (written or oral) has been made to it by or on behalf of
the Corporation with respect thereto, acknowledges that it is aware of the characteristics of the Securities, the risks relating
to an investment therein and of the fact that it may not be able to resell the Securities except in accordance with limited exemptions
under applicable securities laws and regulatory policy until expiry of the applicable restricted period and compliance with the
other requirements of applicable law; and it agrees that, in addition to any further legend which may be required by the Toronto
Stock Exchange, any certificates representing the Common Shares, the Warrants and (if applicable) the Common Shares issuable upon
exercise of the Warrants are to bear the following legend indicating that the resale of such securities is restricted: |
"Unless permitted under
securities legislation, the holder of this security must not trade the security before October 24, 2014."
and the Subscriber further acknowledges
that it has been advised to consult its own legal counsel in its jurisdiction of residence for full particulars of the resale restrictions
applicable to it; and
| (b) | it has not received or been provided with, nor has it requested, nor does it have any need to receive,
any offering memorandum, any prospectus, sales or advertising literature, or any other document (other than an annual report, annual
information form, interim report, information circular or any other continuous disclosure document, the content of which is prescribed
by statute or regulation) describing or purporting to describe the business and affairs of the Corporation which has been prepared
for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect of the
Securities; and |
| (c) | it has not become aware of any advertisement in printed media of general and regular paid circulation
(or other printed public media), radio, television or telecommunications or other form of advertisement (including electronic display
and the internet) with respect to the distribution of the Securities; and |
| (d) | it understands that the Securities are being offered for sale only on a "private placement"
basis and that the sale and delivery of the Securities is conditional upon such sale being exempt from the requirements as to the
filing of a prospectus or delivery of an offering memorandum or upon the issuance of such orders, consents or approvals as may
be required to permit such sale without the requirement of filing a prospectus or delivering an offering memorandum and, as a consequence
(i) the Subscriber is restricted from using most of the civil remedies available under securities legislation, (ii) the Subscriber
may not receive information that would otherwise be required to be provided to it under securities legislation, and (iii) the Corporation
is relieved from certain obligations that would otherwise apply under securities legislation; and |
| (e) | if the Subscriber is resident in or otherwise subject to applicable securities laws in Canada,
it is purchasing the Securities as principal for its own account, not for the benefit of any other person, for investment only
and not with a view to the resale or distribution of all or any of the Securities, it is resident in the jurisdiction of Canada
set out as the "Subscriber's Residential Address" on the face page hereof and it fully complies with one or more of the
criteria set forth below: |
| (i) | it is resident in Ontario and is one of the following and the Subscriber has so indicated
by it is one of the following and the Subscriber has so indicated by initialling next to the applicable paragraph below: |
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(I) |
an employee, "executive officer", "director" or "consultant" (as such terms are defined in NI 45-106 and reproduced in Appendix A to Exhibit 1 of this Subscription Agreement) of the Corporation and participation in the distribution is "voluntary", meaning it is not induced to participate in the distribution by expectation of employment or continued employment with, appointment or continued appointment with, or engagement to provide services or continued engagement to provide services to, as applicable, the Corporation or a "related entity" (as such term is defined in NI 45-106 and reproduced in Appendix A to Exhibit 1 of this Subscription Agreement) or in the case of an employee to a consultant, expectation of employment or continued employment with such consultant; or |
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(II) |
an employee, "executive officer", "director" or "consultant" of a "related entity" (as such terms are defined in NI 45-106 and reproduced in Appendix A to Exhibit 1 of this Subscription Agreement) of the Corporation and participation in the trade is voluntary (as defined above); or |
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(III) |
a "permitted assign" (as such term is defined in NI 45-106 and reproduced in Appendix A to Exhibit 1 of this Subscription Agreement) of a person referred to in paragraphs (I) or (II) and participation in the trade is voluntary (as defined above); and |
| (i) | no securities commission or similar regulatory authority has reviewed or passed on the merits of
the Securities; and |
| (ii) | there is no government or other insurance covering the Securities; and |
| (iii) | there are risks associated with the purchase of the Securities; and |
| (iv) | there are restrictions on the Subscriber's ability to resell the Securities and it is the responsibility
of the Subscriber to find out what those restrictions are and to comply with them before selling the Securities; and |
| (v) | the Corporation has advised the Subscriber that the Corporation is relying on an exemption from
the requirements to provide the Subscriber with a prospectus and to sell securities through a person or company registered to sell
securities under the Securities Act (Alberta), the Securities Act (British Columbia) and the Securities Act
(Ontario) and other applicable securities laws and, as a consequence of acquiring securities pursuant to this exemption, certain
protections, rights and remedies provided by the Securities Act (Alberta), the Securities Act (British Columbia)
and the Securities Act (Ontario) and other applicable securities laws, including statutory rights of rescission or damages,
will not be available to the Subscriber; and |
| (vi) | the certificate representing the Securities will be endorsed with a legend stating that the Securities
will be subject to restrictions on resale in accordance with applicable securities legislation; and |
| (g) | the Securities have not been offered to the Subscriber in the United States, and any person making
the order to purchase the Securities and executing and delivering this Subscription Agreement was not in the United States when
the order was placed and this Subscription Agreement was executed and delivered, unless such person is a dealer or other professional
fiduciary organized, incorporated, or (if an individual) resident in the United States signing on behalf of a discretionary account
or similar account (other than an estate or trust) held for the benefit or account of a Disclosed Beneficial Purchaser which is
not in the United States or a U.S. Person (as described below); and |
| (h) | it is not a U.S. Person (as defined in Regulation S under the United States Securities Act of
1933, as amended (the U.S. Securities Act), which definition includes, but is not limited to, an individual resident
in the United States, an estate or trust of which any executor or administrator or trustee, respectively, is a U.S. Person and
any partnership or corporation organized or incorporated under the laws of the United States) and is not purchasing the Securities
on behalf of, or for the account or benefit of, a person in the United States or a U.S. Person; and |
| (i) | it is aware that the Securities have not been and will not be registered under the U.S. Securities
Act or the securities laws of any state and that these securities may not be offered or sold in the United States without registration
under the U.S. Securities Act or compliance with requirements of an exemption from registration and the applicable laws of all
applicable states and acknowledges that the Corporation has no present intention of filing a registration statement under the U.S.
Securities Act in respect of any of the Securities; and |
| (j) | it undertakes and agrees that it will not offer or sell any of the Securities in the United States
unless such securities are registered under the U.S. Securities Act and the securities laws of all applicable states of the United
States or an exemption from such registration requirements is available, and further that it will not resell the Securities, except
in accordance with the provisions of applicable securities legislation, regulations, rules, policies and orders and stock exchange
rules; and |
| (k) | it has not purchased the Securities as a result of any form of directed selling efforts in the
United States, as such term is defined in Regulation S under the U.S. Securities Act; and |
| (l) | it understands and acknowledges that the Corporation (i) is under no obligation to be or to remain
a "foreign issuer", as such term is defined in the U.S. Securities Act, (ii) may not, at the time the Subscriber sells
the Securities or at any other time, be a foreign issuer, and (iii) may engage in one or more transactions that could cause the
Corporation not to be a foreign issuer; and |
| (m) | if it is not an individual, it pre-existed the offering of the Securities and has a bona fide business
purpose other than the investment in the Securities and was not created, formed or established solely or primarily to acquire securities,
or to permit purchases of securities without a prospectus, in reliance on an exemption from the prospectus requirements of applicable
securities legislation; and |
| (n) | if it is a corporation, partnership, trust, unincorporated association or other entity, it has
the legal capacity to enter into and be bound by this Subscription Agreement and further certifies that all necessary approvals
of directors, trustees, fiduciaries, shareholders, partners, stakeholders, holders of voting securities or otherwise have been
given and obtained; and |
| (o) | if it is an individual, it is of the full age of majority and is legally competent to execute this
Subscription Agreement and take all action pursuant hereto; and |
| (p) | the entering into of this Subscription Agreement and the transactions contemplated hereby will
not result in a violation of any of the terms or provisions of any law applicable to the Subscriber, or if the Subscriber is not
a natural person, any of such person's constating documents, or any agreement to which such person is a party or by which it is
bound; and |
| (q) | this Subscription Agreement has been duly and validly authorized, executed and delivered by and
constitutes a legal, valid, binding and enforceable obligation of the Subscriber; and |
| (r) | it has such knowledge and experience in financial and business affairs as to be capable of evaluating
the merits and risks of its investment in the Securities and is able to, and agrees to, bear the economic risk of loss of its investment
or, where it is not purchasing as principal, each beneficial purchaser is able to, and agrees to, bear the economic risk of loss
of its investment; and |
| (s) | except for the representations and warranties made by the Corporation herein, it has relied solely
upon publicly available information relating to the Corporation and not upon any verbal or written representation as to fact or
otherwise made by or on behalf of the Corporation; and |
| (t) | acknowledges that the Corporation's counsel is acting as counsel to the Corporation and not as
counsel to the Subscriber; and |
| (u) | if required by applicable securities legislation, regulations, rules, policies or orders or by
any securities commission, stock exchange or other regulatory authority, the Subscriber will execute, deliver, file and otherwise
assist the Corporation in filing, such reports, undertakings and other documents with respect to the issue of the Securities including,
without limitation: (A) this Subscription Agreement; (B) if the Subscriber, or if applicable, the Disclosed Beneficial Purchaser,
is an accredited investor, a Representation Letter in the form attached as Exhibit 1 hereto; (C) if the Subscriber, or if applicable,
the Disclosed Beneficial Purchaser, is a resident of Saskatchewan and is purchasing Units pursuant to paragraph Error! Reference
source not found. and has initialled paragraph (IV), (V), (VI), (VIII) or (IX) thereunder, a fully executed and completed Risk
Acknowledgment Form in the form of Exhibit 3 hereto; and (D) if the Subscriber, or if applicable, the Disclosed Beneficial Purchaser,
is resident outside of Canada, a Representation Letter in the form attached as Exhibit 2 hereto; and |
| (v) | the acquisition of the Securities hereunder by the Subscriber will not result in the Subscriber
(or any such person) becoming a "control person" in respect of the Corporation, as defined under applicable securities
laws; and |
| (w) | no person has made to the Subscriber any written or oral representations (i) that any person will
resell or repurchase the Securities (except in accordance with the articles of the Corporation), or (ii) that any person will refund
the purchase price of the Securities, or (iii) as to the future price or value of the Securities; and |
| (x) | the Aggregate Subscription Price which will be advanced by the Subscriber to the Corporation hereunder
will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
(Canada) (the PCMLA) and the Subscriber acknowledges that the Corporation may in the future be required by law to disclose
the Subscriber's name and other information relating to this Agreement and the Subscriber's subscription hereunder, on a confidential
basis, pursuant to the PCMLA; and to the best of its knowledge (i) none of the subscription funds to be provided by the Subscriber
(A) have been or will be derived from or related to any activity that is deemed criminal under the laws of Canada, the United States
of America, or any other jurisdiction, or (B) are being tendered on behalf of a person or entity who has not been identified to
the Subscriber, and (ii) it shall promptly notify the Corporation if the Subscriber discovers that any of such representations
ceases to be true, and to provide the Corporation with appropriate information in connection therewith; and |
| (y) | the Subscriber has been encouraged to obtain independent legal, income tax and investment advice
with respect to this subscription for Shares and accordingly, has had the opportunity to acquire an understanding of the meanings
of all terms contained herein relevant to the Subscriber for purposes of giving representations, warranties and covenants under
this Subscription Agreement. |
Closing
5. The Subscriber
agrees to deliver by email or fax to the Corporation at nrusaw@transitiontherapeutics.com or 416-260-2886, Attention: N. Nicole
Rusaw: (a) this duly completed and executed Subscription Agreement; and (b) fully executed and completed Representation
Letters in the forms of Exhibits 1 and 2 attached hereto on or before the date of the public announcement of the Offering
by the Corporation.
6. The Subscriber
agrees to wire (pursuant to the instructions below) to the Corporation no later than 5:00 p.m. (Toronto time) on the day
that is two business days before the Closing Date (as defined below) the Aggregate Subscription Price or to make payment of the
Aggregate Subscription Price in such other manner as is acceptable to the Corporation.. If this Subscription Agreement is rejected
in whole or in part, the Subscriber acknowledges that the unused portion of the Aggregate Subscription Price will be promptly returned
to it without interest. For the purposes hereof, "business day" means a day other than a Saturday, Sunday or any other
day on which the principal chartered banks in Toronto, Ontario are not open for business. The wire instructions are as follows:
WIRE INSTRUCTIONS (Incoming US$
wires):
Beneficiary: Transition Therapeutics
Inc.
Beneficiary Address: 101 College
St., Suite 220, Toronto, ON., M5G 6X5
Beneficiary Bank: RBC Royal Bank
Bank Address: 6880 Financial Dr.,
Mississauga, Ontario L5N 7Y5
Account #:4006144
Branch #/Transit: 03212
Bank #: 003
SWIFT Code: ROYCCAT2
Currency: USD
Intermediary/Correspondent Bank:
JP Morgan Chase
SWFIT Code: CHASUS33
ABA #: 021000021
7. The sale of the
Units pursuant to this Subscription Agreement will be completed at the offices of Norton Rose Fulbright Canada llp, the Corporation's
counsel, in Calgary, Alberta at 8:30 a.m. (Toronto time) or such other time as is established by the Corporation (the Closing
Time) on June 23, 2014 or such other date as is established by the Corporation (the Closing Date). At the Closing Time,
the Subscriber shall have delivered to the Corporation this Subscription Agreement and the Aggregate Subscription Price against
delivery by the Corporation of the certificates representing the Common Shares and the Warrants.
8. The Corporation
shall be entitled to rely on an executed copy of this Subscription Agreement delivered via facsimile or electronically (including
e-mail), and acceptance by the Corporation of such executed copy of this Subscription Agreement shall be legally effective to create
a valid and binding agreement between the Subscriber and the Corporation in accordance with the terms hereof. In addition, this
Subscription Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which shall
constitute one and the same document. If less than a complete copy of this Subscription Agreement is delivered to the Corporation
at the Closing Time, the Corporation shall be entitled to assume that the Subscriber accepts and agrees with all of the terms and
conditions of this Subscription Agreement on the pages not delivered at the Closing Time unaltered.
General
9. The Subscriber,
on its own behalf and (if applicable) on behalf of others for whom it is contracting hereunder, agrees that the representations,
warranties and covenants of the Subscriber herein will be true and correct both as of the Subscriber's execution of this Subscription
Agreement and as of the Closing Time and will survive the completion of the issuance of the Securities. The representations, warranties
and covenants of the Subscriber herein are made with the intent that they be relied upon by the Corporation and its counsel in
determining the eligibility of a purchaser of Shares and the Subscriber agrees to indemnify and save harmless the Corporation and
its affiliates, shareholders, directors, officers, employees, counsel and agents against all losses, claims, costs, expenses and
damages or liabilities which any of them may suffer or incur which are caused or arise from a breach thereof. The Subscriber undertakes
to immediately notify the Corporation at 101 College St., Suite 220, Toronto, ON., M5G 1L7, Attention: N. Nicole Rusaw, Telephone:
416-260-7770 x202; Email: nrusaw@transitiontherapeutics.com, of any change in any statement or other information relating to the
Subscriber set forth herein which takes place prior to the Closing Time.
10. The obligations
of the parties hereunder are subject to acceptance of the terms of the Offering by the TSX and any other required regulatory approvals.
11. The Subscriber
acknowledges that this Subscription Agreement and the Exhibits hereto require the Subscriber to provide certain personal information
to the Corporation. Such information is being collected by the Corporation for the purposes of completing the Offering, which includes,
without limitation, determining the Subscriber's eligibility to purchase the Securities under applicable securities laws, preparing
and registering certificates representing the Securities to be issued to the Subscriber and completing filings required by any
stock exchange or securities regulatory authority. The Subscriber's personal information will be included in closing books prepared
in connection with the Offering and may be disclosed by the Corporation to: (i) stock exchanges and/or securities regulatory authorities
(including the OSC and BCSC, as defined below); (ii) the Corporation's registrar and transfer agent; (iii) Canadian tax authorities;
(iv) any of the other parties involved in the Offering, including legal counsel; and (v) other parties subsequent to the Offering,
including legal counsel, reviewing closing books prepared in connection with the Offering. By executing this Subscription Agreement,
the Subscriber (on its own behalf and on behalf of any Disclosed Beneficial Purchaser for whom it is contracting hereunder):
| (a) | consents to the foregoing collection, use and disclosure of the Subscriber's personal information; |
| (b) | consents to the filing of copies or originals of any of the Subscriber's documents delivered in
connection with this Subscription Agreement as may be required to be filed with any stock exchange or securities regulatory authority
in connection with the transactions contemplated hereby and expressly consents to the collection, use and disclosure of the Subscriber's
personal information by the Toronto Stock Exchange for the purposes identified by such exchange, from time to time; |
| (c) | acknowledges that it has been notified by the Corporation (i) of the requirement to deliver to
the Ontario Securities Commission (the OSC) the full name, residential address and telephone number of the purchaser of
the securities, the number and type of securities purchased, the total purchase price, the exemption relied upon and the date of
distribution; (ii) that this information is being collected indirectly by the OSC under the authority granted to it in securities
legislation; (iii) that this information is being collected for the purposes of the administration and enforcement of the securities
legislation of Ontario; and (iv) that the Administrative Support Clerk can be contacted at Ontario Securities Commission, Suite
1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, or at (416) 593-3684, and can answer any questions about the OSC's
indirect collection of this information; and |
| (d) | acknowledges that it has been notified by the Corporation that the following information concerning
the Subscriber required to be delivered to the British Columbia Securities Commission (the BCSC) will be made public: (i)
if the Subscriber is an individual, the full name of the Subscriber, whether or not the Subscriber is an insider of the Corporation
or a registrant, the number and type of Shares purchased and the total purchase price paid pursuant to the Offering; or (ii) if
the Subscriber is not an individual, the full name, address and telephone number of a contact person of the Subscriber, whether
or not the Subscriber is an insider of the Corporation or a registrant, the number and type of Shares purchased and the total purchase
price paid pursuant to the Offering. |
12. The Subscriber
acknowledges and agrees that all costs incurred by the Subscriber (including any fees and disbursements of any counsel retained
by the Subscriber) relating to the sale of the Securities to the Subscriber shall be borne by the Subscriber.
13. The contract arising
out of this Subscription Agreement and all documents relating thereto is governed by and construed in accordance with the laws
of the Province of Ontario and the federal laws of Canada applicable therein. The parties irrevocably attorn to the exclusive jurisdiction
of the courts of the Province of Ontario.
14. Time is of the
essence hereof.
15. This Subscription
Agreement represents the entire agreement of the parties hereto relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except as stated or referred to herein.
16. The terms and
provisions of this Subscription Agreement are binding upon and enure to the benefit of the Subscriber and the Corporation and their
respective heirs, executors, administrators, successors and assigns; provided that, except for as otherwise herein provided, this
Subscription Agreement is not assignable by any party hereto without prior written consent of the other parties.
17. The Subscriber,
on its own behalf and, if applicable, on behalf of others for whom it is contracting hereunder, agrees that this subscription is
made for valuable consideration and may not be withdrawn, cancelled, terminated or revoked by the Subscriber, on its own behalf
and, if applicable, on behalf of others for whom it is contracting hereunder.
18. Neither this Subscription
Agreement nor any provision hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed
by the party against whom any waiver, change, discharge or termination is sought.
19. The invalidity,
illegality or unenforceability of any provision of this Subscription Agreement does not affect the validity, legality or enforceability
of any other provision hereof.
20. The headings used
in this Subscription Agreement have been inserted for convenience of reference only and shall not affect the meaning or interpretation
of this Subscription Agreement or any provision hereof.
21. The covenants,
representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.
Exhibit 4.8
UNITED STATES
SUBSCRIPTION
AGREEMENT FOR UNITS
INSTRUCTIONS: To properly complete this Subscription
Agreement:
(1) All
subscribers must complete all boxes on this face page.
(2) All
subscribers must complete and sign Exhibit 1 and Exhibit 2.
(3) All
subscribers should return their completed documents by email or fax to the Corporation at nrusaw@transitiontherapeutics.com or
416-260-2886, Attention: N. Nicole Rusaw
This Subscription Agreement is comprised of 9 pages (not
including Exhibits 1 and 2)
| TO: | Transition Therapeutics Inc. (the Corporation) |
The undersigned (hereinafter referred to
as the Subscriber) hereby irrevocably subscribes for and agrees to purchase the number of units of the Corporation (Units)
set forth below for the aggregate subscription price set forth below (the Aggregate Subscription Price), representing a
subscription price of US$5.32 per Unit, upon and subject to the terms and conditions set forth in "Terms and Conditions of
Subscription for Units of Transition Therapeutics" attached hereto (together with the face pages and the attached Exhibits,
the Subscription Agreement). Each Unit consists of (i) one common share in the capital of the Corporation (a Common Share)
and (ii) 0.61 Common Share purchase warrant with a purchase price of US$7.10 per whole Warrant (a Warrant), with each whole
Warrant entitling the holder thereof to purchase one Common Share for a period of twenty four months from the Closing Date (as
defined herein).
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Number of Units: |
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(Name of Subscriber - please print) |
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By: |
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(Authorized Signature) |
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Aggregate Subscription Price: US$ |
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(No. of Units x US$5.32 per Unit) |
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(Official Capacity or Title - please print) |
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(Please print name of individual whose signature appears above if different than the name of the Subscriber printed above.) |
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(Subscriber's Residential Address) |
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(Telephone Number) |
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(E-Mail Address) |
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Register the Units as set forth below: |
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Deliver the Units as set forth below: |
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(Name) |
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(Name) |
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(Account reference, if applicable) |
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(Account reference, if applicable) |
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(Address) |
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(Contact Name) |
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(Address) |
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UNITED STATES
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Subscriber's Present Holdings:
The Subscriber represents that
securities of the Corporation presently owned (beneficially, directly or indirectly) by the Subscriber or over which the Subscriber
exercises control or direction, are as follows (please indicate "nil" if you do not currently own or control any
securities of the Corporation): |
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Type of Securities Presently Owned |
Number or Amount |
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The Subscriber represents that the Subscriber
is ☐ or is not ☐ (check one) an insider of the Corporation (as defined in Exhibit 2).
The Subscriber represents that the Subscriber
is ☐ or is not ☐ (check one) a promoter of the Corporation (as defined in Exhibit 2).
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ACCEPTANCE: The Corporation hereby
accepts the subscription as set forth above on the terms and conditions contained in this Subscription Agreement.
,
2014.
| TRANSITION THERAPEUTICS INC. |
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Subscription No: |
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UNITED STATES
TERMS AND CONDITIONS OF SUBSCRIPTION
FOR
UNITS OF TRANSITION THERAPEUTICS INC.
Terms of the Offering
1. The Subscriber
acknowledges that this subscription is subject to rejection, acceptance or allotment by the Corporation in whole or in part.
2. The Subscriber
acknowledges that the Units subscribed for by it hereunder form part of a larger issuance and sale by the Corporation of up to
3,195,487 Units at a subscription price of US$5.32 per Unit (the Offering) but that completion of the Offering is not subject
to the Corporation receiving any minimum amount of subscriptions.
Representations and Warranties of
the Corporation
| 3. | The Corporation hereby represents and warrants to the Subscriber (and acknowledges that the Subscriber
is relying thereon) that: |
| (a) | the Corporation is a duly incorporated and validly subsisting corporation under the laws of its
jurisdiction of incorporation and is duly registered to carry on business in each jurisdiction where such registration is necessary;
and |
| (b) | the Corporation has full corporate power and authority to execute, deliver and perform each of
its obligations under this Subscription Agreement, including the issuance of the Common Shares, the Warrants and the Common Shares
issuable upon exercise of the Warrants (collectively, the Securities); and |
| (c) | the Corporation is and will be at the Closing Time a “reporting issuer” as such term
is defined under the Applicable Securities Laws (as defined below) in the provinces of British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario and Quebec (the Canadian Reporting Jurisdictions) and files reports with the U.S. Securities and Exchange
Commission (the SEC and together with the Canadian Reporting Jurisdictions, the Reporting Jurisdictions) and is not
and at the Closing Time will not be in default of any requirement in relation thereto. For purposes hereof the term Applicable
Securities Laws means, collectively, all applicable securities legislation and the respective rules and regulation made thereunder,
together with applicable published policy statements, instruments, orders and rulings of the securities regulatory authorities
in the Reporting Jurisdictions; and |
| (d) | the Common Shares of the Corporation are listed and posted for trading on the Toronto Stock Exchange
(the TSX) under the symbol “TTH” and on The Nasdaq Stock Market (Nasdaq) under the symbol “TTHI”;
and |
| (e) | no order by any securities commission or similar regulatory body preventing, ceasing or suspending
trading in any securities of the Corporation or prohibiting the issue and sale of securities by the Corporation has been issued
which remains outstanding and no proceedings for such purposes have been instituted or, to the knowledge of the Corporation threatened;
and |
| (f) | except as disclosed in the Public Record (as defined below), there has been no material adverse
effect on, or material adverse change in, or a group of such effects on or changes in (i) the assets, business, properties, prospects,
operations, or financial condition of the Corporation and its subsidiaries, taken as a whole, or (ii) the ability of the Corporation
to perform its obligations under this Agreement, since the date of the most recently audited financial statements (the Financial
Statements) other than as has been disclosed in the forms, reports, schedules, statements, certifications, material change
reports and other documents filed with the applicable securities regulatory authorities in the Reporting Jurisdictions in compliance
or intended compliance with Applicable Securities Laws (such form, reports, schedules, statements, certifications, material change
reports and other documents referred to in this Subsection as the Public Record); and |
| (g) | the Financial Statements were prepared in accordance with International Financial Reporting Standards
consistently applied (except as otherwise stated therein or in the notes thereto) and fairly present in all material respects the
financial condition of the Corporation and other entities covered thereby at the respective dates of such statements, and the results
of their operations for the periods covered thereby; and |
UNITED STATES
| (h) | the Public Record did not contain any misrepresentation within the meaning of Applicable Securities
Laws as of the respective dates of filing; and |
| (i) | this Subscription Agreement, when accepted by the Corporation, will constitute a valid and binding
obligation of the Corporation, enforceable in accordance with its terms; and |
| (j) | the Common Shares and the Common Shares issuable upon the exercise of the Warrants, when issued
in accordance with this Subscription Agreement will be duly and validly created, authorized and issued, and be fully paid and non-assessable
shares in the capital of the Corporation; and |
| (k) | the Corporation is not in default or breach of, and the execution and delivery of, and the performance
of and compliance with the terms of this Subscription Agreements by the Corporation or any of the transactions contemplated thereby,
does not and will not result in any breach of or constitute a default under, and does not and will not create a state of facts
which, after notice or lapse of time or both, would result in a breach of or constitute a default under, any term or provision
of the articles, by-laws or resolutions of shareholders or directors of the Corporation, or any indenture, mortgage, note, contract,
agreement (written or oral), instrument, lease or other document to which the Corporation is a party or by which it is bound, or
any law, judgment, decree, order, statute, rule or regulation applicable to the Corporation, which default or breach might reasonably
be expected to materially adversely affect the business, operations, assets, capital or condition (financial or otherwise) of the
Corporation; and |
| (l) | there are no actions, suits, proceedings or inquiries pending or threatened against or affecting
the Corporation at law or in equity or before or by any federal, provincial, municipal or other governmental department, commission,
board, bureau, agency or instrumentality which in any way materially adversely affects, or may in any way materially adversely
affect, the business, operations, capital or condition (financial or otherwise) of the Corporation or its assets or which affects
or may affect the distribution of the Units and the Corporation is not aware of any existing ground on which such action, suit,
proceeding or inquiry might by commenced with any reasonable likelihood of success. |
Representations, Warranties
and Covenants of the Subscriber
4. The Subscriber
represents, warrants and covenants to the Corporation (and acknowledges that the Corporation and its counsel are relying thereon)
that both at the date hereof and at the Closing Time (as defined herein):
| (a) | it has been independently advised as to restrictions with respect to trading in the Securities
imposed by applicable securities laws, confirms that no representation (written or oral) has been made to it by or on behalf of
the Corporation with respect thereto, acknowledges that it is aware of the characteristics of the Securities, the risks relating
to an investment therein and of the fact that it may not be able to resell the Securities except in accordance with limited exemptions
under Applicable Securities Laws until expiry of the applicable restricted period and compliance with the other requirements of
Applicable Securities Laws; and it agrees that, in addition to any further legend which may be required by the Toronto Stock
Exchange, any certificates representing the Common Shares, the Warrants and (if applicable) the Common Shares issuable upon exercise
of the Warrants are to bear the following legend indicating that the resale of such securities is restricted (in addition to
any other legend required under the Applicable Securities Laws of the United States described in Exhibit 1): |
"Unless
permitted under securities legislation, the holder of this security must not trade the security before October 24, 2014."
and the Subscriber
further acknowledges that it has been advised to consult its own legal counsel in its jurisdiction of residence for full particulars
of the resale restrictions applicable to it; and
UNITED STATES
| (b) | it has not received or been provided with, nor has it requested, nor does it have any need to receive,
any offering memorandum, any prospectus, sales or advertising literature, or any other document (other than an annual report, annual
information form, interim report, information circular or any other continuous disclosure document, the content of which is prescribed
by Applicable Securities Laws) describing or purporting to describe the business and affairs of the Corporation which has been
prepared for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect
of the Securities; and |
| (c) | it has not become aware of any advertisement in printed media of general and regular paid circulation
(or other printed public media), radio, television or telecommunications or other form of advertisement (including electronic display
and the internet) with respect to the distribution of the Securities; and |
| (d) | it understands that the Securities are being offered for sale only on a "private placement"
basis and that the sale and delivery of the Securities is conditional upon such sale being exempt from the requirements as to the
filing of a prospectus or delivery of an offering memorandum or upon the issuance of such orders, consents or approvals as may
be required to permit such sale without the requirement of filing a prospectus or delivering an offering memorandum and, as a consequence
(i) the Subscriber is restricted from using most of the civil remedies available under Applicable Securities Laws, (ii) the Subscriber
may not receive information that would otherwise be required to be provided to it under Applicable Securities Laws, and (iii) the
Corporation is relieved from certain obligations that would otherwise apply under Applicable Securities Laws; and |
| (e) | it is purchasing the Units as principal for its own account, not for the benefit of any other person,
for investment only and not with a view to the resale or distribution of all or any of the Units, it is resident in, was offered
the Units in and executed this Agreement in the jurisdiction set out as the "Subscriber's Residential Address" on the
face page hereof, and it is an "accredited investor" that meets the requirements set forth in Rule 501(a)1, 2, 3, 4,
5, 6, 7 or 8 of Regulation D under the United States Securities Act of 1933, as amended (the U.S. Securities Act)
and has concurrently executed and delivered a Representation Letter in the form attached to this Subscription Agreement as Exhibit
1; and |
| (f) | it is an "accredited investor" for the purposes of the Applicable Securities Laws of
Canada as defined in Schedule A to Exhibit 2 attached hereto, it was not created and is not used solely to purchase or hold
securities as an accredited investor as described in paragraph (m) of such definition and it has concurrently executed and delivered
a Representation Letter in the form attached to this Subscription Agreement as Exhibit 2; and |
| (g) | it certifies that it is not resident in or otherwise subject to applicable securities laws of any
province or territory of Canada and it acknowledges that: |
| (i) | no securities commission or similar regulatory authority has reviewed or passed on the merits of
the Securities; |
| (ii) | there is no government or other insurance covering the Securities; |
| (iii) | there are risks associated with the purchase of the Securities; |
| (iv) | there are restrictions on the Subscriber's ability to resell the Securities and it is the responsibility
of the Subscriber to find out what those restrictions are and to comply with them before selling the Securities; and |
| (v) | the Corporation has advised the Subscriber that the Corporation is relying on an exemption from
the requirements to provide the Subscriber with a prospectus and to sell securities through a person or company registered to sell
securities under the Securities Act (Alberta), the Securities Act (British Columbia), and the Securities Act
(Ontario) and other Applicable Securities Laws and, as a consequence of acquiring securities pursuant to this exemption, certain
protections, rights and remedies provided by the Securities Act (Alberta), the Securities Act (British Columbia),
and the Securities Act (Ontario) and other Applicable Securities Laws, including statutory rights of rescission or damages,
will not be available to the Subscriber; and |
UNITED STATES
| (vi) | the certificate representing the Securities will be endorsed with legends stating that the Securities
will be subject to restrictions on resale in accordance with Applicable Securities Laws; and |
| (h) | it undertakes and agrees that it will not resell the Securities, except in accordance with the
provisions of Applicable Securities Laws and stock exchange rules; and |
| (i) | if it is not an individual, it pre-existed the offering of the Securities and has a bona fide
business purpose other than the investment in the Securities and was not created, formed or established solely or primarily to
acquire securities, or to permit purchases of securities without a prospectus, in reliance on an exemption from the prospectus
requirements of Applicable Securities Laws; and |
| (j) | if it is a corporation, partnership, trust, unincorporated association or other entity, it has
the legal capacity to enter into and be bound by this Subscription Agreement and further certifies that all necessary approvals
of directors, trustees, fiduciaries, shareholders, partners, stakeholders, holders of voting securities or otherwise have been
given and obtained; and |
| (k) | if it is an individual, it is of the full age of majority and is legally competent to execute this
Subscription Agreement and take all action pursuant hereto; and |
| (l) | the entering into of this Subscription Agreement and the transactions contemplated hereby will
not result in a violation of any of the terms or provisions of any law applicable to the Subscriber, or if the Subscriber is not
a natural person, any of such person's constating documents, or any agreement to which such person is a party or by which it is
bound; and |
| (m) | this Subscription Agreement has been duly and validly authorized, executed and delivered by and
constitutes a legal, valid, binding and enforceable obligation of the Subscriber; and |
| (n) | it has such knowledge and experience in financial and business affairs as to be capable of evaluating
the merits and risks of its investment in the Securities and is able to, and agrees to, bear the economic risk of loss of its investment;
and |
| (o) | except for the representations and warranties made by the Corporation herein, it has relied solely
upon publicly available information relating to the Corporation and not upon any verbal or written representation as to fact or
otherwise made by or on behalf of the Corporation; and |
| (p) | acknowledges that the Corporation's counsel is acting as counsel to the Corporation and not as
counsel to the Subscriber (or any person on whose behalf the Subscriber is contracting); and |
| (q) | if required by Applicable Securities Laws or by any securities commission, stock exchange or other
regulatory authority, the Subscriber will execute, deliver, file and otherwise assist the Corporation in filing, such reports,
undertakings and other documents with respect to the issue of the Securities (including, without limitation this Subscription
Agreement and the Representation Letters in the forms attached as Exhibits 1 and 2); and |
| (r) | the acquisition of the Securities hereunder by the Subscriber will not result in the Subscriber
becoming a "control person" in respect of the Corporation, as defined under Applicable Securities Laws; and |
| (s) | no person has made to the Subscriber any written or oral representations (i) that any person will
resell or repurchase the Securities (except in accordance with the articles of the Corporation), or (ii) that any person will refund
the purchase price of the Securities, or (iii) as to the future price or value of the Securities, or (iv) as to any of the Securities
being issued pursuant to this Subscription Agreement being listed on any stock exchange; and |
UNITED STATES
| (t) | the Aggregate Subscription Price which will be advanced by the Subscriber to the Corporation hereunder
will not represent proceeds of crime for the purposes of the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (Canada) (the PCMLA) and the Subscriber acknowledges that the Corporation may in the future be required by law
to disclose the Subscriber's name and other information relating to this Agreement and the Subscriber's subscription hereunder,
on a confidential basis, pursuant to the PCMLA; and to the best of its knowledge (i) none of the subscription funds to be provided
by the Subscriber (A) have been or will be derived from or related to any activity that is deemed criminal under the laws of Canada,
the United States of America, or any other jurisdiction, or (B) are being tendered on behalf of a person or entity who has not
been identified to the Subscriber, and (ii) it shall promptly notify the Corporation if the Subscriber discovers that any of such
representations ceases to be true, and to provide the Corporation with appropriate information in connection therewith; and |
| (u) | the Subscriber has been encouraged to obtain independent legal, income tax and investment advice
with respect to this subscription for Shares and accordingly, has had the opportunity to acquire an understanding of the meanings
of all terms contained herein relevant to the Subscriber for purposes of giving representations, warranties and covenants under
this Subscription Agreement. |
Closing
5. The Subscriber
agrees to deliver by email or fax to the Corporation at nrusaw@transitiontherapeutics.com or 416-260-2886, Attention: N. Nicole
Rusaw: (a) this duly completed and executed Subscription Agreement; and (b) fully executed and completed Representation
Letters in the forms of Exhibits 1 and 2 attached hereto on or before the date of the public announcement of the Offering
by the Corporation.
6. The Subscriber
agrees to wire (pursuant to the instructions below) to the Corporation no later than 5:00 p.m. (Toronto time) on the day
that is two business days before the Closing Date (as defined below) the Aggregate Subscription Price or to make payment of the
Aggregate Subscription Price in such other manner as is acceptable to the Corporation. If this Subscription Agreement is rejected
in whole or in part, the Subscriber acknowledges that the unused portion of the Aggregate Subscription Price will be promptly returned
to it without interest. For the purposes hereof, "business day" means a day other than a Saturday, Sunday or any other
day on which the principal chartered banks in Toronto, Ontario are not open for business. The wire instructions are as follows:
WIRE INSTRUCTIONS (Incoming US$
wires):
Beneficiary: Transition Therapeutics
Inc.
Beneficiary Address: 101 College
St., Suite 220, Toronto, ON., M5G 6X5
Beneficiary Bank: RBC Royal Bank
Bank Address: 6880 Financial Dr.,
Mississauga, Ontario L5N 7Y5
Account #:4006144
Branch #/Transit: 03212
Bank #: 003
SWIFT Code: ROYCCAT2
Currency: USD
Intermediary/Correspondent Bank:
JP Morgan Chase
SWFIT Code: CHASUS33
ABA #: 021000021
7. The sale of the
Units pursuant to this Subscription Agreement will be completed at the offices of Norton Rose Fulbright Canada llp,
the Corporation's counsel, in Calgary, Alberta at 8:30 a.m. (Toronto time) or such other time as is established by the Corporation
(the Closing Time) on June 23, 2014 or such other date as is established by the Corporation (the Closing Date). At
the Closing Time, the Subscriber shall have delivered to the Corporation this Subscription Agreement and the Aggregate Subscription
Price against delivery by the Corporation of the certificates representing the Common Shares and the Warrants.
8. The Corporation
shall be entitled to rely on an executed copy of this Subscription Agreement delivered via facsimile or electronically (including
e-mail), and acceptance by the Corporation of such executed copy of this Subscription Agreement shall be legally effective to create
a valid and binding agreement between the Subscriber and the Corporation in accordance with the terms hereof. In addition, this
Subscription Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which shall
constitute one and the same document. If less than a complete copy of this Subscription Agreement is delivered to the Corporation
at the Closing Time, the Corporation shall be entitled to assume that the Subscriber accepts and agrees with all of the terms and
conditions of this Subscription Agreement on the pages not delivered at the Closing Time unaltered.
UNITED STATES
General
9. The Subscriber
agrees that the representations, warranties and covenants of the Subscriber herein will be true and correct both as of the Subscriber's
execution of this Subscription Agreement and as of the Closing Time and will survive the completion of the issuance of the Securities.
The representations, warranties and covenants of the Subscriber herein are made with the intent that they be relied upon by the
Corporation and its counsel in determining the eligibility of a purchaser of Units and the Subscriber agrees to indemnify and save
harmless the Corporation and its affiliates, shareholders, directors, officers, employees, counsel and agents against all losses,
claims, costs, expenses and damages or liabilities which any of them may suffer or incur which are caused or arise from a breach
thereof. The Subscriber undertakes to immediately notify the Corporation at 101 College St., Suite 220, Toronto, ON., M5G 6X5,
Attention: N. Nicole Rusaw, Telephone: 416-260-7770 x202; Email: nrusaw@transitiontherapeutics.com , of any change in any statement
or other information relating to the Subscriber set forth herein which takes place prior to the Closing Time.
10. The obligations
of the parties hereunder are subject to acceptance of the terms of the Offering by the TSX and any other required regulatory approvals.
11. The Subscriber
acknowledges that this Subscription Agreement and the Exhibits hereto require the Subscriber to provide certain personal information
to the Corporation. Such information is being collected by the Corporation for the purposes of completing the Offering, which includes,
without limitation, determining the Subscriber's eligibility to purchase the Securities under applicable securities laws, preparing
and registering certificates representing the Securities to be issued to the Subscriber and completing filings required by any
stock exchange or securities regulatory authority. The Subscriber's personal information will be included in closing books prepared
in connection with the Offering and may be disclosed by the Corporation to: (i) stock exchanges and/or securities regulatory authorities
(including the OSC and BCSC, as defined below); (ii) the Corporation's registrar and transfer agent; (iii) Canadian tax authorities;
(iv) any of the other parties involved in the Offering, including legal counsel; and (v) other parties subsequent to the Offering,
including legal counsel, reviewing closing books prepared in connection with the Offering. By executing this Subscription Agreement,
the Subscriber:
| (a) | consents to the foregoing collection, use and disclosure of the Subscriber's personal information; |
| (b) | consents to the filing of copies or originals of any of the Subscriber's documents delivered in
connection with this Subscription Agreement as may be required to be filed with any stock exchange or securities regulatory authority
in connection with the transactions contemplated hereby; |
| (c) | acknowledges that it has been notified by the Corporation (i) of the requirement to deliver to
the Ontario Securities Commission (the OSC) the full name, residential address and telephone number of the purchaser of
the securities, the number and type of securities purchased, the total purchase price, the exemption relied upon and the date of
distribution; (ii) that this information is being collected indirectly by the OSC under the authority granted to it in securities
legislation; (iii) that this information is being collected for the purposes of the administration and enforcement of the securities
legislation of Ontario; and (iv) that the Administrative Support Clerk can be contacted at Ontario Securities Commission, Suite
1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, or at (416) 593-3684, and can answer any questions about the OSC's
indirect collection of this information; and |
| (d) | acknowledges that it has been notified by the Corporation that the following information concerning
the Subscriber required to be delivered to the British Columbia Securities Commission (the BCSC) will be made public: (i)
if the Subscriber is an individual, the full name of the Subscriber, whether or not the Subscriber is an insider of the Corporation
or a registrant, the number and type of Units purchased and the total purchase price paid pursuant to the Offering; or (ii) if
the Subscriber is not an individual, the full name, address and telephone number of a contact person of the Subscriber, whether
or not the Subscriber is an insider of the Corporation or a registrant, the number and type of Units purchased and the total purchase
price paid pursuant to the Offering. |
UNITED STATES
12. The Subscriber
acknowledges and agrees that all costs incurred by the Subscriber (including any fees and disbursements of any counsel retained
by the Subscriber) relating to the sale of the Securities to the Subscriber shall be borne by the Subscriber.
13. The contract arising
out of this Subscription Agreement and all documents relating thereto is governed by and construed in accordance with the laws
of the Province of Ontario and the federal laws of Canada applicable therein. The parties irrevocably attorn to the exclusive jurisdiction
of the courts of the Province of Ontario.
14. Time is of the
essence hereof.
15. This Subscription
Agreement represents the entire agreement of the parties hereto relating to the subject matter hereof and there are no representations,
covenants or other agreements relating to the subject matter hereof except as stated or referred to herein.
16. The terms and
provisions of this Subscription Agreement are binding upon and enure to the benefit of the Subscriber and the Corporation and their
respective heirs, executors, administrators, successors and assigns; provided that, except for as otherwise herein provided, this
Subscription Agreement is not assignable by any party hereto without prior written consent of the other parties.
17. The Subscriber
agrees that this subscription is made for valuable consideration and may not be withdrawn, cancelled, terminated or revoked by
the Subscriber.
18. Neither this Subscription
Agreement nor any provision hereof shall be modified, changed, discharged or terminated except by an instrument in writing signed
by the party against whom any waiver, change, discharge or termination is sought.
19. The invalidity,
illegality or unenforceability of any provision of this Subscription Agreement does not affect the validity, legality or enforceability
of any other provision hereof.
20. The headings used
in this Subscription Agreement have been inserted for convenience of reference only and shall not affect the meaning or interpretation
of this Subscription Agreement or any provision hereof.
21. The covenants,
representations and warranties contained herein shall survive the closing of the transactions contemplated hereby.
22. In this Subscription
Agreement (including exhibits), references to "$" are to Canadian dollars, unless otherwise indicated.
EXHIBIT
1
REPRESENTATION
LETTER
(FOR ALL SUBSCRIBERS)
| TO: | Transition Therapeutics Inc. (the Corporation) |
(Capitalized terms
not specifically defined in this Exhibit have the meaning ascribed to them in the Subscription Agreement to which this Exhibit
is attached)
In connection with
the execution by the undersigned Subscriber of the Subscription Agreement of which this Representation Letter forms a part, the
undersigned Subscriber hereby represents, warrants, covenants and certifies to the Corporation that:
| 1. | It has such knowledge and experience in financial and business matters as to be capable of evaluating
the merits and risks of an investment in the Units and it is able to bear the economic risk of loss of its entire investment. |
| 2. | The Corporation has provided to it the opportunity to ask questions and receive answers concerning
the terms and conditions of the Offering and it has had access to such information concerning the Corporation as it has considered
necessary or appropriate in connection with its investment decision to acquire the Units. |
| 3. | It is acquiring the Units as principal for its own account, for investment purposes only and not
with a view to any resale, distribution or other disposition of the Units. |
| 4. | It understands the Units have not been and will not be registered under the United States Securities
Act of 1933, as amended (the U.S. Securities Act), or the securities laws of any state of the United States, and that
the sale contemplated hereby is being made in reliance on an exemption from such registration requirements and that the Units cannot
be resold, pledged or otherwise transferred, directly or indirectly, unless they are registered under the U.S. Securities Act or
unless an exemption or exclusion from registration thereunder is available. |
| 5. | It satisfies one or more of the categories indicated below (please place an “X”
on the appropriate lines): |
| ___________ | An organization described in Section 501(c)(3) of the United States Internal Revenue Code, a corporation,
a Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Units, with total
assets in excess of US$5,000,000; |
| ___________ | A trust that (a) has total assets in excess of US$5,000,000, (b) was not formed for the specific
purpose of acquiring the Units and (c) is directed in its purchases of securities by a person who has such knowledge and experience
in financial and business matters that he/she is capable of evaluating the merits and risks of an investment in the Units; |
| ___________ | A bank as defined in Section 3(a)(2) of the U.S. Securities Act or a savings and loan association
or other institution as defined in Section 3(a)(5)(A) of the U.S. Securities Act, whether acting in its individual capacity or
fiduciary capacity; |
| ___________ | A broker or dealer registered pursuant to Section 15 of the United States Securities Exchange
Act of 1934; |
| ___________ | An insurance company as defined in Section 2(a)(13) of the U.S. Securities Act; |
| ___________ | A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality
of a state or its political subdivisions, for the benefit of its employees that has total assets in excess of US$5,000,000; |
| ___________ | An employee benefit plan within the meaning of the United States Employee Retirement Income
Security Act of 1974 for which the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association, insurance company, or registered investment adviser, or that has total assets
in excess of US$5,000,000, or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; |
| ___________ | An investment company registered under the United States Investment Company Act of 1940
or a business development company as defined in Section 2(a)(48) of that Act; |
| ___________ | A Small Business Investment Company licensed by the U.S. Small Business Administration under Section
301(c) or (d) of the United States Small Business Investment Act of 1958; |
| ___________ | A private business development company as defined in Section 202(a)(22) of the United States
Investment Advisers Act of 1940; |
| ___________ | A director or executive officer of the Corporation; |
| ___________ | A natural person whose individual net worth, or joint net worth with that person's spouse, exceeds
US$1,000,000; |
| ___________ | A natural person who had an individual income in excess of US$200,000 in each of the two most recent
years or joint income with that person's spouse in excess of US$300,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current year; or |
| ___________ | An entity in which all of the equity owners are accredited investors. |
| 6. | It has not purchased the Units as a result of any form of general solicitation or general advertising
(as such terms are used in Regulation D under the U.S. Securities Act), including, without limitation, advertisements, articles,
notices or other communications published in any newspaper, magazine or similar media or broadcast over radio, internet, television
or other form of telecommunications, or any seminar or meeting whose attendees have been invited by general solicitation or general
advertising. |
| 7. | If it decides to offer, sell, pledge or otherwise transfer any of the Securities, it will not offer,
sell, pledge or otherwise transfer any of such Securities, directly or indirectly, unless: |
| (a) | the transfer is made pursuant to registration of the Securities under the U.S. Securities Act; |
| (b) | the transfer is to the Corporation; |
| (c) | the transfer is made outside the United States in a transaction meeting the requirements of Rule
904 of Regulation S under the U.S. Securities Act and in compliance with applicable local laws and regulations; |
| (d) | the transfer is made pursuant to the exemption from the registration requirements of the U.S. Securities
Act provided by Rule 144 or Rule 144A thereunder, if available, and, in either case, in accordance with any applicable state securities
or "blue sky" laws; or |
| (e) | the Securities are transferred in any other transaction that does not require registration under
the U.S. Securities Act or any applicable state securities or "blue sky" laws; and |
it has prior
to any transfer pursuant to subsection (d) or (e) (and if required by the Corporation or the registrar and transfer agent for the
Securities, subsection (b)) furnished to the Corporation an opinion of counsel or other evidence reasonably satisfactory to the
Corporation to such effect.
| 8. | Upon the original issuance of the Common Shares, the Warrants and (if applicable) the Common Shares
issuable upon exercise of the Warrants, until such time as it is no longer required under applicable requirements of the U.S. Securities
Act or applicable state securities laws, the certificates representing the the Common Shares, the Warrants and (if applicable)
the Common Shares issuable upon exercise of the Warrant (and any certificates issued in exchange or substitution for the Securities)
will bear a legend in substantially the form as follows: |
"THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES
ACT") OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING OR OTHERWISE HOLDING SUCH SECURITIES, AGREES FOR THE
BENEFIT OF TRANSITION THERAPEUTICS INC (THE "CORPORATION") THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S.
SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 OR RULE 144A
THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES, OR (D) IN ANOTHER TRANSACTION
THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES,
AFTER THE HOLDER HAS, IN THE CASE OF (C) OR (D) ABOVE, FURNISHED TO THE CORPORATION AN OPINION OF COUNSEL OR OTHER EVIDENCE OF
EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE CORPORATION. DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE “GOOD
DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA."
If the Corporation
is a “foreign issuer” within the meaning of Regulation S under the U.S. Securities Act at the time of transfer outside
the United States in accordance with Rule 904 of Regulation S, a new certificate, which will constitute “good delivery”
in settlement of transactions on Canadian stock exchanges, will be made available to the Subscriber upon provision by the Subscriber
of a declaration in the form attached as Appendix A or in such other form that is acceptable to the Corporation, together with
any other evidence, which may include a legal opinion reasonably satisfactory in form and substance to the Corporation, required
by the Corporation or the registrar and transfer agent for the Securities.
If any of the
Securities are being sold pursuant to Rule 144 under the U.S. Securities Act, the legend may be removed by delivery to the registrar
and transfer agent of an opinion of counsel of recognized standing in form and substance satisfactory to the Corporation, to the
effect that the legend is no longer required under applicable requirements of the U.S. Securities Act or state securities laws.
| 9. | It understands and acknowledges that the Corporation is not obligated to file and has no present
intention of filing with the U.S. Securities and Exchange Commission (the SEC) or with any state securities administrator
any registration statement in respect of resales of the Securities in the United States. |
| 10. | It understands and agrees that there may be material tax consequences to the Subscriber of an acquisition,
holding or disposition of the Securities. The Corporation gives no opinion and makes no representation with respect to the tax
consequences to the Subscriber under United States, state, local or foreign tax law of the undersigned’s acquisition, holding
or disposition of such Securities and the Subscriber acknowledges that it is solely responsible for determining the tax consequences
of its investment. In particular, no determination has been made whether the Corporation is, or will be, a “passive foreign
investment company” within the meaning of Section 1297 of the United States Internal Revenue Code of 1986, as amended. |
| 11. | It understands and agrees that the financial statements of the Corporation have been prepared in
accordance with International Financial Reporting Standards, which differ in some respects from United States generally accepted
accounting principles, and thus may not be comparable to financial statements of United States companies. |
| 12. | It consents to the Corporation making a notation on its records or giving instructions to any transfer
agent for the Securities in order to implement the restrictions on transfer set forth and described in this Exhibit 1. |
| 13. | It understands that the Securities are “restricted securities” within the meaning of
Rule 144 under the U.S. Securities Act and that the U.S. Securities Act and the rules of the SEC provide that the Subscriber may
dispose of the Securities only pursuant to an effective registration statement under the U.S. Securities Act or an exemption or
exclusion from registration under the U.S. Securities Act, and the Subscriber understands that the Corporation has no obligation
to register any of the Securities or to take action so as to permit sales pursuant to the U.S. Securities Act (including Rule 144
thereunder) or state securities laws. Accordingly, the Subscriber understands that absent registration, under the rules of the
SEC, the Subscriber may be required to hold the Securities indefinitely or to transfer the Securities in “private placements”
that are exempt from registration under the U.S. Securities Act, in which event the transferee will acquire “restricted securities”
subject to the same limitations as in the hands of the Subscriber. As a consequence, the Subscriber understands that it must bear
the economic risks of the investment in the Securities for an indefinite period of time. |
| 14. | It understands and acknowledges that Rule 144 under the 1933 Act is not available for resales of
securities of issuers that have ever had (i) no or nominal operations and (ii) no or nominal assets other than cash and cash equivalents.
Therefore, if the Corporation were ever to be deemed to be, or to have ever been, such an issuer, Rule 144 under the U.S. Securities
Act may be unavailable for resales of the Securities, unless and until the Corporation has satisfied the applicable conditions. |
| 15. | It understands and acknowledges that the Corporation (i) is not obligated to remain a “foreign
issuer” (as defined in Regulation S under the U.S. Securities Act; (ii) may not, at the time the Securities are resold by
it or at any other time, be a foreign issuer, and (iii) may engage in one or more transactions that could cause the Corporation
not to be a foreign issuer. If the Corporation is not a foreign issuer at the time of any transfer of the Securities pursuant to
Rule 904 of Regulation S under the U.S. Securities Act, the certificates representing the Securities may continue to bear the legend
contained above. |
| 16. | Upon execution of this Exhibit 1 by the undersigned Subscriber, this Exhibit 1 and Appendix A hereto
shall be incorporated into and form a part of the Subscription Agreement to which this Exhibit is attached. |
Dated: _________________________,
2014.
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APPENDIX
A
TO EXHIBIT 1
Declaration for removal of legend
| TO: | Computershare Trust Company of Canada as registrar and transfer agent for the common shares of
Transition Therapeutics Inc. (the Corporation) |
RE: Sale of _______________________________,
represented by certificate number
(describe securities)
The undersigned (a)
acknowledges that the sale of the securities of Transition Therapeutics Inc. (the Corporation) to which this declaration
relates is being made in reliance on Rule 904 of Regulation S under the United States Securities Act of 1933, as amended
(the U.S. Securities Act) and (b) certifies that (1) the undersigned is not an affiliate (as that term is defined in Rule
405 under the U.S. Securities Act) of the Corporation, (2) the offer of such securities was not made to a person in the United
States and either (A) at the time the buy order was originated, the buyer was outside the United States, or the seller and any
person acting on its behalf reasonably believed that the buyer was outside the United States, or (B) the transaction was executed
in, on or through the facilities of the TSX Venture Exchange or the Toronto Stock Exchange or another designated offshore securities
market as defined in Regulation S under the U.S. Securities Act and neither the seller nor any person acting on its behalf knows
that the transaction has been prearranged with a buyer in the United States, (3) neither the seller nor any affiliate of the seller
nor any person acting on any of their behalf has engaged or will engage in any directed selling efforts in the United States in
connection with the offer and sale of such securities, (4) the sale is bona fide and not for the purpose of "washing off"
the resale restrictions imposed because the securities are "restricted securities" (as such term is defined in Rule 144(a)(3)
under the U.S. Securities Act), (5) the seller does not intend to replace such securities with fungible unrestricted securities
and (6) the contemplated sale is not a transaction, or part of a series of transactions which, although in technical compliance
with Regulation S under the U.S. Securities Act, is part of a plan or scheme to evade the registration provisions of the U.S. Securities
Act. Terms used herein have the meanings given to them by Regulation S under the U.S. Securities Act.
EXHIBIT 2
REPRESENTATION LETTER
(FOR ALL SUBSCRIBERS)
| TO: | Transition Therapeutics (the Corporation) |
(Capitalized terms
not specifically defined in this Exhibit have the meaning ascribed to them in the Subscription Agreement to which this Exhibit
is attached)
In connection with
the execution by the undersigned Subscriber of the Subscription Agreement which this Representation Letter forms a part of, the
undersigned Subscriber hereby represents, warrants, covenants and certifies to the Corporation that:
| 1. | the undersigned Subscriber is resident in the United States and is purchasing the Units as principal
for its own account; |
| 2. | the undersigned Subscriber is an "accredited investor" within the meaning of National
Instrument 45-106 "Prospectus and Registration Exemptions" (NI 45-106) by virtue of satisfying the indicated criterion
as set out in Appendix A to this Representation Letter; |
| 3. | the undersigned Subscriber was not created, and is not used, solely to purchase or hold securities
as an accredited investor as described in paragraph (m) of the definition of "accredited investor" in NI 45-106; and |
| 4. | upon execution of this Representation Letter by the undersigned Subscriber, this Representation
Letter, including Appendix A hereto, shall be incorporated into and form a part of the Subscription Agreement. |
Dated: _________________________,
2014.
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IMPORTANT: PLEASE INITIAL THE APPLICABLE
PROVISION(S) IN
APPENDIX A ON THE FOLLOWING PAGES
APPENDIX A
TO EXHIBIT 2
NOTE: PLEASE MARK YOUR INITIALS BESIDE
THE APPLICABLE CATEGORY OR CATEGORIES OF "ACCREDITED INVESTOR" TO WHICH YOU BELONG.
Accredited Investor
(defined in NI 45-106) means:
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a Canadian financial institution, or a Schedule III bank; or |
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a subsidiary of any person referred to in paragraphs (a) or (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary; or |
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a person registered under the securities legislation of a jurisdiction of Canada as an adviser or dealer, other than a person registered solely as a limited market dealer under one or both of the Securities Act (Ontario) or the Securities Act (Newfoundland and Labrador); or |
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an individual registered or formerly registered under the securities legislation of a jurisdiction of Canada as a representative of a person referred to in paragraph (d); or |
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the Government of Canada or a jurisdiction of Canada, or any crown corporation, agency or wholly owned entity of the Government of Canada or a jurisdiction of Canada; or |
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a municipality, public board or commission in Canada and a metropolitan community, school board, the Comité de gestion de la taxe scolaire de l'île de Montréal or an intermunicipal management board in Québec; or |
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any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government; or |
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a pension fund that is regulated by the Office of the Superintendent of Financial Institutions (Canada), a pension commission or similar regulatory authority of a jurisdiction of Canada; or |
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an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that before taxes, but net of any related liabilities, exceeds $1,000,000; or |
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an individual whose net income before taxes exceeded $200,000 in each of the two most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year; or |
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(Note: if individual accredited investors wish to purchase through wholly- owned holding companies or similar entities, such purchasing entities must qualify under section (t) below, which must be initialled) |
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an individual who, either alone or with a spouse, has net assets of at least $5,000,000; or |
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a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared financial statements; or |
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an investment fund that distributes or has distributed its securities only to |
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a person that is or was an accredited investor at the time of the distribution, |
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a person that acquires or acquired securities in the circumstances referred to in sections 2.10 [minimum amount investment], or 2.19 [additional investment in investment funds] of NI 45-106, or |
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a person described in paragraph (A) or (B) that acquires or acquired securities under section 2.18 [investment fund reinvestment] of NI 45-106; or |
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an investment fund that distributes or has distributed securities under a prospectus in a jurisdiction of Canada for which the regulator or, in Québec, the securities regulatory authority, has issued a receipt; or |
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a trust company or trust corporation registered or authorized to carry on business under the Trust and Loan Companies Act (Canada) or under comparable legislation in a jurisdiction of Canada or a foreign jurisdiction, acting on behalf of a fully managed account managed by the trust company or trust corporation, as the case may be; or |
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a person acting on behalf of a fully managed account managed by that person, if that person |
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is registered or authorized to carry on business as an adviser or the equivalent under the securities legislation of a jurisdiction of Canada or a foreign jurisdiction, and |
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in Ontario, is purchasing a security that is not a security of an investment fund; or |
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a registered charity under the Income Tax Act (Canada) that, in regard to the trade, has obtained advice from an eligibility adviser or an adviser registered under the securities legislation of the jurisdiction of the registered charity to give advice on the securities being traded; or |
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an entity organized in a foreign jurisdiction that is analogous to any of the entities referred to in paragraphs (a) to (d) or paragraph (i) in form and function; or |
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a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors (as defined in NI 45-106); or |
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an investment fund that is advised by a person registered as an adviser or a person that is exempt from registration as an adviser; or |
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a person that is recognized or designated by the securities regulatory authority or, except in Ontario and Québec, the regulator as an accredited investor. |
For the purposes hereof:
"affiliate" means an issuer
connected with another issuer because (a) one of them is the subsidiary of the other, or (b) each of them is controlled by the
same person;
"bank" means a bank named
in Schedule I or II of the Bank Act (Canada);
"Canadian financial institution"
means (a) an association governed by the Cooperative Credit Associations Act (Canada) or a central cooperative credit society
for which an order has been made under section 473(1) of that Act, or (b) a bank, loan corporation, trust company, trust corporation,
insurance company, treasury branch, credit union, caisse populaire, financial services cooperative, or league that, in each case,
is authorized by an enactment of Canada or a jurisdiction of Canada to carry on business in Canada or a jurisdiction of Canada;
"consultant" means for
an issuer, a person, other than an employee, executive officer, or director of the issuer or of a related entity of the issuer,
that is engaged to provide services to the issuer or a related entity of the issuer, other than services provided in relation to
a distribution, provides the services under a written contract with the issuer or a related entity of the issuer, and spends or
will spend a significant amount of time and attention on the affairs and business of the issuer or a related entity of the issuer
and includes (a) for an individual consultant, a corporation of which the individual consultant is an employee or shareholder,
and a partnership of which the individual consultant is an employee or partner; and (b) for a consultant that is not an individual,
an employee, executive officer, or director of the consultant, provided that the individual employee, executive officer, or director
spends or will spend a significant amount of time and attention on the affairs and business of the issuer or a related entity of
the issuer;
"control person" has the
same meaning as in securities legislation;
"director" means (a) a
member of the board of directors of a company or an individual who performs similar functions for a company, and (b) with respect
to a person that is not a company, an individual who performs functions similar to those of a director of a company;
"eligibility adviser" means
(a) a person that is registered as an investment dealer and authorized to give advice with respect to the type of security being
distributed, and (b) in Saskatchewan or Manitoba, also means a lawyer who is a practicing member in good standing with a law society
of a jurisdiction of Canada or a public accountant who is a member in good standing of an institute or association of chartered
accountants, certified general accountants or certified management accountants in a jurisdiction of Canada provided that the lawyer
or public accountant must not: (i) have a professional, business or personal relationship with the issuer, or any of its directors,
executive officers, founders, or control persons, and (ii) have acted for or been retained personally or otherwise as an employee,
executive officer, director, associate or partner of a person that has acted for or been retained by the issuer or any of its directors,
executive officers, founders or control persons within the previous 12 months;
"executive officer" means,
for an issuer, an individual who is a chair, vice-chair or president, a vice-president in charge of a principal business unit,
division or function including sales, finance or production, or performing a policy-making function in respect of the issuer;
"financial assets" means
(a) cash, (b) securities, or (c) a contract of insurance, a deposit or an evidence of a deposit that is not a security for the
purposes of securities legislation;
"foreign jurisdiction"
means a country other than Canada or a political subdivision of a country other than Canada;
"founder" means, in respect
of an issuer, a person who, acting alone, in conjunction, or in concert with one or more persons, directly or indirectly, takes
the initiative in founding, organizing or substantially reorganizing the business of the issuer, and at the time of the distribution
or trade is actively involved in the business of the issuer;
"fully managed account"
means an account of a client for which a person makes the investment decisions if that person has full discretion to trade in securities
for the account without requiring the client's express consent to a transaction;
"holding entity" means
a person that is controlled by an individual;
"individual" means a natural
person, but does not include (a) a partnership, unincorporated association, unincorporated syndicate, unincorporated organization
or a trust, or (b) a natural person in the person's capacity as trustee, executor, administrator or other legal personal representative;
"insider" means: (a) a
director or an officer of an issuer; (b) a director or an officer of a person that is itself an insider or a subsidiary of an issuer;
(c) a person that has (i) beneficial ownership of, or control or direction over, directly or indirectly, or (ii) a combination
of beneficial ownership of, and control or direction over, directly or indirectly, securities of an issuer carrying more than 10%
of the voting rights attached to all the issuer's outstanding voting securities, excluding, for the purpose of the calculation
of the percentage held, any securities held by the person as underwriter in the course of a distribution; (d) an issuer that has
purchased, redeemed or otherwise acquired a security of its own issue, for so long as it continues to hold that security; (e) a
person designated as an insider in an order made under the Securities Act (British Columbia); or (f) a person that is in a prescribed
class of persons;
"investment fund" means
a mutual fund or a non-redeemable investment fund, and, for greater certainty in British Columbia, includes an employee venture
capital corporation that does not have a restricted constitution , and is registered under Part 2 of the Employee Investment
Act (British Columbia), R.S.B.C. 1996 c.112, and whose business objective is making multiple investments and a venture capital
corporation registered under Part 1 of the Small Business Venture Capital Act (British Columbia), R.S.B.C. 1996 c.429 whose
business objective is making multiple investments;
"jurisdiction" means a
province or territory of Canada except when used in the term "foreign jurisdiction";
"local jurisdiction" means
the jurisdiction in which the applicable Canadian securities regulatory authority is situate;
"mutual fund" has the
meaning ascribed to it under the securities legislation of the local jurisdiction;
"non-redeemable investment fund"
means an issuer (a) whose primary purpose is to invest money provided by its securityholders, (b) that does not invest: (i) for
the purpose of exercising or seeking to exercise control of an issuer, other than an issuer that is a mutual fund or a non-redeemable
investment fund, or (ii) for the purpose of being actively involved in the management of any issuer in which it invests, other
than an issuer that is a mutual fund or a non-redeemable investment fund, and (c) that is not a mutual fund;
"permitted assign" means,
for a person that is an employee, executive officer, director or consultant of an issuer or of a related entity of the issuer,
a trustee, custodian, or administrator acting on behalf of, or for the benefit of the person, a holding entity of the person, a
RRSP, RRIF or TFSA of the person, a spouse of the person, a trustee, custodian, or administrator acting on behalf of, or for the
benefit of the spouse of the person, a holding entity of the spouse of the person, or a RRSP, RRIF or TFSA of the spouse of the
person;
"person" includes (a) an
individual, (b) a corporation, (c) a partnership, trust, fund and an association, syndicate, organization or other organized
group of persons, whether incorporated or not, and (d ) an individual or other person in that person’s capacity as a
trustee, executor, administrator or personal or other legal representative;
"promoter" means a person
who (a) acting alone or in concert with one or more other persons, directly or indirectly, takes the initiative in founding, organizing
or substantially reorganizing the business of the issuer, or (b) in connection with the founding, organization or substantial reorganization
of the business of the issuer, directly or indirectly receives, in consideration of services or property or both, 10% or more of
a class of the issuer's own securities or 10% or more of the proceeds from the sale of a class of the issuer's own securities of
a particular issue, but does not include a person who (c) receives securities or proceeds referred to in paragraph (b) solely (i)
as underwriting commissions, or (ii) in consideration for property, and (d) does not otherwise take part in founding, organizing
or substantially reorganizing the business;
"regulator" means, for
the local jurisdiction, the person referred to in Appendix D of National Instrument 14-101 opposite the name of the local jurisdiction;
"related liabilities"
means (a) liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets, or (b)
liabilities that are secured by financial assets;
"Schedule III bank" means
an authorized foreign bank named in Schedule III of the Bank Act (Canada);
"spouse" means an individual
who (a) is married to another individual and is not living separate and apart within the meaning of the Divorce Act (Canada),
from the other individual, (b) is living with another individual in a marriage-like relationship,
including a marriage-like relationship between individuals of the same gender, or (c) in Alberta, is an individual referred to
in paragraph (a) or (b), or is an adult interdependent partner within the meaning of the Adult Interdependent Relationships
Act (Alberta); and
"subsidiary" means an
issuer that is controlled directly or indirectly by another issuer and includes a subsidiary of that subsidiary.
Control
A person (first person) is considered to
control another person (second person) if the first person beneficially owns or, directly or indirectly, exercises control or direction
over securities of the second person carrying votes which, if exercised, would entitle the first person to elect a majority of
the directors of the second person, unless that first person holds the voting securities only to secure an obligation, the second
person is a partnership, other than a limited partnership, and first person holds more than 50% of the interests of the partnership,
or the second person is a limited partnership and the general partner of the limited partnership is the first person.
In respect of the definitions of "holding
entity" and "related entity" above, a person (first person) is considered to control another person (second person)
if the first person, directly or indirectly, has the power to direct the management and policies of the second person by virtue
of ownership of or direction over voting securities in the second person, a written agreement or indenture, being the general partner
or controlling the general partner of the second person, or being a trustee of the second person.
All monetary references
are in Canadian Dollars.
Exhibit 4.9
EXECUTION
COPY
MILESTONE, ROYALTY AND SUBLICENSING
FEE DEED
This
MILESTONE, ROYALTY AND SUBLICENSING FEE deed (this “Deed”) is made and entered into as of February
27, 2014, by and between Elan Pharma International Limited, a private limited company incorporated in Ireland (“EPIL”),
and Elan Science Ten Limited, a private limited company incorporated in Ireland (the “Company”). EPIL and the
Company are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.
Capitalized terms used in this Deed have the meanings ascribed to them in ARTICLE IV.
WHEREAS, the
Company is in the business of researching, developing, manufacturing and commercializing any pharmaceutical preparation or dosage
form containing Scyllo-Inositol and any compounds identified, obtained, developed, created, synthesized, generated, designed or
resulting from, based upon, containing or incorporating the chemical structure of Scyllo-Inositol as those compounds are generically
and/or specifically disclosed and claimed in the Product Patents (the “Product”; and such business is referred
to herein as the “Business”);
NOW, THEREFORE,
in consideration of the premises, representations, warranties, mutual covenants and agreements hereinafter set forth, and for good
and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and
agree as follows:
ARTICLE
I
CONSIDERATION PAYABLE TO EPIL
1.1 Milestone
Payments. The Company shall, within 45 days after the occurrence of each Milestone Event, make a one-time payment to EPIL
as follows:
(a) $10,000,000
upon receipt by the Company of the first approval to manufacture, market and sell a pharmaceutical Product issued by the US Food
and Drug Administration, the European Medicines Agency or an equivalent Governmental Authority in any of the United States, Canada,
United Kingdom, Germany, France, Spain, Italy or Japan;
(b) $15,000,000
to be paid upon the achievement of worldwide Net Sales of Products equal to or greater than $250,000,000 in one calendar year;
and
(c) $15,000,000
to be paid upon the achievement of worldwide Net Sales of Products equal to or greater than $500,000,000 in one calendar year.
For the avoidance of
doubt, EPIL and the Company understand and agree that the Company shall make all decisions relating to the development and commercialization
of the Products in its sole discretion.
1.2 Royalty
Fees. The Company shall, on a quarterly basis commencing on the 45th day of the first fiscal quarter after the date on
which the First Commercial Sale of the Product occurs, pay to EPIL 6.5% of Net Sales for the life of the Product received by the
Company or any Affiliates at any time as a result of and/or due to the sale and/or supply of any and all Products that have attained
Commercial Regulatory Approval, it being understood that the Company and its Affiliates shall use reasonable
best efforts to achieve fair market value in respect of the sale and/or supply of such Products and, without limitation of the
foregoing, shall not offer or grant any non-customary discounts in respect of the sale and/or supply of the Products in the jurisdictions
of sale. For the avoidance of doubt, a Royalty Fee accrues on the date when any Product is sold and/or supplied, the date it is
being supplied being the earliest of when it is invoiced or paid for.
1.3 Sublicense
Fees. The Company shall, on a quarterly basis commencing on the 45th day of the first fiscal quarter after Closing, pay
to EPIL six and one half percent (6.5%) of all payments received by the Company in the form of upfront payments, maintenance fees,
license fees or milestone payments in connection with sublicensing the Product Patents and/or Product Know-How, excluding any royalty
payments to the Company, it being understood that the Company and its Affiliates shall use reasonable best
efforts to achieve fair market value in negotiating and finalizing the terms for all such sublicensing arrangements and, without
limitation of the foregoing, shall not offer or grant any non-customary discounts in respect of the sublicense agreements. The
Sublicense Fees shall be payable under this Deed even if some part of the supply, license, rental or putting into use of the Products
by the Company takes place in any jurisdiction where there is no Product Patent or where the Product does not fall within the scope
of any Product Patent.
1.4 Method
of Payment. All amounts payable under this ARTICLE I shall be paid by wire transfer of immediately available funds
in U.S. dollars to an account designated in writing by EPIL, no later than three Business Days prior to the applicable payment
date; provided, that, in the event EPIL requests that such funds be converted into euro, the rate of exchange to
be applied shall be the rate of exchange applied by the Dublin bankers to EPIL for the purchase of euro with such foreign currency
as at the close of business on the date when the relevant payment first becomes due. In the event the Company is delayed in delivering
any of the Milestone Payments, Royalty Fees or Sublicense Fees as and when due, (a) the undisputed portion of the amount owed by
the Company shall accrue interest at the rate of 1.5% each month and such interest shall be paid in the same immediately available
funds to EPIL and (b) any disputed portion of such amount shall accrue interest at a rate per annum equal to the prime rate of
interest reported from time to time in The Wall Street Journal, calculated on the basis of the actual number of days elapsed over
360, from the date of payment until the time such dispute is settled, it being understood that the amount
of interest to be paid by the Company shall be calculated based on the amount finally agreed between the Parties and such interest
shall be paid in the same immediately available funds to EPIL.
1.5 Tax
Withholding. All payments pursuant to this ARTICLE I shall be made to EPIL net of any withholding VAT, GST, sales
or use Taxes. In the event that the Company is required by law to pay or withhold any such Taxes in connection with any payment
under this ARTICLE I, the Company shall withhold and deduct such Taxes, and pay over such Taxes to the applicable Governmental
Authority. The Company shall provide EPIL with documentation of such withholding and shall pursue all Tax credits available to
diminish such Tax obligations. The Parties agree to co-operate in all respects necessary to take advantage of any double taxation
agreements or similar agreements as may from time to time, be available in order to the Company to make payments to EPIL without
deduction or withholding.
ARTICLE
II
reports;
RECORDS; audit rights
2.1 Reports.
In connection with the payments made to EPIL under ARTICLE I, the Company shall furnish to EPIL:
(a) within
ten Business Days following the end of each Fiscal Quarter, a draft report showing (i) (A) the Net Sales accrued in connection
with the Products that have obtained Commercial Regulatory Approval and (B) payments accrued in connection with sublicensing the
Product Patents and/or Product Know-How, in each case, in respect of such Fiscal Quarter (or if none shall have accrued, a report
so stating), (ii) the amount of Milestone Payments, Royalty Fees and/or Sublicense Fees payable hereunder in respect of such Net
Sales and/or sublicensing payments received by the Company during such Fiscal Quarter as determined in accordance with Sections
1.1, 1.2 and 1.3, respectively, and (iii) (A) the Net Sales of the Products and number of units of the Products
sold in each of the top ten countries in the Territory (ranked based on total amount of annual Net Sales in such countries) and
the aggregate Net Sales of the Products and aggregate number of units of the Products sold in all other countries in the Territory
where the Products are sold during such Fiscal Quarter and (B) the payments received by the Company in connection with sublicensing
the Product Patents and/or Product Know-How in each of the top ten countries in the Territory (ranked based on total amount of
annual payments received in such countries) and the aggregate payments received by the Company in connection with sublicensing
the Product Patents and/or Product Know-How and aggregate number of the Product Patents and/or Product Know-How subject to sublicensing
arrangements in all other countries in the Territory where the Product Patents and/or Product Know-How are sublicensed during such
Fiscal Quarter, it being understood that the Company shall use its reasonable best efforts to obtain the information
required to be delivered to EPIL under this Section 2.1(a)(iii) and, in the event the Company is unable to obtain any portion
of such information, the Company shall give prompt notice to EPIL, describing the facts and circumstances that give rise to the
Company’s inability to fulfill its obligations hereunder and requesting EPIL’s consent to modify the scope of information
and/or time period in which such information is required to be furnished hereunder, which consent may not be unreasonably withheld,
delayed or conditioned by EPIL.
(b) within
fifteen Business Days following the end of such Fiscal Quarter, a final report showing (i) (A) any Net Sales accrued in connection
with the Products that have obtained Commercial Regulatory Approval and (B) payments accrued in connection with sublicensing the
Product Patents and/or Product Know-How, in each case, in respect of such Fiscal Quarter (or if none shall have accrued, a report
so stating); provided, that if any adjustments are made to Net Sales in such Fiscal Quarter after delivery of the final
report, such adjustments shall be reflected and incorporated into the report for the following Fiscal Quarter, (ii) the amount
of Milestone Payments, Royalty Fees and/or Sublicense Fees payable hereunder in respect of such Net Sales and/or sublicensing payments
received by the Company during such Fiscal Quarter as determined in accordance with Sections 1.1, 1.2 and 1.3,
respectively and (iii) (A) the Net Sales of the Products and number of units of the Products sold in each of the top ten countries
in the Territory (ranked based on total amount of annual Net Sales in such countries) and the aggregate Net Sales of the Products
and aggregate number of units of the Products sold in all other countries in the Territory where the Products are sold during such
Fiscal Quarter and (B) the payments received by the Company in connection with sublicensing the Product Patents and/or Product
Know-How in each of the top ten countries in the Territory (ranked based on total amount of annual payments received in such countries)
and the aggregate payments received by the Company in connection with sublicensing the Product Patents and/or Product Know-How
and aggregate number of the Product Patents and/or Product Know-How subject to sublicensing arrangements in all other countries
in the Territory where the Product Patents and/or Product Know-How are sublicensed during such Fiscal Quarter, it being
understood that the Company shall use its reasonable best efforts to obtain the information required to be delivered to
EPIL under this Section 2.1(b)(iii) and, in the event the Company is unable to obtain any portion of such information, the
Company shall give prompt notice to EPIL, describing the facts and circumstances that give rise to the Company’s inability
to fulfill its obligations hereunder and requesting EPIL’s consent to modify the scope of information and/or time period
in which such information is required to be furnished hereunder, which consent may not be unreasonably withheld, delayed or conditioned
by EPIL.
(c) within
fifteen Business Days following the end of such Fiscal Quarter, a forecast report detailing the Company’s forecast for Net
Sales and sublicense payments for that full calendar year and for each of the remaining Fiscal Quarters in that calendar year;
(d) a
preliminary Net Sales budget by November 15 of each year for the following calendar year;
(e) a
final Net Sales budget by December 15 of each year (or, if later, immediately after approval of such budget by the Board of Directors
of the Company) for the following calendar year; and
(f) the
exchange rates used in converting all Milestone Payments, Royalty Fees and/or Sublicense Fees payable in such Fiscal Quarter to
U.S. dollars from the currency in which the sales of the Products were made in accordance with Sections 1.1, 1.2
and 1.3.
Notwithstanding anything
herein to the contrary, EPIL shall be permitted to publicly disclose (1) country-level information with respect to the Products
in the United States and (2) aggregate information with respect to the Products, Product Patents and/or Product Know-How in the
rest of the world, in each case in Perrigo Company plc’s periodic filings with the SEC, earnings press releases and investor
and analyst conference calls and presentations but only as, and to the extent, required to comply with applicable Laws.
2.2 Records.
The Company shall maintain complete and accurate books and records in sufficient detail to enable EPIL and its Affiliates to (a)
calculate and verify Net Sales of the Products that have obtained Commercial Regulatory Approval payments accrued in connection
with sublicensing the Products, and (b) calculate and verify the Royalty Fees and/or Sublicense Fees payable hereunder in respect
of such Net Sales and/or sublicensing payments received by the Company.
2.3 Audit
Rights. EPIL shall have the right for a period of three years after each payment of Royalty Fees and/or Sublicense Fees
is made to EPIL to appoint at its expense an independent certified public accountant reasonably acceptable to the Company to audit
the relevant records of the Company to verify that the amounts of such Royalty Fees and/or Sublicense Fees were correctly determined.
Upon the request of EPIL, the Company shall, upon five days written notice from the Company and during regular business hours at
such place or places where such records are customarily kept, make its records available for audit by an independent certified
public accountant selected by EPIL to verify that such Royalty Fees and/or Sublicense Fees were correctly determined. Such audit
right shall not be exercised by EPIL more than once in any year and no period may be audited more than once. EPIL shall treat as
confidential information all such records made available for audit. The results of each audit, if any, shall be reported in writing
to the Company promptly (but in no event later than 30 days) after the audit and shall be binding on both EPIL and the Company.
EPIL shall bear the full cost of such audit unless such audit discloses an under-payment by the Company of more than 7.5% of the
relevant amount of royalties in any year, in which case the Company shall reimburse EPIL for all costs incurred by EPIL in connection
with such audit. In the event there is an under-payment to EPIL, the amount of such underpayment shall be paid to EPIL within five
business days of receiving a copy of the audit report. If the discrepancy is an over-payment to EPIL, the amount of such over-payment
shall be paid to EPIL within five business days of receiving a copy of the audit report.
ARTICLE
III
MISCELLANEOUS
3.1 Amendments.
This Deed may be amended, modified or supplemented only by a writing signed by each of the parties hereto.
3.2 Successors
and Assigns. Neither this Deed nor any of the rights or obligations hereunder shall be assigned by any of the parties without
the prior written consent of EPIL and Company; provided, however, that (a) either Party may assign any of its rights
and obligations hereunder to any of its Affiliates without consent so long as such Party remains fully responsible for all of its
obligations under this Deed, (b) the Company may assign or sell any of the Product Patents and/or Product Know-How to any Third
Party without consent so long as such Third Party agrees to assume and remain fully responsible for all of the obligations of the
Company under ARTICLE I and the Company shall remain liable for any failure by such Third Party to satisfy any obligation
set forth under ARTICLE I that would otherwise have been the obligation of the Company and (c) to the extent the Company
undergoes a change of control such that it is no longer a wholly-owned subsidiary of EPIL, the Company shall deliver to EPIL a
guaranty in favor of EPIL by a parent entity of sufficient creditworthiness in such form as is reasonably satisfactory to EPIL.
This Deed shall bind and inure to the benefit of the Company and EPIL and their respective successors and assigns.
3.3 Governing
Law; Jurisdiction. The Parties agree that this Deed shall be construed in accordance with and governed by New York law
without reference to the conflicts or choice of law principles thereof. Any litigation arising out of or relating to this Deed
shall be filed and pursued exclusively in the State or Federal courts in the Southern District of New York, and the Parties hereto
consent to the jurisdiction of and venue in such courts. Service of process upon any Party shall be deemed, in every respect, effective
upon such party if made by prepaid registered or certified mail, return receipt requested.
3.4 Waiver
of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT OR THE OTHER
TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
OTHER DOCUMENTS ENTERED INTO IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
3.5 Headings;
Definitions. The section and other headings contained in this Deed are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Deed. Wherever in this Deed words indicating the plural number appear, such words
shall be considered as words indicating the singular number and vice versa where the context indicates the propriety of such use.
3.6 Counterparts.
This Deed may be executed in counterparts, each of which when so executed shall be deemed to be an original, and all such counterparts
shall together constitute but one and the same instrument. The Parties agree that the delivery of this Deed, and any other agreements
and documents at the Closing, may be effected by means of an exchange of facsimile or electronically transmitted signatures.
3.7 No
Third Party Beneficiaries. The terms and provisions of this Deed are intended solely for the benefit of the parties hereto
and their respective successors and permitted assigns, and it is not the intention of the parties to confer third-party beneficiary
rights, and this Deed does not confer any such rights, upon any other Person.
ARTICLE
IV
DEFINITIONS
4.1 Definitions.
“Affiliate”
means, with respect to any Person, any person directly or indirectly controlling or controlled by or under direct or indirect common
control with such Person (including without limitation its respective officers, directors and employees). For this purpose, “control”
means the power to direct the management and policies of a person through the ownership of securities, by contract or otherwise
and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Business”
shall have the meaning set forth in the recitals of this Deed.
“Business
Day” means any day, other than Saturday, Sunday or any other day on which banks located in the State of New York are
authorized or required to close.
“Co-Promoter”
means a Third Party the Company contracts with to co-promote the Product.
“Commercialization
Regulatory Approval” means, with respect to any Product, the regulatory approval required by applicable Laws to sell
such product in a country or region.
“First Commercial
Sale” means, with respect to any Product in any country in the world, the first sale, transfer or disposition for value
to an end-user of such Product in such country after receipt of Commercialization Regulatory Approval for such country. A sale
of the Product shall be deemed to occur on the earlier of (a) the date the Product is shipped to an end-user or (b) the date of
the invoice to the end-user of such Product.
“Fiscal Quarter”
means one of the four three-month accounting periods that comprise a fiscal year for Seller.
“GAAP”
means United States generally accepted accounting principles, consistently applied.
“Milestone
Events” means the events described in clauses (a), (b) and (c) of Section 1.1 and “Milestone Event”
means any one of such events.
“Milestone
Payment” means the consideration paid to EPIL in connection with a Milestone Event.
“Net Sales”
means the gross amount billed or invoiced by the Company or any of its Affiliates, or Co-Promoters to Third Parties throughout
all countries and territories of the world for sales or other dispositions or transfers for value of the Product less (a) reasonable
allowances for normal and customary trade (including those granted in core distribution agreements and inventory management agreements),
quantity and cash discounts on the Product actually allowed and taken (but excluding price discounts granted at the time of invoice
which are already reflected in the determination of the amount charged), (b) transportation, insurance and postage charges, if
paid by the Company or any Affiliate, or Co-Promoter of the Company (excluding amounts reimbursed by Third Party customers), (c)
credits, chargebacks, rebates or returns on the Product sold pursuant to agreements (including, without limitation, managed care
agreements) or government regulations, accounted for in accordance with GAAP, (d) any tax, tariff, customs duty, excise or other
duty or other governmental charge (other than a tax on income) levied on the sale, transportation or delivery of the Product and
actually paid by the Company, or any of its Affiliates or Co-Promoters and (e) amounts retained by Co-Promoters; provided none
of (a) through (e) shall be included in commercialization costs. In addition, Net Sales are subject to the following:
(i) If
the Company or any of its Affiliates or Co-Promoters effects a sale, disposition or transfer of a Product to a customer in a particular
country other than on customary commercial terms or as part of a package of products and services, the Net Sales of such Product
to such customer shall be deemed to be “the fair market value” of such Product. For purposes of this subsection (i),
“fair market value” shall mean the value that would have been derived had such Product been sold as a separate product
to another customer in the country concerned on customary commercial terms.
(ii) In
the case of pharmacy incentive programs, hospital performance incentive program chargebacks, disease management programs, similar
programs or discounts on “bundles” of products, all discounts and the like shall be allocated among products on the
basis on which such discounts and the like were actually granted or, if such basis cannot be determined, in proportion to the respective
list prices of such products.
(iii) For
purposes of clarity, use of any Product in clinical trials, pre-clinical studies or other research or development activities, or
disposal or transfer of the Products for a bona fide charitable purpose or purposes of a commercially reasonable sampling program
shall not give rise to any Net Sales.
“Product”
shall have the meaning set forth in the recitals of this Deed.
“Product Know-How”
means any and all rights related to the Product and /or the Product Patents, owned, licensed or controlled by the Company or its
Affiliates to include any scientific, pharmaceutical or technical information, data, discovery, invention (whether patentable or
not), know-how, substances, techniques, processes, systems, formulations, designs and expertise which is not generally known to
the public.
“Product Patents”
means any and all rights under any and all patent applications and/or patents anywhere in the world, now existing, currently pending
or hereafter filed or obtained or licensed by the Company or its Affiliates relating to the Product and any sub-divisions, divisions
or extensions of same.
“Royalty Fees”
means the payments described in Section 1.2.
“SEC”
means the Securities and Exchange Commission.
“Sublicense
Fees” means the payments described in Section 1.3.
“Tax”
or “Taxes” means any and all federal, state, local, or foreign net or gross income, gross receipts, net proceeds,
sales, use, ad valorem, value added, franchise, bank shares, withholding, payroll, employment, excise, property, abandoned property,
escheat, deed, stamp, alternative or add-on minimum, environmental, profits, windfall profits, transaction, license, lease, service,
service use, occupation, severance, energy, unemployment, social security, workers’ compensation, capital, premium, and other
taxes, assessments, customs, duties, fees, levies, or other governmental charges of any nature whatever, together with any interest,
penalties, additions to tax, or additional amounts with respect thereto.
“Territory”
means every country, territory, possession or other political subdivision of the world.
“Third Party”
means a Person other than the Company and EPIL and their respective Affiliates.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed
this Deed as of the day and year first written above.
| |
EPIL |
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|
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ELAN PHARMA INTERNATIONAL LIMITED |
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|
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By: |
/s/ Mary Sheahan |
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Name: Mary Sheahan |
| |
Title: |
| |
|
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By: |
/s/ William F. Daniel |
| |
Name: William F. Daniel |
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Title: |
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COMPANY: |
| |
|
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ELAN SCIENCE TEN LIMITED |
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|
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By: |
/s/ Mary Sheahan |
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Name: Mary Sheahan |
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Title: |
| |
|
| |
By: |
/s/ William F. Daniel |
| |
Name: William F. Daniel |
| |
Title: |
[Signature Page to Milestone, Royalty and
Sublicensing Deed]
Exhibit 4.10
EXECUTION COPY
PURCHASE AND SALE AGREEMENT
by and among
ELAN PHARMA INTERNATIONAL LIMITED,
TRANSITION THERAPEUTICS INC.
and, solely for the limited purposes
of Section 6.4(b), Section 6.6(e) and ARTICLE VII,
PERRIGO COMPANY PLC
Table
of Contents
| |
|
Page |
| |
|
|
| ARTICLE I |
purchase and sale of the company |
1 |
| |
|
|
| 1.1 |
Purchase and Sale of the Company |
1 |
| |
|
|
| ARTICLE II |
THE CLOSING |
1 |
| |
|
|
| 2.1 |
Closing |
1 |
| |
|
|
| 2.2 |
Seller’s Deliveries |
1 |
| |
|
|
| 2.3 |
Buyer’s Deliveries |
2 |
| |
|
|
| ARTICLE III |
[reserved.] |
2 |
| |
|
|
| ARTICLE IV |
REPRESENTATIONS AND WARRANTIES OF SELLER |
2 |
| |
|
|
| 4.1 |
Organization and Standing |
2 |
| |
|
|
| 4.2 |
Authority |
2 |
| |
|
|
| 4.3 |
Ownership of Purchased Stock |
3 |
| |
|
|
| 4.4 |
Brokers |
3 |
| |
|
|
| 4.5 |
Organization and Standing of the Company |
3 |
| |
|
|
| 4.6 |
Authority of the Company |
3 |
| |
|
|
| 4.7 |
Capitalization |
3 |
| |
|
|
| 4.8 |
Subsidiaries |
3 |
| |
|
|
| 4.9 |
Noncontravention |
4 |
| |
|
|
| 4.10 |
Compliance with Laws; Permits; Filings |
4 |
| |
|
|
| 4.11 |
Legal Proceedings |
4 |
| |
|
|
| 4.12 |
Material Contracts |
5 |
| |
|
|
| 4.13 |
Labor and Employment Matters |
5 |
| |
|
|
| 4.14 |
Real Property |
5 |
| |
|
|
| 4.15 |
Intellectual Property |
6 |
| |
|
|
| 4.16 |
Assets |
6 |
| |
|
|
| 4.17 |
Taxes |
6 |
| |
|
|
| 4.18 |
Indebtedness |
6 |
| |
|
|
| 4.19 |
Affiliate Transactions |
6 |
| |
|
|
| 4.20 |
Exclusive Representations and Warranties |
6 |
| |
|
|
| ARTICLE V |
REPRESENTATIONS AND WARRANTIES OF BUYER |
7 |
| |
|
|
| 5.1 |
Organization and Standing |
7 |
| |
|
|
| 5.2 |
Authority |
7 |
Table
of Contents
(continued)
| |
|
Page |
| |
|
|
| 5.3 |
Noncontravention |
7 |
| |
|
|
| 5.4 |
Legal Proceedings |
7 |
| |
|
|
| 5.5 |
Hart-Scott-Rodino Act |
8 |
| |
|
|
| 5.6 |
Purchase Entirely for Own Account |
8 |
| |
|
|
| 5.7 |
Independent Investigation; No Other Representations |
8 |
| |
|
|
| ARTICLE VI |
COVENANTS |
8 |
| |
|
|
| 6.1 |
Confidentiality; Publicity |
8 |
| |
|
|
| 6.2 |
Financial Obligations |
10 |
| |
|
|
| 6.3 |
Transfer Taxes |
10 |
| |
|
|
| 6.4 |
Insurance Matters |
10 |
| |
|
|
| 6.5 |
ELND005 Records and Information |
11 |
| |
|
|
| 6.6 |
Further Actions |
12 |
| |
|
|
| 6.7 |
Change and Use of Name |
13 |
| |
|
|
| ARTICLE VII |
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION |
13 |
| |
|
|
| 7.1 |
Survival of Representations, Warranties and Covenants |
13 |
| |
|
|
| 7.2 |
Indemnification by Seller |
13 |
| |
|
|
| 7.3 |
Indemnification by Perrigo Company plc |
14 |
| |
|
|
| 7.4 |
Indemnification by Buyer |
14 |
| |
|
|
| 7.5 |
Limitations; Exclusive Remedy |
14 |
| |
|
|
| 7.6 |
Procedures |
15 |
| |
|
|
| 7.7 |
Treatment of Payments |
15 |
| |
|
|
| ARTICLE VIII |
MISCELLANEOUS |
16 |
| |
|
|
| 8.1 |
Amendments |
16 |
| |
|
|
| 8.2 |
Waivers |
16 |
| |
|
|
| 8.3 |
Public Announcements |
16 |
| |
|
|
| 8.4 |
Notices |
16 |
| |
|
|
| 8.5 |
Assignment |
17 |
| |
|
|
| 8.6 |
Entire Agreement |
17 |
| |
|
|
| 8.7 |
Schedules |
17 |
Table
of Contents
(continued)
| |
|
Page |
| |
|
|
| 8.8 |
Parties in Interest; Third Party Beneficiaries |
18 |
| |
|
|
| 8.9 |
Severability |
18 |
| |
|
|
| 8.10 |
Governing Law; Jurisdiction |
18 |
| |
|
|
| 8.11 |
Waiver of Jury Trial |
18 |
| |
|
|
| 8.12 |
Headings; Definitions |
19 |
| |
|
|
| 8.13 |
Counterparts |
19 |
| |
|
|
| 8.14 |
Construction |
19 |
| |
|
|
| 8.15 |
Expenses |
19 |
| |
|
|
| 8.16 |
Further Assurances |
19 |
| |
|
|
| ARTICLE IX |
DEFINITIONS |
20 |
| |
|
|
| 9.1 |
Definitions |
20 |
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND
SALE AGREEMENT (this “Agreement”), dated as of February 28, 2014, is made by and among Elan Pharma International
Limited, a private limited company incorporated in Ireland with company number 222276 (the “Seller”), Transition
Therapeutics Inc., a Canadian corporation (“Buyer”) and, solely for the limited purposes set forth in Section
6.4(b), Section 6.6(e) and ARTICLE VII, Perrigo Company plc, a public company incorporated in Ireland with company
number 529592 (“Perrigo Company plc”). Seller, the Company and Buyer are sometimes referred to herein individually
as a “Party” and collectively as the “Parties”. Capitalized terms used in this Agreement
have the meanings ascribed to them in ARTICLE IX.
WITNESSETH:
WHEREAS, Seller
owns legally and beneficially 100% of the issued and outstanding share capital of Elan Science Ten Limited, a private limited company
incorporated in Ireland (the “Company”) (the “Purchased Stock”); and
WHEREAS, at
the Closing, upon the terms and subject to the conditions of this Agreement, Seller desires to sell, and Buyer desires to purchase,
all of the Purchased Stock in consideration of the Closing Payment.
NOW, THEREFORE,
in consideration of the premises, representations, warranties, mutual covenants and agreements hereinafter set forth, and for good
and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and
agree as follows:
ARTICLE
I
purchase
and sale of the company
1.1 Purchase
and Sale of the Company. Subject to the terms of this Agreement, at the Closing, Seller shall sell, assign, transfer, convey
and deliver to Buyer, and Buyer shall purchase from Seller, all of Seller’s right, title and interest in and to the Purchased
Stock in exchange for a cash payment on the Closing Date equal to $1.00 (the “Purchase Price”), which shall
be satisfied as set forth in Section 2.3(a).
ARTICLE
II
THE
CLOSING
2.1 Closing.
Upon the terms and subject to the satisfaction or waiver of the conditions contained in this Agreement, the closing of the transactions
contemplated by this Agreement (the “Closing”) shall take place at the offices of Morgan, Lewis & Bockius
LLP at 101 Park Avenue, New York, NY 10178 at 10:00 a.m. (Eastern time) on the date hereof (the “Closing Date”).
2.2 Seller’s
Deliveries. At the Closing, Seller shall deliver or cause to be delivered to Buyer:
(a) an
executed stock transfer form transferring the Purchased Stock along with a share certificate representing the Purchased Stock,
free and clear of any Liens;
(b) the
statutory registers of the Company reflecting Seller as the holder of all of the issued shares in the Company along with the statutory
registers, minute books, common seal and certificate of incorporation of the Company;
(c) a
certified copy of the Memorandum and Articles of Association and certificate of incorporation for the Company;
(d) tax
reference number of Seller for the purposes of the Stamp Duty (E-stamping of Instruments and Self-Assessment) Regulations 2012;
(e) written
resignations in agreed form of (A) each member of the Board of Directors of the Company (B) the secretary and (C) to the extent
requested by Buyer, the officers of the Company in their respective capacities as such; and
(f) the
Transition Services Agreement, duly executed by Seller.
2.3 Buyer’s
Deliveries. At the Closing, Buyer shall deliver or cause to be delivered to Seller:
(a) the
Purchase Price;
(b) the
Transition Services Agreement, duly executed by Buyer; and
(c) the
Guaranty.
ARTICLE
III
[reserved.]
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF SELLER
Seller represents and
warrants to Buyer that each statement contained in this ARTICLE IV is true and correct as of the date hereof except as set
forth in the disclosure schedules accompanying this Agreement (collectively, the “Disclosure Schedule”).
4.1 Organization
and Standing. Seller is duly incorporated, validly existing and in good standing in its jurisdiction of incorporation.
4.2 Authority.
Seller has full power and authority to enter into, deliver and perform this Agreement and each of the Transaction Documents, and
to sell, transfer, assign and convey all right, title and interest in and to the Purchased Stock pursuant to this Agreement. This
Agreement and each of the Transaction Documents have been duly authorized by all requisite corporation action, executed and delivered
by Seller and, assuming that this Agreement and each of the Transaction Documents is a legal, valid and binding obligation of the
other parties thereto (other than the Company), constitute the legal, valid and binding obligations of Seller, enforceable against
Seller in accordance with their respective terms, except as limited by (a) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general principles of equity,
whether such enforceability is considered in a proceeding in equity or at Law.
4.3 Ownership
of Purchased Stock. Seller is the sole legal and beneficial owner of the Purchased Stock, free and clear of all Liens.
Seller is not a party to any option, warrant, purchase right, or other contract or commitment that could require Seller to sell,
transfer, encumber or otherwise dispose of the Purchased Stock (other than this Agreement).
4.4 Brokers.
Except as set forth on Section 4.4 of the Disclosure Schedule, Seller does not have any liability or obligation
to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement. Any
fees, commissions and other obligations payable in connection with the transactions contemplated by this Agreement shall be paid
at or prior to the Closing by Seller.
4.5 Organization
and Standing of the Company. The Company is duly incorporated, validly existing and in good standing in its jurisdiction
of incorporation. The Company has all requisite corporate power and authority to carry on its business as it is presently conducted.
4.6 Authority
of the Company. The Company has full power and authority to enter into, deliver and perform this Agreement. This Agreement
has been duly authorized by all requisite corporate action, executed and delivered by the Company and, assuming that this Agreement
is a legal, valid and binding obligation of the other parties hereto (other than Seller), constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with their respective terms, except as limited by (a)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights
generally and (b) general principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.
4.7 Capitalization.
(a) The
authorized share capital of the Company consists of 100 ordinary shares of US$1, of which 100 ordinary shares are issued and outstanding
and owned legally and beneficially by Seller.
(b) Except
as set forth on Section 4.7(b) of the Disclosure Schedule, (i) there are no outstanding restrictions on transfers or
voting of the shares and (ii) no Person has been granted any agreement or option, or any right or privilege capable of becoming
an agreement or option, for the purchase, subscription, allotment or issue of any shares of the Company.
4.8 Subsidiaries.
The Company does not own or otherwise hold, directly or indirectly, any stock, partnership interest, joint venture interest or
other equity interest in any corporation, trust, partnership, joint venture or other entity.
4.9 Noncontravention.
(a) Neither
the execution, delivery and performance of this Agreement by Seller or the Company, nor the consummation of the transactions contemplated
by this Agreement, will, with or without the giving of notice or the lapse of time or both, (i) violate any provision of the Organizational
Documents of Seller or the Company, (ii) violate any Law or Order applicable to Seller or the Company, or (iii) except as
set forth on Section 4.9(a) of the Disclosure Schedule, violate any Contract to which Seller or the Company is a party,
except in the case of clauses (ii) and (iii) to the extent that any such violation would not reasonably be expected to, individually
or in the aggregate, materially affect Seller’s or the Company’s ability to perform its obligations hereunder.
(b) No
material consent, approval, license, permit, certificate or authorization from any Governmental Authority (each, a “Permit”),
or material registration, declaration or filing with a Governmental Authority (each, a “Filing”), is required
in connection with the execution and delivery of this Agreement by Seller or the Company, the performance by Seller or the Company
of its obligations hereunder and the consummation by Seller or the Company of the transactions contemplated hereby other than Permits
and Filings that have been obtained or made by Seller or the Company prior to the date hereof.
4.10 Compliance
with Laws; Permits; Filings.
(a) The
Business is in compliance with all Laws applicable to it or its business or properties except for any noncompliance that would
not reasonably be expected to be materially adverse to the Company. Such compliance includes, but is not limited to, the Products
having been researched, developed, tested, manufactured, handled, labeled, packaged, stored, supplied, and distributed by or on
behalf of the Company or Seller or any predecessor entities owning assets of the Business, as applicable, in compliance in all
material respects with the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et. seq., and all applicable regulations
promulgated thereunder by the Food and Drug Administration.
(b) All
Permits and Filings that the Business or the Company requires in order to own, lease, maintain, operate and conduct its business
as currently conducted, are, or will be, upon completion of the undertakings set forth in Section 6.6, held by the Company,
except for such Permits or Filings the failure of which to have would not, individually or in the aggregate, be reasonably expected
to be materially adverse to the Company. The Company is in compliance with the terms of all such Permits and Filings except for
any noncompliance that would not reasonably be expected to be materially adverse to the Company. Each such Permit and Filing is,
or will be, upon completion of the undertakings set forth in Section 6.6, valid and in full force and effect, and no suspension,
revocation, or cancellation of such Permit or Filing is pending or threatened.
4.11 Legal
Proceedings. Except as disclosed on Section 4.11 of the Disclosure Schedule, there are no Legal Proceedings pending
or, to the Knowledge of Seller, threatened against Seller, the Company, any predecessor entities owning assets of the Business
or the Business itself that (a) challenge or seek to enjoin, alter or materially delay the transactions contemplated by this Agreement
or (b) would, individually or in the aggregate, reasonably be expected to be material to the Company’s business.
4.12 Material
Contracts. Section 4.12 of the Disclosure Schedule sets forth a list of the material Contracts (including the Real
Property Leases) to which the Company is a party as of the date hereof (collectively, referred to as the “Material Contracts”).
None of the Company or, to the Knowledge of Seller, any other party thereto, is in, or, has received written notice of any, violation
of or default under (including any condition that with the passage of time or the giving of notice would cause such a violation
or default under) any Material Contract other than those violations or defaults that would not, individually or in the aggregate,
reasonably be expected to result in a material adverse effect. Each Material Contract is a valid and binding agreement of the Company
and is in full force and effect (except to the extent such Material Contract terminates or expires after the date hereof in accordance
with its terms), is enforceable against the Company and, to the Knowledge of Seller, each other party thereto, in accordance with
its terms, except (a) as limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar
Laws relating to creditors’ rights generally, (b) as limited by general principles of equity, whether such enforceability
is considered in a proceeding in equity or at Law or (c) for such failures to be valid and binding or in full force and effect
that would not, individually or in the aggregate, reasonably be expected to be material to the Company’s business. The Company
has made available to Buyer a true and complete copy of each Material Contract.
4.13 Labor
and Employment Matters.
(a) Except
as set forth on Section 4.13 of the Disclosure Schedule, (i) the Company is not party to any written employment agreements
that obligate the Company to pay an annual salary to an employee of the Company, other than written employment agreements that
are terminable at will by the Company without penalty and (ii) the Company has no severance liabilities or obligations to any employee
of the Company.
(b) To
the Knowledge of Seller, there are no pending strikes, labor disputes, work stoppages, requests for representation, pickets, work
slow-downs due to labor disagreements or any actions or arbitrations that involve the labor or employment relations of the Company.
The Company is not party to any collective bargaining agreement.
(c) Section
4.13(c) of the Disclosure Schedule contains an accurate and complete list of the Company Plans. Seller has made available to
Buyer true, correct and complete copies of each Company Plan document, including any amendments thereto and in the case of unwritten
Company Plans, written descriptions thereof.
4.14 Real
Property.
(a) Owned
Real Property. The Company does not own any real property.
(b) Leased
Real Property. Section 4.14(b) of the Disclosure Schedule contains a list by street address or location of all
leases and subleases (collectively, the “Real Property Leases”) under which the Company is lessee or lessor
(the “Company-Leased Real Property”).
4.15 Intellectual
Property. All owned and registered Intellectual Property used in the operation of the Business is set forth on Section
4.15 to the Disclosure Schedule. The Company (a) owns free and clear of all Liens, other than Permitted Liens, or has valid
rights to use, all Intellectual Property of the Company and (b) has not received and, to the Knowledge of Seller, the predecessor
entities owning assets of the Business have not received, any written claims that the Company or such entities have infringed or
misappropriated the Intellectual Property of any other Person. There are no currently existing claims of infringement or misappropriation
involving any other person with respect to any Intellectual Property owned or used by the Company.
4.16 Assets.
The assets assigned to the Company pursuant to the Assignment and Assumption Agreement, dated as of February 27, 2014, by and among
Seller, the Company and Elan Pharmaceuticals, LLC, and the assets to be provided pursuant to the Transition Services Agreement,
collectively, constitute all of the material assets necessary for the conduct of the Business as presently conducted.
4.17 Taxes.
Except as set forth on Section 4.17 of the Disclosure Schedule:
(a) All
material Tax Returns required to have been filed by the Company with respect to Taxes have been filed, and each such Tax Return
reflects the liability for Taxes in all material respects. All Taxes shown on such Tax Returns as due have been paid. No predecessor
entity that has owned assets of the Business owes any Taxes with respect to the assets being transferred to Buyer hereunder that
impair Buyer’s title to or Buyer’s use of such assets.
(b) To
Knowledge of Seller, there is no audit currently pending against the Company in respect of any Taxes. There are no material Liens
on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax, other than Permitted
Liens.
(c) The
Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
4.18 Indebtedness.
The Company has no outstanding indebtedness for borrowed money.
4.19 Affiliate
Transactions. Except as set forth on Section 4.19 of the Disclosure Schedule, there are no Contracts between
or among the Company, on the one hand, and any officer, director or member of the Company or to the Knowledge of Seller, any Affiliate
of any officer, director or member of the Company, on the other hand.
4.20 Exclusive
Representations and Warranties. Except for the representations and warranties contained in ARTICLE IV of this Agreement
(as qualified by the Disclosure Schedule), neither Seller, the Company nor any of their respective members, agents or Affiliates
or any of their Representatives, has made or shall be deemed to have made any representation or warranty to Buyer, express or implied,
at Law or in equity, including, without limitation, as to the accuracy or completeness of (a) any cost estimates, financial or
other projections or other predictions that may be contained or referred to in the Disclosure Schedule or elsewhere and (b) any
information, documents or materials regarding the Company furnished or made available to Buyer and its Representatives in any “data
rooms,” “virtual data rooms,” management presentations or in any other form in expectation of, or in connection
with, the transactions contemplated by this Agreement (“Evaluation Material”). Seller and the Company hereby
disclaim any such representations or warranties and Buyer hereby disclaims any reliance upon any Evaluation Material and each acknowledges
and agrees that neither Seller, the Company nor any of their respective members, agents or Affiliates or any of their Representatives
shall have or be subject to any liability to Buyer or any other Person resulting from the distribution to Buyer of, or Buyer’s
use or reliance on, any such Evaluation Material.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF BUYER
Buyer represents and
warrants to Seller that each statement contained in this ARTICLE V is true and correct as of the date hereof.
5.1 Organization
and Standing. Buyer is duly organized, validly existing and in good standing in its jurisdictions of organization.
5.2 Authority.
Buyer has full power and authority to enter into, deliver and perform the Agreement and each of the Transaction Documents. This
Agreement and each of the Transaction Documents to which Buyer is party, have been duly authorized by all requisite corporation
action, executed and delivered by Buyer and, assuming that this Agreement and each of the Transaction Documents to which Buyer
is party is a legal, valid and binding obligation of the other parties thereto, constitutes the legal, valid and binding obligations
of Buyer, enforceable against Buyer in accordance with their respective terms, except as limited by (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar Laws relating to creditors’ rights generally and (b) general
principles of equity, whether such enforceability is considered in a proceeding in equity or at Law.
5.3 Noncontravention.
(a) Neither
the execution, delivery and performance of this Agreement by Buyer, nor the consummation of the transactions contemplated by this
Agreement, will, with or without the giving of notice or the lapse of time or both, (i) violate any provision of the Organizational
Documents of Buyer, (ii) violate any Law or Order applicable to Buyer, or (iii) violate any Contract to which Buyer is a party,
except in the case of clauses (ii) and (iii) to the extent that any such violation would not reasonably be expected to, individually
or in the aggregate, materially affect Buyer’s ability to perform its obligations hereunder.
(b) No
Permit of or Filing with a Governmental Authority is required in connection with the execution and delivery of this Agreement by
Buyer, the performance by Buyer of its obligations hereunder and the consummation by Buyer of the transactions contemplated hereby
other than Permits and Filings that have been obtained or made by Buyer prior to the date hereof.
5.4 Legal
Proceedings. There are no Legal Proceedings pending or, to the Knowledge of Buyer, threatened against Buyer that (a) challenges
or seeks to enjoin, alter or materially delay the transactions contemplated by this Agreement or (b) would, individually or in
the aggregate, reasonably be expected to materially affect Buyer’s ability to perform its obligations hereunder.
5.5 Hart-Scott-Rodino
Act. Buyer has concluded that the value of the transactions described in this Agreement does not exceed the size-of-transaction
jurisdiction test under the Hart-Scott-Rodino Act and the rules promulgated thereunder.
5.6 Purchase
Entirely for Own Account. Buyer is acquiring the Purchased Stock for investment only, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof in violation of any federal or state securities Laws.
5.7 Independent
Investigation; No Other Representations. Buyer acknowledges and agrees that (a) Buyer, together with its advisers, has
carefully and independently inspected, investigated and verified the Company, which includes examining and reviewing such records,
documents, reports and other information of the Company and/or Seller as it deems relevant to the consummation of the transactions
contemplated by this Agreement, (b) none of Seller, its Affiliates, the Company, or any such other person has made, and Buyer is
not relying upon, any representation, warranty or agreement with respect to the accuracy or completeness of the information (written
or oral) provided to Buyer in connection with the Purchased Stock, or with respect to the appropriateness, suitability or sufficiency
of such information for the purpose of enabling Buyer to evaluate such investment, other than the representations, warranties and
agreements of Seller and the Company expressly contained in this Agreement, and (c) Buyer has had adequate opportunity to seek
accounting, legal or other advice or information in connection with its entry into this Agreement and the consummation of the transactions
contemplated hereby.
ARTICLE
VI
COVENANTS
6.1 Confidentiality;
Publicity.
(a) This
Agreement. No Party will make any public announcement or issue any public communication regarding this Agreement or the proposed
transactions or any matter related to the foregoing, without the prior written consent of the other Party (not to be unreasonably
withheld).
(b) Confidential
Information. All Confidential Information shall be maintained in confidence by Seller and shall not be disclosed to any Third
Party or used for any purpose without the prior written consent of Buyer following the Closing Date, except to the extent that
such information: (i) is or becomes part of the public domain through no fault of Seller; or (ii) is subsequently disclosed to
Seller by a Third Party who, in Seller’s reasonable belief, may lawfully do so and is not under an obligation of confidentiality
to Buyer; or (iii) is disclosed pursuant to judicial action or government regulations; provided, Seller notifies Buyer prior
to such disclosure; or (iv) is disclosed to a Third Party or Governmental Authority to the extent that such disclosure is necessary
for Seller to assign and transfer its rights, title and interests in the Business to Buyer in accordance with this Agreement.
(c) Post-Closing
Confidential Information. All Post-Closing Confidential Information shall be maintained in confidence by Seller and shall not
be disclosed to any Third Party or used for any purpose without the prior written consent of Buyer, except to the extent that such
Post-Closing Confidential Information:
(i) was
generally available to the public or otherwise part of the public domain at the time of its disclosure to Seller;
(ii) became
generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or
omission of Seller in breach of this Agreement;
(iii) was
disclosed to Seller, other than under an obligation of confidentiality to the Knowledge of Seller, by a Third Party who had no
obligation to Buyer not to disclose such information to others; or
(iv) was
subsequently developed by Seller without use of the Confidential Information.
Seller may disclose Post-Closing Confidential
Information hereunder to the extent such disclosure is required by applicable Law or reasonably necessary in complying with applicable
stock exchange regulations and requirements; provided, that in making any such disclosure of the Post-Closing Confidential
Information it will, except where impracticable for necessary disclosures, give reasonable advance notice to Buyer of such disclosure
requirement. Notwithstanding the foregoing, Seller shall be permitted to disclose the reports and information delivered by Buyer
pursuant to, or otherwise related to, the Milestone, Royalty and Sublicensing Fee Deed (the “Disclosure Information”)
in Perrigo Company plc’s periodic filings with the SEC, earnings press releases and investor and analyst conference calls
and presentations notwithstanding whether Buyer has publicly disclosed such Disclosure Information but only as, and to the extent,
required to comply with applicable Laws. Furthermore, Seller may disclose the Post-Closing Confidential Information to its Affiliates
and its and its Affiliates’ directors, officers and employees who need to know the Post-Closing Confidential Information;
provided, that any such Party shall have agreed to keep such information confidential pursuant to an agreement of confidentiality
or other confidentiality obligation. In addition, Seller may also disclose the Post-Closing Confidential Information for reasonable
business purposes to its agents, accountants, rating agencies, investors, co-investors, partners, financing sources, insurers and
insurance brokers, underwriters, advisors, lawyers, bankers, trustees and representatives, provided any such party shall have agreed
to keep such information confidential pursuant to an agreement of confidentiality or other confidentiality obligation. Seller may
further disclose this Agreement, the reports and information delivered by Buyer pursuant to the Milestone, Royalty and Sublicensing
Fee Deed in a format mutually agreed upon by the Parties to any assignee or potential assignee of Seller’s rights under this
Agreement pursuant to Section 8.5 who agrees to comply with the confidentiality provisions set forth herein.
6.2 Financial
Obligations.
(a) Transaction
Expenses. Except as otherwise expressly provided in this Agreement and the Registration Rights Agreement, each Party shall
pay its own costs and expenses incurred in anticipation of, relating to and in connection with the negotiation and execution of
this Agreement and the transactions contemplated hereby. Notwithstanding the immediately preceding sentence, Buyer shall pay any
filing fees required by Governmental Authorities, including with respect to Filings or Permits required in connection with the
execution and delivery of this Agreement, the performance of the obligations hereunder and the consummation of the transactions
contemplated hereby.
(b) Contractual
Obligations. Seller and Buyer agree that in the event (i) Buyer or the Company receives an invoice for payment obligations
in connection with, or arising out of, Contracts of the Business relating to the period prior to Closing (an “Invoice”),
(A) Buyer shall promptly discharge all payments owed under the terms of such Invoice and (B) within 30 days of Buyer’s submission
to Seller of reasonable documentation of the payments made by Buyer pursuant to such Invoices, Seller shall reimburse Buyer for
such payments, it being understood that if any Invoice covers a period that includes (but does not end on)
the Closing Date, Seller shall, in each case, only be responsible for reimbursing Buyer for the portion of the Invoice attributable
to the period prior to the Closing Date, or (ii) Seller receives an Invoice, Seller shall promptly discharge all payments owed
under the terms of such Invoice, it being understood that if any Invoice covers a period that includes (but
does not end on) the Closing Date, Seller shall, in each case, only be responsible for paying for the portion of the Invoice attributable
to the period prior to the Closing Date and Buyer shall promptly reimburse any amounts paid by Seller that are in excess thereof.
Within ten Business Days following the end of the first quarter after the Closing Date, Seller and Buyer shall each provide the
other Party with all reasonable documentation supporting the Party’s payment or reimbursement of the Invoices such that the
other Party may verify that the amounts paid or reimbursed by such Party were correctly determined. In the event of any underpayment
by a Party, the amount of such underpayment shall be paid to the other Party within five Business Day of the determination thereof.
6.3 Transfer
Taxes. Notwithstanding any provision of this Agreement to the contrary, all Transfer Taxes incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by Buyer. Buyer shall timely make all filings, Tax Returns,
reports and forms as required to comply with the provisions of such Tax laws and, in connection therewith, Seller shall cooperate
as reasonably requested by Buyer.
6.4 Insurance
Matters.
(a) Continuation
of Insurance Policies of Seller. Seller shall maintain its existing insurance policies, which policies shall (i) provide coverage
for the conduct and development of the clinical studies, testings and trial programs (the “Clinical Programs”)
of the Business as listed on Section 6.4(a) of the Disclosure Schedule as presently conducted and (ii) insure Seller as
the “sponsor” of such Clinical Programs. Until such time as Buyer fulfils the requirements set forth in Section
6.4(b), Seller shall remain the “sponsor” of the Clinical Programs and shall ensure that such coverage remains
in full force and effect and adequate in light of the risks inherent in the Business as presently conducted. So long as Seller
or an Affiliate of Seller remains the sponsor of the Clinical Programs, it shall take all reasonable direction from Buyer in connection
with the conduct of the Clinical Programs and all communications with the Food and Drug Administration or other regulatory agencies
for or on behalf of Buyer.
(b) Insurance
Requirements for Buyer.
(i) As
promptly as practicable after the Closing, Buyer shall use its best efforts to obtain an Acceptable Insurance Policy with coverage
for the Business on terms that are no less favorable than the insurance coverage provided to Seller and/or its Affiliates with
respect to the Business as of the Closing Date. In addition, Seller and Perrigo Company plc shall have the right to obtain an Acceptable
Insurance Policy for Buyer, which coverage Buyer shall be required to accept unless Buyer has already obtained an Acceptable Insurance
Policy and, in connection therewith, Buyer shall pay to Seller an amount equal to $80,000 in cash each year, beginning on the first
day of the first month after Closing, for the premiums due under such policy and Seller shall pay any amounts in excess thereof.
In the event Buyer is unable to obtain an Acceptable Insurance Policy and Seller is unable to obtain an Acceptable Insurance Policy
for Buyer, Buyer shall pay to Seller an amount equal to $80,000 in cash each year beginning on the first day of the first month
after Closing.
(ii) So
long as Seller or an Affiliate of Seller remains the sponsor of the Clinical Programs, neither Buyer, nor the Company nor any of
the Affiliates of, or any Third Parties on behalf of Buyer, may make any material modification to the existing protocols or the
addition of new protocols to the Clinical Programs, without first obtaining Seller’s consent in connection therewith with
respect to whether such proposed modification could reasonably be expected to have a material adverse effect on the health or safety
of the patients enrolled in such Clinical Programs, which consent may not be unreasonably withheld; provided, that Buyer
may terminate any Clinical Program and/or conduct an interim assessment without the approval of Seller; provided, further,
that Buyer may not implement such termination without complying with the obligations set forth under this Section 6.4(b)(ii).
To the extent Seller withholds its consent, Seller and Buyer shall obtain the counsel of a mutually agreed-on Third Party expert
regarding whether the proposed modification to the Clinical Programs would create any materially adverse risk to the health or
safety of such patients; provided, that in the event that Seller and Buyer are unable to agree on their selection of a Third
Party expert, Seller and Buyer shall each select its own Third Party expert and the Third Party experts selected shall mutually
agree on a third Third Party expert. Seller, Buyer and the Third Party expert(s) shall resolve any disagreements as soon as practicable
and in any event within 30 days after the retention of such Third Party expert(s). The Parties agree that the determination of
the Third Party expert(s) that such proposed modifications would (or would not) create any materially adverse risk to the health
or safety of such patients shall be conclusive and binding upon Seller and Buyer and shall not be subject to further review.
6.5 ELND005
Records and Information. Promptly after the Closing, Seller shall take all actions as reasonably requested by Buyer to
transfer the ELND005 Records and Information to Buyer, including assisting Buyer in migrating all electronic data related to the
Business, to Buyer’s systems; provided, that to the extent any portion of the ELND005 Records and Information (a)
resides with any Third Party (including [deleted text: Specific third party]), Seller shall only be obligated to use commercially
reasonable efforts to transfer such ELND005 Records and Information to Buyer or (b) is otherwise not readily transferable to Buyer,
Seller shall, upon reasonable advance notice by Buyer, for so long as Seller retains such ELND005 Records and Information, provide
Buyer with reasonable access during normal business hours to such ELND005 Records and Information and Buyer shall have the right,
at its own expense, to make copies of any such ELND005 Records and Information. In connection with the obligations described in
the preceding clause (b), Seller shall not destroy any ELND005 Records and Information without first offering to turn over possession
to Buyer by written notice at least thirty days prior to the proposed date of destruction.
6.6 Further
Actions. Subject to the terms and conditions of this Agreement, at any time following the Closing:
(a) Generally.
At a Party’s request and without further consideration, the other Parties shall execute and deliver to such requesting Party
such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take
such other actions as such Party may reasonably request in order to consummate the transactions contemplated by this Agreement.
(b) Intellectual
Property. Seller shall use commercially reasonable efforts to execute all documents and instruments, make all filings and take
all actions which may be reasonably appropriate or necessary (i) to secure and maintain protection of the Intellectual Property
of the Company anywhere in the world and (ii) for vesting title thereto in the Company and to give full effect to and to perfect
the rights of Buyer under this Agreement. Notwithstanding anything to the contrary contained herein, Seller shall in no event be
obligated to commence or pursue any Legal Proceedings or incur any out-of-pocket expenses in connection with satisfying any of
the obligations set forth in this Section 6.6(b) and, to the extent Seller incurs any such expenses, Buyer or its Affiliates
shall reimburse Seller for any such expenses within 30 days of Seller’s submission of reasonable evidence of such expenses.
(c) Filings.
As promptly as practicable after Buyer has obtained an Acceptable Insurance Policy as required under Section 6.4, Seller
and Buyer shall cooperate and use commercially reasonable efforts to make all Filings required in the applicable jurisdictions
for and/or deliver notice with respect to the Clinical Programs listed on Section 6.4(b) of the Disclosure Schedule.
(d) Other
Assets. In the event that, in the one year period following the Closing, Buyer or Seller discover that an asset used primarily
in the Business as conducted as of the Closing (and not otherwise provided for under the Transition Services Agreement) is owned
by Seller or any of its Affiliates and, as a result, was not acquired by Buyer by virtue of Buyer’s acquisition of the Purchased
Stock as contemplated by this Agreement, Seller shall, or shall cause its Affiliates to, as applicable, assign, transfer and convey
such assets to the Company and shall execute such further documents and instruments necessary to give effect to and evidence such
assignment, transfer and conveyance. To the extent there exists any such asset used in the Business that may not be assignable
or transferable to the Company, Seller shall use commercially reasonable efforts to provide to Buyer its entire interest in the
benefits of such asset, it being understood that to the extent any Intellectual Property is involved, Seller
shall use commercially reasonable efforts to grant a non-exclusive license or sublicense under such Intellectual Property to the
Company to continue using such Intellectual Property in the manner it was used thereby as of the Closing. Notwithstanding anything
to the contrary contained herein, Seller shall in no event be obligated to incur any out-of-pocket expenses in connection with
satisfying any of the obligations set forth in this Section 6.6(d) and, to the extent Seller incurs any such expenses, Buyer
or its Affiliates shall reimburse Seller for any such expenses within 30 days of Seller’s submission of reasonable evidence
of such expenses.
(e) Perrigo
Company plc. To the extent Seller is unable to satisfy any of the obligations set forth in Sections 6.6(a), (b),
(c) or (d) if the obligation can only be satisfied by an Affiliate of Seller that is not party to this Agreement,
Perrigo Company plc shall cause each such Person to undertake and satisfy the obligations set forth in this Section 6.6
as if such Person were Seller for purposes of this Section 6.6. In connection therewith, Perrigo Company plc shall not,
and shall not permit any of its Affiliates to, take any action that would result in the dissolution, cancellation or the end of
the existence of any of the Affiliates listed on Section 6.6(e) of the Disclosure Schedule for a period of one year after
Closing.
6.7 Change
and Use of Name. Within ten Business Days after Closing, Buyer shall cause the Organizational Documents of the Company
to be amended changing the name of the Company to a name not including “Elan” or any variations thereof or similar
words and shall file the applicable documents relating thereto with the appropriate Governmental Authorities, if required pursuant
to Applicable Law. Buyer agrees that none of Buyer nor any of its Affiliates shall (a) use, register or attempt to register in
their own names or in the names of any of their Affiliates any trademark containing the term “Elan” or any term confusingly
similar thereto or (b) use the name “Elan” on any materials of the Company (including any stationery, sales literature,
packaging materials, displays, signs, sales, marketing and promotional materials, manuals, forms, websites, email, computer software
and other materials and systems). Notwithstanding the foregoing, Buyer may continue to utilize existing clinical drugs and supplies
until such inventories and supplies are exhausted.
ARTICLE
VII
SURVIVAL
OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION
7.1 Survival
of Representations, Warranties and Covenants. Each Party’s representations and warranties shall survive the Closing
until the second anniversary of the Closing Date; provided, that the representation made by Seller under Section
4.3 shall survive for the applicable statute of limitations. Each Party’s covenants shall survive for the applicable
statute of limitations unless a shorter period is specified therein. All claims by either Party for breach of a representation,
warranty or covenant of the other Party shall be made within such applicable period, in which case the particular representation,
warranty or covenant shall survive until the final resolution of the claim.
7.2 Indemnification
by Seller. Subject to the limitations set forth in this ARTICLE VII, Seller shall indemnify, defend and hold Buyer
and its Affiliates (and following the Closing, the Company) and each of their respective Representatives (each, a “Buyer
Indemnified Party”), harmless from and against any and all out-of-pocket liabilities, losses, damages, claims, costs
and expenses, interest, awards, judgments and penalties (including, without limitation, reasonable legal costs and expenses) actually
suffered or incurred by any of them (hereinafter, a “Loss” or “Losses”), in any case whether
or not arising out of any claim from any third party, arising out of or resulting from (a) any breach by Seller or the Company
of any representation or warranty made in ARTICLE IV by Seller or the Company, as applicable, (b) any breach by Seller of
any covenant contained in ARTICLE VI, (c) any claim against the Company or the Business alleging any liability caused by
or resulting from any of the Products solely to the extent that such liability arose from facts or events that existed or occurred
prior to Closing Date, or (d) any claim against the Company by any Business Employee solely with respect to any severance or retention
payment obligation owed to such Business Employee or any other claim arising from facts or events that existed or occurred during
such Business Employee’s employment with the Business prior to the Closing Date.
7.3 Indemnification
by Perrigo Company plc. Subject to the limitations set forth in this ARTICLE VII, Perrigo Company plc shall, until
the fifth anniversary of the Closing, indemnify, defend and hold harmless the Buyer Indemnified Parties from any Losses arising
out of any third party claim that arises out of or results from the conduct of the Clinical Programs (the “Clinical Program
Losses”); provided, that to the extent Buyer obtains an Acceptable Insurance Policy in accordance with Section
6.4, Perrigo Company plc’s indemnification obligation under this Section 7.3 shall continue thereafter solely
with respect to the portion of the Clinical Program Losses not covered by the Acceptable Insurance Policy (which may include Losses
arising out of or resulting from the “Serious Adverse Effects” or “Adverse Effects” (as defined by the
Food and Drug Administration) associated with the use of a Product by a patient as identified in the clinical process and listed
on Section 7.3 of the Disclosure Schedule or otherwise known to Seller and Buyer as of the Closing Date).
7.4 Indemnification
by Buyer. Subject to the limitations set forth in this ARTICLE VII, Buyer shall indemnify, defend and hold harmless
Seller and its Affiliates and each of their respective Representatives (each, a “Seller Indemnified Party”)
from any Losses, in any case whether or not arising out of any claim from any third party, arising out of or resulting from (a)
any breach by Buyer of any representation or warranty made in ARTICLE V or (b) any breach by Buyer of any covenant contained
in ARTICLE VI.
7.5 Limitations;
Exclusive Remedy.
(a) Neither
Buyer nor Seller shall be entitled to recover under the provisions of this ARTICLE VII, (i) in respect of any individual
Loss suffered by the Buyer Indemnified Parties or the Seller Indemnified Parties, respectively, unless and until the amount of
such Loss, or series of related Losses, exceeds $50,000 (the “De Minimis Threshold”), and (ii) unless and until
the aggregate amount of all Losses suffered by the Buyer Indemnified Parties or the Seller Indemnified Parties, respectively, exceeds
$150,000 in the aggregate (the “Deductible”), it being understood that any individual claim
for amounts less than the De Minimis Threshold shall be ignored in determining whether the Deductible has been exceeded.
(b) In
the event of any claim for indemnification under Section 7.2 or Section 7.4,
the maximum aggregate liability of either Buyer or Seller shall in no event exceed $10,000,000 respectively; provided, that
the foregoing shall not apply to any claim for indemnification for any breach of any of the covenants contained in ARTICLE VI
or the representations made by Seller under Sections 4.3 and 4.7 of ARTICLE IV. In the event of any claim
for indemnification under Section 7.3, the maximum aggregate liability of Perrigo Company plc shall in no event exceed $10,000,000.
Except in the case of fraud, from and after the Closing, the indemnification provided pursuant to this ARTICLE VII shall
be the sole and exclusive remedy hereto for any Losses as a result of, with respect to or arising out of the breach of this Agreement.
Notwithstanding the foregoing, this Section 7.5 shall not limit the rights of the Parties to seek equitable remedies
for specific performance or injunctive relief.
(c) Notwithstanding
anything to the contrary contained in this Agreement, except as payable to a third party, no Indemnified Party (as defined below)
shall be entitled to indemnification for any special, consequential, punitive or duplicative Losses.
7.6 Procedures.
In the event that a Party becomes aware of facts or events giving rise to obligations of the other Party under Sections 7.2,
7.3 or 7.4, the Party claiming such indemnification (the “Indemnified Party”)
shall notify the indemnifying Party (the “Indemnifying Party”) of such fact or event in writing, setting forth
specifically the obligation with respect to which the claim is made, the facts giving rise to and the alleged basis for such claim
and, if known or reasonably ascertainable, the amount of the liability asserted or which may be asserted by reason thereof. Such
notice shall be given as promptly as practicable following the discovery by the Indemnified Party of facts that constitute the
basis for a claim against the Indemnified Party and that may give rise to a right of indemnity or promptly following receipt of
notice of the assertion of a claim against the Indemnified Party that may give rise to a right of indemnity; provided,
however, that failure to so notify the Indemnifying Party of any such claim shall discharge the Indemnifying Party of
its liabilities and obligations hereunder only if and to the extent that the Indemnifying Party is materially prejudiced thereby.
In the event of the assertion of a claim against the Indemnified Party that may give rise to a right of indemnity, the Indemnifying
Party shall have the right, upon written notice to the Indemnified Party (a “Defense Notice”) to defend against,
compromise or settle such claim with counsel of the Indemnifying Party’s selection, which counsel shall be reasonably acceptable
to the Indemnified Party; provided, however, that the Indemnifying Party shall not consent to entry of any
judgment or enter into any settlement without the prior written consent of the Indemnified Party to the extent such judgment or
settlement does not include as an unconditional term thereof the release of the Indemnified Party in connection with such claim
or litigation; provided, further, if the Indemnified Party reasonably believes that separate counsel is required
because of a conflict of interest between the Indemnified Party and the Indemnifying Party that precludes effective joint representation,
the Indemnified Party may retain separate counsel of its choice reasonably acceptable to the Indemnifying Party, which fees and
expenses of such counsel shall be borne by the Indemnifying Party to the extent such claim is determined to be an indemnifiable
Loss under this ARTICLE VII. The Indemnified Party at its own expense shall provide such documents, records and other evidence
in their possession, and access to such employees, as the Indemnifying Party may reasonably request, shall cooperate fully with
the Indemnifying Party in defending such claim, and shall take no other action with regard to any indemnified claim or any investigation,
proceeding or action relating thereto, which is in derogation of the Indemnifying Party’s right of control of defense and
which has not been specifically requested or approved in advance by the Indemnifying Party.
7.7 Treatment
of Payments. Seller and Buyer agree to treat any indemnity payment made pursuant to this ARTICLE VII as an adjustment
to the Purchase Price for federal, state, local and foreign income tax purposes.
ARTICLE
VIII
MISCELLANEOUS
8.1 Amendments.
This Agreement may be amended, modified or supplemented only in writing signed by each of the Parties hereto.
8.2 Waivers.
Buyer and Seller may only extend the time for, or waive the performance of, any of the obligations of the other or waive compliance
by the other with any of the covenants contained in this Agreement in writing signed by an officer of the party against whom such
waiver is sought to be enforced. No waiver of any of the provisions of this Agreement will be deemed or will constitute a waiver
of any other provision hereof (whether or not similar), nor will such waiver constitute a continuing waiver unless otherwise expressly
provided.
8.3 Public
Announcements. None of the Parties shall make, issue or release any oral or written public announcement or statement concerning,
or acknowledge the existence of, or reveal the terms, conditions and status of, the transactions contemplated by this Agreement,
without the other Party’s prior written approval of, and concurrence in, the contents of such announcement, acknowledgment
or statement.
8.4 Notices.
Any notice, request, instruction or other document to be given hereunder shall be in writing and delivered personally or sent by
telecopy or prepaid overnight courier, if to:
| Buyer: |
Transition Therapeutics Inc. |
| |
101 College Street, Suite 220
Toronto, Ontario, Canada
M5G 1L7 |
| |
Attention: Chief Financial Officer |
| |
[deleted text: Fax Number] |
| |
|
| With a copy to (which shall not constitute notice): |
Hogan Lovells US LLP |
| |
555 Thirteenth Street, NW
Washington, District of Columbia 20004 |
| |
|
| |
[deleted text: Name and Fax Number] |
| |
|
| Seller: |
Perrigo Company plc |
| |
515 Eastern Avenue
Allegan, Michigan 49010 |
| |
|
| |
[deleted text: Name and Fax Number] |
| With a copy to (which shall not constitute notice): |
Morgan, Lewis & Bockius LLP |
| |
101 Park Avenue |
| |
New York, New York 10178 |
| |
|
| |
[deleted text: Name and Fax Number] |
Any notice or other
communication transmitted in accordance with this Section 8.4 shall for all purposes of this Agreement be treated as
given or effective, if personally delivered, upon receipt, or, if sent by courier, upon the earlier of receipt or the end of the
Business Day following the date of delivery to such courier, or, if telecopied, upon transmission and confirmation of receipt.
8.5 Assignment.
Neither this Agreement nor any of the rights or obligations hereunder shall be assigned by any of the Parties without the prior
written consent of Buyer and Seller; provided, however, that (a) either Party may assign this Agreement or any of
its rights and obligations hereunder to any of its Affiliates without consent so long as such Party remains fully responsible for
all of its obligations under this Agreement and (b) Buyer may assign this Agreement or any of its rights and obligations hereunder
to a Third Party without consent so long as such Third Party agrees to assume and remain fully responsible for all of the obligations
of Buyer hereunder, including with respect to the Milestone, Royalty and Sublicensing Fee Deed, and Buyer shall remain liable for
any failure by such Third Party to satisfy any obligation hereunder that would otherwise have been the obligation of Buyer. Any
attempted assignment in violation of the terms of this Section 8.5 shall be null and void, ab initio.
8.6 Entire
Agreement. The Disclosure Schedule is incorporated into this Agreement by reference. This Agreement, the Disclosure Schedule
hereto and the Transaction Documents embody the entire agreement between the parties and any and all prior oral or written agreements,
representations or warranties, contracts, understandings, correspondence, conversations, and memoranda, whether written or oral,
among Buyer, Seller and Perrigo Company plc or between or among any agents, representatives, parents, subsidiaries, affiliates,
predecessors in interest or successors in interest, with respect to the subject matter hereof, are merged herein and replaced hereby.
If there is any discrepancy or inconsistency between the terms of this Agreement and any other agreement executed by or on behalf
of Seller to transfer any of the Purchased Stock, the terms of this Agreement shall supersede and replace the terms of any such
other agreement with respect to any such discrepancy or inconsistency.
8.7 Schedules.
Except as otherwise provided in this Agreement, all sections of the Disclosure Schedule referred to herein are intended to
be and hereby are made a part of this Agreement. The Disclosure Schedule has been arranged for purposes of convenience only, in
sections corresponding to the Sections of this Agreement. The disclosure of any item in any section or subsection of Disclosure
Schedule will be deemed disclosure with respect to each other section and subsection of the Disclosure Schedule to which the relevance
of such item is reasonably apparent on the face of such disclosure. Certain information set forth in the Disclosure Schedule is
included solely for informational purposes, is not an admission of liability with respect to the matters covered by the information,
and may not be required to be disclosed pursuant to this Agreement. The specification of any dollar amount in the representations
and warranties contained in this Agreement or the inclusion of any specific item in the Disclosure Schedule is not intended to
imply that such amounts (or higher or lower amounts) are or are not material, and no Party shall use the fact of the setting of
such amounts or the fact of the inclusion of any such item in the Disclosure Schedule in any dispute or controversy between the
Parties as to whether any obligation, item, or matter not described herein or included in a Disclosure Schedule is or is not
material for purposes of this Agreement.
8.8 Parties
in Interest; Third Party Beneficiaries. This Agreement is binding upon, inures to the benefit of, and is enforceable by
the Parties hereto and their respective heirs, executors, personal representatives, successors and permitted assigns. No Party
hereto may assign its rights or delegate its obligations hereunder without the prior written consent of the other Party. This Agreement
is not intended to confer upon any third party any rights or remedies under this Agreement, and no Person, other than the Parties
is entitled to rely on any representation, warranty, covenant, or agreement contained in this Agreement. Nothing contained in this
Agreement, express or implied, shall confer upon any employee of any Person or legal representative or beneficiary thereof, any
rights or remedies of any nature or kind whatsoever under or by reason of this Agreement, including any right to employment or
continued employment for any specified period, or level of compensation or benefits.
8.9 Severability.
Any provision of this Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective only to the extent of such invalidity, illegality or unenforceability, without in any way affecting the remaining
provisions hereof in such jurisdiction or rendering that or any other provision of this Agreement invalid, illegal or unenforceable
in any other jurisdiction.
8.10 Governing
Law; Jurisdiction. The Parties agree that this Agreement shall be construed in accordance with and governed by New York
law without reference to the conflicts or choice of law principles thereof. Any litigation arising out of or relating to this Agreement
shall be filed and pursued exclusively in the State or Federal courts in the Southern District of New York, and the Parties hereto
consent to the jurisdiction of and venue in such courts. Service of process upon any Party shall be deemed, in every respect, effective
upon such party if made by prepaid registered or certified mail, return receipt requested, or if personally delivered against receipt
to the address set forth in Section 8.4 or to such other address as a Party may designate in writing to the others.
8.11 Waiver
of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT OR THE OTHER
TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
OTHER DOCUMENTS ENTERED INTO IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
8.12 Headings;
Definitions. The Section and other headings contained in this Agreement are for reference purposes only and shall not in
any way affect the meaning or interpretation of this Agreement. Wherever in this Agreement words indicating the plural number appear,
such words shall be considered as words indicating the singular number and vice versa where the context indicates the propriety
of such use.
8.13 Counterparts.
This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument. The Parties agree that the delivery of this Agreement,
and any other agreements and documents at the Closing, may be effected by means of an exchange of facsimile or electronically transmitted
signatures.
8.14 Construction.
For the purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires:
(a) the meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such
term and vice versa, and words denoting either gender shall include both genders as the context requires; (b) where a word or phrase
is defined herein, each of its other grammatical forms shall have a corresponding meaning; (c) the terms “hereof”,
“herein”, “hereunder”, “hereby” and “herewith” and words of similar import shall,
unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement;
(d) when a reference is made in this Agreement to an Article, Section, paragraph or Schedule, such reference is to an Article,
Section, paragraph or Schedule to this Agreement unless otherwise specified; (e) the word “include”, “includes”
and “including” when used in this Agreement shall be deemed to be followed by the words “without limitation”,
unless otherwise specified; (f) the word “or” is not exclusive; (g) a reference to any Party to this Agreement or any
other agreement or document shall include such Party’s predecessors, successors and permitted assigns; and (h) all accounting
terms used and not defined herein have the respective meanings given to them under GAAP. The Parties hereto have participated jointly
in the negotiation and drafting of this Agreement, and any rule of construction or interpretation otherwise requiring this Agreement
to be construed or interpreted against any Party by virtue of the authorship of this Agreement shall not apply to the construction
and interpretation hereof.
8.15 Expenses.
Except as otherwise specifically provided herein or in the Registration Rights Agreement, each of the Parties shall bear its own
costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated
hereby.
8.16 Further
Assurances. Following the Closing, each of the Parties hereto agrees to use commercially reasonable efforts to take, or
cause to be taken, all other actions and to do, or cause to be done, all other things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by this Agreement.
ARTICLE
IX
DEFINITIONS
9.1 Definitions.
“Acceptable
Insurance Policy” means an insurance policy issued by a nationally recognized insurance carrier with customary terms
and conditions that provides to the insured an amount of coverage equal to or greater than $10,000,000 of losses for a period of
five years.
“Affiliate”
means, with respect to any Person, any person directly or indirectly controlling or controlled by or under direct or indirect common
control with such Person (including without limitation its respective officers, directors and employees). For this purpose, “control”
means the power to direct the management and policies of a person through the ownership of securities, by contract or otherwise
and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Business”
means the research, development, manufacture and commercialization of the Products.
“Business
Day” means any day, other than Saturday, Sunday or any other day on which banks located in the State of New York are
authorized or required to close.
“Business
Employee” means any of [deleted text: Specific employee names]
“Buyer”
shall have the meaning set forth in the introduction to the Agreement.
“Buyer Indemnified
Party” shall have the meaning set forth in Section 7.2.
“Clinical
Program Losses” shall have the meaning set forth in Section 7.3.
“Clinical
Programs” shall have the meaning set forth in Section 6.4(a).
“Closing”
shall have the meaning set forth in Section 2.1.
“Closing Date”
shall have the meaning set forth in Section 2.1.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Company”
shall have the meaning set forth in the introduction to the Agreement.
“Company Plan”
means each plan, program, policy, agreement or other arrangement (in each case, other than as required by statute) whether covering
a single individual or group of individuals, that is (a) an employee welfare plan within the meaning of Section 3(1) of ERISA,
(b) an employee pension benefit plan within the meaning of Section 3(2) of ERISA, or (c) a material bonus, equity incentive,
deferred compensation, profit-sharing, vacation, severance or employment or fringe-benefit plan, program, policy, agreement or
other arrangement, in each case that is sponsored, maintained or contributed to by the Company or to which the Company contributes
or is obligated to contribute to or has any liability.
“Company-Leased
Real Property” has the meaning set forth in Section 4.14(b).
“Confidential
Information” means all embodiments of, and information relating to, the Business transferred to Buyer, including, without
limitation, (a) information concerning the Products, Product Patents, Product Know-How, patent positioning, strategic plans or
business opportunities relating to the Product; and (b) all materials, compounds, formulations, techniques, methodology, assay
systems, formulae, procedures, tests, equipment, routes of synthesis, data, reports, know-how, sources of supply, pre-clinical
and clinical studies, relationships with consultants and employees, information concerning the existence, scope or activities of
any research, development or manufacturing, and information about or belonging to suppliers, contractors or others relating to
the development of the Product.
“Contract”
means any written contract, lease, license, indenture, undertaking or other agreement that is legally binding.
“De Minimis
Loss” shall have the meaning set forth in Section 7.5.
“Deductible”
shall have the meaning set forth in Section 7.5.
“Defense Notice”
shall have the meaning set forth in Section 7.6.
“Derivative”
means any compounds identified, obtained, developed, created, synthesized, generated, designed or resulting from, based upon, containing
or incorporating the chemical structure of Scyllo-Inositol as those compounds are generically and/or specifically disclosed and
claimed in the Product Patents.
“Disclosure
Information” shall have the meaning set forth in Section 6.1(c).
“ELND005 Records
and Information” means (in physical or electronic format) all minute books, stock books, stock ledgers, books of account,
manuals, general and financial records, data, invoices, member, customer and supplier lists, correspondence (including all correspondence
with Governmental Authorities), technical literature, maintenance and operating records, advertising and promotional materials,
credit records of customers, books and records required by applicable Law to be maintained, and other documents, books, records
and files, in each case related to the Business.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and the rules and the regulations promulgated thereunder.
“Evaluation
Material” shall have the meaning set forth in Section 4.20.
“Filing”
shall have the meaning set forth in Section 4.9(b).
“Governmental
Authority” means any foreign, domestic, federal, state or local governmental entity, authority, instrumentality, court,
agency, ministry or other similar body, or any political or other subdivision, department or branch of any of the foregoing, exercising
executive, legislative, judicial, regulatory or administrative authority or functions of or pertaining to government, including
any authority or other quasi-governmental entity established to perform any of such functions.
“Guaranty”
means that certain Guaranty, dated as of the date hereof, delivered by Buyer in favor of Seller pursuant to which Buyer shall guaranty
the Company’s performance of its obligations as set forth in the Milestone, Royalty and Sublicensing Fee Deed.
“Governmental
Order” means any order, rules, writ, judgment, injunction, decree, stipulation, determination or award entered by or
with any Governmental Authority.
“Indemnified
Party” shall have the meaning set forth in Section 7.6.
“Indemnifying
Party” shall have the meaning set forth in Section 7.6.
“Intellectual
Property” means all intellectual property rights of any type or nature, whether established by Law or contractual agreement,
however, denominated, throughout the world, including trademarks, trade names, service marks, service names, mark registrations,
logos, assumed names, domain names, the goodwill in any of the foregoing; works of authorship, registered and unregistered copyrights,
software, data, databases; technology, inventions, trade secrets, patents and patent applications, moral rights, rights of privacy
and publicity, along with all rights to prosecute and perfect the same through administrative prosecution, registration, recordation,
or other administrative proceeding, including all choses in action and rights to sue or seek other remedies arising from or relating
to the foregoing.
“Invoices”
shall have the meaning set forth in Section 6.2(b).
“Knowledge”
means, (a) in the case of Seller, the actual knowledge (as opposed to any constructive or imputed knowledge) [deleted text:
Specific Names] and (b) in the case of Buyer, the actual knowledge (as opposed to any constructive or imputed knowledge) of
[deleted text: Specific Names].
“Law”
means any international, federal, state, local or foreign statute, law, ordinance, treaties, regulation, rule, code, order or other
requirement or rule of law.
“Legal Proceeding”
means any notice, demand, claim, action, suit, arbitration, inquiry, hearing, proceeding, notice of violation or investigation
by or before any Governmental Authority or Person or qui tam relator (whether civil, criminal or administrative in nature).
“Lien”
means any claim, lien, pledge, encumbrance, option, right of first refusal, or other restrictions of any nature or kind, whether
voluntarily incurred or arising by operation of Law.
“Loss”
shall have the meaning set forth in Section 7.2.
“Material
Adverse Effect” means any change or event that is materially adverse to the business, assets, properties, or financial
condition of the Company, taken as a whole; provided, however, that any changes or events resulting from the following
items shall not be considered when determining whether a Material Adverse Effect has occurred (but, in the case of clauses (a),
(b), (c) and (d) solely to the extent such changes or events do not affect the Company disproportionately to other companies in
the same industry): (a) changes in economic, political, regulatory, financial or capital market conditions generally or in the
industries in which the Company operates (including the inability to finance the acquisition or any increased costs for financing
or suspension of trading in, or limitation on prices for, securities on any domestic or international securities exchange) or any
failure or bankruptcy (or any similar event) of any financial services or banking institution or insurance company, (b) any acts
of war (declared or undeclared), hostilities, sabotage, terrorist activities, any escalation of the foregoing, or changes imposed
by a Governmental Authority associated with additional security, (c) effects of weather, meteorological events or other acts of
God, (d) any change of Law, accounting standards, regulatory policy or industry standards after the date hereof or any chance in
interpretation of any of the foregoing, (e) any condition described in the Disclosure Schedule, (f) any actions taken by, or at
the request of, Buyer (including any breach by Buyer of this Agreement), (g) any failure by the Company to meet projections or
forecasts or revenue or earnings predictions for any period (but, for the purposes of clarity, not the underlying cause of such
failure), and (h) any actions required to be taken pursuant to this Agreement.
“Material
Contract” shall have the meaning set forth in Section 4.13.
“Milestone,
Royalty and Sublicensing Fee Deed” means that certain Milestone, Royalty and Sublicensing Fee Deed, dated as of February
27, 2014, by and between Seller and the Company, pursuant to which the Company shall pay to Seller certain Milestone Payments,
Royalty Fees and Sublicensing Fees (each, as defined therein) on the terms and conditions set forth therein.
“Order”
means any award, injunction, judgment, order, writ, decree or ruling entered, issued, made, or rendered by any Governmental Authority
that possesses competent jurisdiction.
“Organizational
Documents” means, with respect to any Person, the memorandum and articles of association, certificate of incorporation
or organization, certificate of formation, by-laws, limited partnership agreement, partnership agreement, limited liability company
agreement, shareholders agreement or such other organizational documents of such Person.
“Party(ies)”
shall have the meaning set forth in the introduction to the Agreement.
“Permit”
shall have the meaning set forth in Section 4.9(b).
“Permitted
Lien” means (a) any Lien for Taxes not yet due or delinquent or being contested in good faith, (b) any landlords’,
mechanics’, workmen’s, repairmen’s, warehousemen’s, carriers’ or other like Lien arising in the ordinary
course of business with respect to a liability that is not yet due or delinquent or that is being contested in good faith, (c)
imperfections or irregularities of title and other Liens that would not, individually or in the aggregate, materially detract from
the value of, or materially interfere with, the present use and enjoyment of the asset or property subject thereto or affected
thereby, (d) any Lien arising pursuant to, or as a result of the transactions contemplated by, or described in, this Agreement,
(e) arising pursuant to applicable securities Laws and (f) any Lien being released in connection with the Closing.
“Perrigo Company
plc” shall have the meaning set forth in the introduction to the Agreement.
“Person”
means any individual, partnership, limited liability company, firm, corporation, association, trust, unincorporated organization
or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended.
“Post-Closing
Confidential Information” means any information concerning the Product Patents, Product Know-How and any other information
and materials furnished by Buyer or the Company on or after the Closing pursuant to this Agreement or the Milestone, Royalty and
Sublicensing Fee Deed.
“Product”
means any pharmaceutical preparation or dosage form containing Scyllo-Inositol or a Derivative thereof.
“Product Know-How”
means any and all rights related to the Product and /or the Product Patents, owned, licensed or controlled by Seller or its Affiliates
to include any scientific, pharmaceutical or technical information, data, discovery, invention (whether patentable or not), know-how,
substances, techniques, processes, systems, formulations, designs and expertise which is not generally known to the public.
“Product Patents”
means any and all rights under any and all patent applications and/or patents anywhere in the world, now existing, currently pending
or hereafter filed or obtained or licensed by Seller or its Affiliates relating to the Product and any sub-divisions, divisions
or extensions of same.
“Purchase
Price” shall have the meaning set forth in Section 1.1.
“Purchased
Stock” shall have the meaning set forth in the introduction to the Agreement.
“Real Property
Leases” has the meaning set forth in Section 4.14(b).
“Registration
Rights Agreement” means that certain Registration Rights Agreement, dated as of or around the date hereof, by and between
Transition Therapeutics, Inc., a Canadian corporation, and Elan Corporation Limited, a private limited company incorporated in
Ireland.
“Representatives”
means, with respect to any Person, the officers, directors, managers, employees, counsel, accountants, financial advisers and consultants
of such Person.
“SEC”
means the Securities and Exchange Commission.
“Seller”
shall have the meaning set forth in the introduction to the Agreement.
“Seller Indemnified
Party” shall have the meaning set forth in Section 7.4.
“Tax”
or “Taxes” means, other than any Transfer Taxes, any and all federal, state, local, or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, bank shares, withholding, payroll, employment,
excise, property, abandoned property, escheat, deed, stamp, alternative or add-on minimum, environmental, profits, windfall profits,
transaction, license, lease, service, service use, occupation, severance, energy, unemployment, social security, workers’
compensation, capital, premium, and other taxes, assessments, customs, duties, fees, levies, or other governmental charges of any
nature whatever, together with any interest, penalties, additions to tax, or additional amounts with respect thereto.
“Tax Returns”
means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
“Third Party” means a
Person other than Buyer and Seller and their respective Affiliates.
“Transaction
Documents” mean the Guaranty, Transition Services Agreement and the Milestone, Royalty and Sublicensing Fee Deed.
“Transfer
Taxes” means sales, use, transfer, real property transfer, recording, documentary, stamp, registration and stock transfer
taxes and fees.
“Transition
Services Agreement” means that certain Transition Services Agreement, dated as of the date hereof, by and between Buyer
and Seller, pursuant to which Seller will provide Buyer with certain transition services on the terms and conditions set forth
therein.
[Signature Page Follows.]
IN WITNESS WHEREOF,
the parties have each caused this Agreement to be executed as of the day, month and year first above written.
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BUYER: |
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TRANSITION THERAPEUTICS INC. |
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By: |
/s/ Tony Cruz |
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Name: |
Tony Cruz |
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Title: |
Chairman and Chief Executive Officer |
[Signature Page to Purchase and Sale Agreement]
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SELLER: |
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ELAN PHARMA INTERNATIONAL LIMITED |
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By: |
/s/ Mary Sheahan |
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Name: |
Mary Sheahan |
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Title: |
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Solely for the limited purposes set forth in |
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Section 6.4(b), Section 6.6(e) and ARTICLE VII: |
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PERRIGO COMPANY PLC |
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By: |
/s/ Joe Papa |
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Name: |
Joe Papa |
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Title: |
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[Signature Page to Purchase and Sale Agreement]
Exhibit 8.1
Subsidiaries
Exhibit 12.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
SECURITIES AND EXCHANGE COMMISSION RULE
13a-14(a)
I, Tony Cruz, Chief Executive Officer of Transition Therapeutics
Inc., certify that:
| 1. | I have reviewed this annual report on Form 20-F of Transition Therapeutics Inc. (the company) for the year ended June 30,
2015; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s
internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company’s auditors and audit committee of the company’s board of directors (or persons
performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting. |
| Date: September 15, 2015 |
|
| |
|
| /S/ TONY CRUZ |
|
| Tony Cruz |
|
| Chief Executive Officer |
|
Exhibit 12.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
SECURITIES AND EXCHANGE COMMISSION RULE
13a-14(a)
I, Nicole Rusaw, Chief Financial Officer of Transition Therapeutics
Inc., certify that:
| 1. | I have reviewed this annual report on Form 20-F of Transition Therapeutics Inc. (the company) for the year ended June 30,
2015; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s
internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company’s auditors and audit committee of the company’s board of directors (or persons
performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting. |
| Date: September 15, 2015 |
|
| |
|
| /S/ NICOLE RUSAW |
|
| Nicole Rusaw |
|
| Chief Financial Officer |
|
Exhibit 13.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
I, Tony Cruz, Chief Executive Officer of Transition Therapeutics
Inc. (the “Company”), in compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, hereby certify, in connection with the Company’s Annual Report as filed on Form 20-F
for the fiscal year ending June 30, 2015 with the Securities and Exchange Commission (the “Report”),
that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
| Date: September 15, 2015 |
|
| |
|
| /S/ TONY CRUZ |
|
| |
|
| Tony Cruz |
|
| Chief Executive Officer |
|
Exhibit 13.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
I, Nicole Rusaw, Chief Financial Officer of Transition Therapeutics
Inc. (the “Company”), in compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, hereby certify, in connection with the Company’s Annual Report as filed on Form 20-F
for the fiscal year ending June 30, 2015 with the Securities and Exchange Commission (the “Report”),
that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
| Date: September 15, 2015 |
|
| |
|
| /S/ NICOLE RUSAW |
|
| |
|
| Nicole Rusaw |
|
| Chief Financial Officer |
|
Exhibit 15.1
Consent of Independent Auditor
We hereby consent to the incorporation
by reference in the registration statement on Form F-3 (No. 333-189879) and Form S-8 (No. 333-157279) of Transition
Therapeutics Inc. of our report dated September 14, 2015 relating to the financial statements and the effectiveness of
internal control over financial reporting, which appears as an Exhibit in this Form 20-F, which is incorporated in this
annual report on Form 20-F.
| /s/
PricewaterhouseCoopers LLP |
| |
| Chartered Professional Accountants, Licensed Public Accountants |
| Toronto, Ontario |
| |
| September 15, 2015 |
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