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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from                to               

Commission File Number: 001-38899

Milestone Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)

1111 Dr. Frederik-Philips Boulevard, Suite 420

Montréal, Québec CA H4M 2X6

(514) 336-0444

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

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

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

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

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

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

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

As of June 14, 2019, the registrant had 24,490,742 common shares, no par value per share, outstanding.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would,”  or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

·                  the initiation, timing, progress and results of our current and future clinical trials of etripamil, including our Phase 3 clinical trials of etripamil for the treatment of PSVT, and of our research and development programs;

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

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

·                  our ability to successfully acquire or in-license additional product candidates on reasonable terms;

·                  our ability to establish collaborations or obtain additional funding;

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

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

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

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

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

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

·                  our expectations regarding government and third-party payor coverage and reimbursement;

·                  our ability to compete in the markets we serve;

·                  the impact of government laws and regulations;

·                  developments relating to our competitors and our industry; and

·                  the factors that may impact our financial results.

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” and elsewhere in this report. In light of the significant uncertainties in these forward looking statements, you should not rely upon forward looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements in this report, whether as a result of new information, future events or otherwise, after the date of this report.

Unless the context otherwise requires, the terms “Milestone,” “Milestone Pharmaceuticals,” “the company,” “we,” “us,” “our” and similar references in this Quarterly Report on Form 10-Q refer to Milestone Pharmaceuticals Inc. and its consolidated subsidiary. All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars. References to “$” are to United States dollars and references to “C$” are to Canadian dollars.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Milestone Pharmaceuticals Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands of US dollars, except share data)

Subsequent events (note 10)

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

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

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

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

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Shareholders’ Deficit and Convertible Preferred Shares

(Unaudited)

(thousands of US dollars, except per share data)

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

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(thousands of US dollars)

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

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

1                 Organization and nature of operations

Milestone Pharmaceuticals Inc. (Milestone or the Company) is a Phase 3 clinical-stage biopharmaceutical company incorporated under the Business Corporations Act of Quebec. Milestone is dedicated to developing and commercializing etripamil for the treatment of cardiovascular indications. Etripamil is a novel, potent short-acting calcium channel blocker that the Company designed and is developing as a rapid-onset nasal spray to be administered by the patient to terminate episodes of paroxysmal supraventricular tachycardia as they occur.

Reverse stock split

On April 26, 2019, the Company’s Board of Directors approved an amendment to the Company’s articles of incorporation to effect a 1-for-5.3193 reverse stock split of the Company’s common shares, convertible preferred shares and the share options of the Company. Accordingly, all common shares, convertible preferred shares, share options and per share amounts in these unaudited interim consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split. The reverse stock split was effected on April 26, 2019.

2                 Summary of significant accounting policies

a) Basis of consolidation

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Milestone Pharmaceuticals USA, Inc. Milestone Pharmaceuticals USA, Inc. began its operations on March 3, 2017. All intercompany transactions and balances have been eliminated.

b) Basis of presentation and use of accounting estimates

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and on a basis consistent with those accounting principles followed by the Company and disclosed in note 2 of its most recent annual consolidated financial statements, except for the adoption of ASC 842 “Leases” described in c) below.  Certain information, in particular the accompanying notes normally included in the annual financial statements prepared in accordance with US GAAP have been omitted or condensed.  Accordingly, the unaudited interim condensed consolidated financial statements do not include all the information required for full annual financial statements, and therefore, should be read in conjunction with the annual consolidated financial statements and the notes thereto for the year ended December 31, 2018.

In the opinion of the Company, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2019, and its results of operations for the three months ended March 31, 2019 and 2018.  The condensed consolidated balance sheet as of December 31, 2018, was derived from audited annual consolidated financial statements, but does not contain all of the footnote disclosures from the annual consolidated financial statements.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

2                 Summary of significant accounting policies (Cont’d)

b) Basis of presentation and use of accounting estimates (Cont’d)

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

The preparation of unaudited interim condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to, research and development tax credits recoverable, research and development expenses, and share-based compensation. Accordingly, actual results may differ from those estimates and such differences may be material.

c) Adoption of FASB Accounting Standards

Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, “Leases”.  This ASU requires substantially all leases to be recorded on the balance sheet as right-of-use asset and lease obligations.  The Company elected the package of practical expedients permitted under the transition guidance and applied the modified retrospective approach which allowed the Company to carry forward the historical lease classification.  Adoption of this standard resulted in the recording of an operating lease right-of-use asset and corresponding operating lease liabilities of $0.3 million.  The Company’s condensed consolidated balance sheets for reporting periods beginning on January 1, 2019 are presented under the new guidance, while prior period amounts were not adjusted and continue to be reported in accordance with previous guidance.

The Company does not record an operating lease right-of-use asset and corresponding lease liability for leases with an initial term of twelve months or less and recognizes lease expense for these leases as incurred over the lease term.  Upon adoption date, the Company had only one operating lease with a remaining term of less than 12 months for its offices located in Charlotte, NC, which will terminate on July 31, 2019, and for which the Company is not reasonably certain of renewing the lease. The remaining operating lease payments are $22. As of March 31, 2019, the Company has not entered into any additional lease arrangements.

Operating lease right-of-use asset and operating lease liabilities are recognized upon the adoption date based on the present value of lease payments over the remaining lease term. The Company does not have a public credit rating and carries no debt.  As such, several factors were considered in the determination of its incremental borrowing rate used in determining the present value of lease payments.  The Company examined the Bloomberg credit ratings for similar companies; assumed equivalency between the Canadian and US markets for collateralized debt; factored in the cumulative dividend rate on convertible preferred

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

2                 Summary of significant accounting policies (Cont’d)

c) Adoption of FASB Accounting Standards (Cont’d)

shares; and used short-term rates for the remaining lease term of 23 months.  This resulted in electing to use 8% as its incremental borrowing rate.  Lease expense is recognized on a straight-line basis over the lease term.  The Company’s lease arrangement does not have lease and non-lease component which are accounted for separately.  Upon adoption and as at March 31, 2019, the Company had one operating lease right-of-use asset and approximately $39 of the operating lease right-of-use asset had been amortized.  The adoption of the accounting standard did not materially impact the Company’s consolidated statement of operations or its consolidated statement of cash flows for the three months ended March 31, 2019.

The Company operating lease right-of-use asset is as follows as at March 31, 2019:

Operating lease expenses of $44 are included in general and administrative operating expenses in the consolidated statement loss and comprehensive loss, and within operating activities in the statement of cash flows for the three-month period ended March 31, 2019.

The following table summarizes the future minimum lease payments of right-of-use assets operating lease as at March 31, 2019:

As at December 31, 2018, the Company had a lease commitment for its headquarters located in Ville Saint-Laurent, Quebec, expiring on November 30, 2020 with an option to renew for an additional three years and a commitment for its office located in Charlotte, North Carolina, expiring on July 30, 2019. The minimum lease payments as at December 31, 2018 were as follows:

Total rental expense under operating leases for the year ended December 31, 2018 was $232.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

3                 Prepaid expenses

Prepaid expenses consisted of the following:

4                       Other receivables

Other receivables are comprised of:

5                 Accounts payable and accrued liabilities

Accounts payable and accrued liabilities comprised the following:

6                 Shareholders’ deficit

Authorized share capital

An unlimited number of common shares, voting and participating, without par value

During the three-month period ended March 31, 2019, the Company issued a total of 18,153 common shares [2018 — 37,675] for a total cash consideration of $25 [2018 - $30] pursuant to the exercise of 18,153 stock options [2018 — 37,675] at an average exercise price of US$1.3225 per option [2018 — US$1.06 per option]. As a result, an amount of $26 [2018 - $25] previously included in additional paid-in capital related to the exercised options has been credited to share capital and deducted from additional paid-in capital.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

6                 Shareholders’ deficit (Cont’d)

Additional paid-in capital

Share-based compensation

On October 15, 2018, the Company amended for a third time and restated the share option plan (the 2011 Plan) whereby options to purchase common shares of the Company’s shares may be granted to directors, officers, employees, consultants and members of the scientific advisory board. The 2011 Plan is administered by the Board of Directors. The Board of Directors determines the number of options to be granted, the vesting period and the exercise price of new options. It is the Company’s policy to establish the exercise price at an amount that approximates the fair value of the underlying shares on the date of grant as determined by the Board of Directors.

Under the 2011 Plan, unless otherwise decided by the Board of Directors, options vest and are exercisable as follows: 25% are exercisable from the first anniversary of grant date and 2.0833% become available at the end of each month after the first anniversary of grant date.

As of March 31, 2019, there were 3,238,943 options available for awards under the 2011 Plan, of which 2,898,351 options were granted, 49,845 were cancelled/forfeited, leaving 390,437 available for future grants.

The outstanding and exercisable options as at March 31 were as follows:

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

6                 Shareholders’ deficit (Cont’d)

Share-based compensation (Cont’d)

As of March 31, 2019, the weighted average remaining contractual life was 8.5 years [2018 — 8.7 years]. The weighted average remaining contractual life was 6.6 years for vested options [2018 — 6.9 years].  There were no options forfeited for the three-month period ended March 31, 2019 (2018 —12,198).

Options granted are valued using the Black-Scholes option pricing model. Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ deficit. The weighted average fair values of options granted in the three-month period ended March 31, 2019 was $6.6493 per share [2018 - $1.5426]. Share-based compensation expense recognized for the three-month period ended March 31, 2019 was $211 [2018 - $125].

As of March 31, 2019, there was $3,047 [2018 - $1,333] of total unrecognized compensation cost, related to non-vested share options, which is expected to be recognized over a remaining weighted average vesting period of 3.0 years [2018 — 3.4 years].

The non-vested options as at March 31 were as follows:

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

The fair value of options granted was estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for the options granted for the three-month periods ended March 31:

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

6                 Shareholders’ deficit (Cont’d)

Share-based compensation (Cont’d)

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

Share-based payment awards with performance targets attainable after the requisite service period are treated as performance conditions that affect vesting. No compensation expense is recorded related to an award for which the transfer to the employee is contingent on the attainment of a performance target until it becomes probable that the performance target will be met.

The Company recognized share-based compensation expense as follows for the three months ended March 31:

7                 Net loss per share

Basic and diluted net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average number of common shares outstanding during the period. The outstanding convertible preferred shares and share-based compensation have been excluded from the calculation because their effects would be anti-dilutive. Therefore, the weighted average number of shares used to calculate both basic and diluted loss per share are the same.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of March 31, as they would be anti-dilutive:

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

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

8                 Government assistance

The Company incurred research and development expenditures that are eligible for investment tax credits. The investment tax credits recorded are based on management’s estimates of amounts expected to be recovered and are subject to audit by the taxation authorities. These amounts have been recorded as a reduction of research and development expenditures for an amount of $78 for the three-month period ended March 31, 2019 [2018 - $82].

9                 Fair value of financial instruments

Pursuant to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

The fair value hierarchy is broken down into the three input levels summarized below:

Level 1 — Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by the Company at the reporting date.

Level 2 — Valuations based on inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets.

Level 3 — Valuations based on unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

The Company has determined that the carrying values of its short-term financial assets and liabilities were measured using Level 1 inputs and approximate their fair value given the short-term nature of these instruments.

10          Subsequent events

Initial Public Offering

On May 13, 2019, the Company completed its initial public offering (“IPO”), whereby the Company issued 5,500,000 common shares at a public offering price of $15.00 per share. The shares began trading on The Nasdaq Global Select Market on May 9, 2019. On May 15, 2019, the underwriters fully exercised their option to purchase an additional 825,000 common shares at the public offering price of $15.00 per share. The gross proceeds received by the Company from the offering were approximately $94.9 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. Upon the closing of the IPO, all outstanding shares of Class A1, A2, B, C, D1 and D2 preferred shares converted into 17,550,802 common shares.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

10          Subsequent events (Cont’d)

Stock Incentive Plans

The Company’s board of directors adopted and its shareholders approved the 2019 Equity Incentive Plan (the “2019 Plan”) in April 2019, which then became effective on May 8, 2019 in connection with the IPO. Initially, the maximum number of the Company’s common shares that may be issued under the 2019 Plan is 4,710,564 shares, which is the sum of (1) 1,923,501 new shares, plus (2) the number of shares (not to exceed 2,787,063 shares) (i) that remained available for the issuance of awards under the 2011 Plan at the time the 2019 Plan became effective, and (ii) any shares subject to outstanding options or other share awards that were granted under the 2011 Plan that terminate, expire or are otherwise forfeited, reacquired or withheld. In addition, the number of the Company’s common shares reserved for issuance under the 2019 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2020 through January 1, 2029, in an amount equal to 4% of the total number of the Company’s capital shares outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company’s board of directors. As of May 8, 2019, the Company’s 2011 Plan was terminated and no further option grants will be made under the 2011 Plan.

Additionally, the Company’s board of directors adopted and its shareholders approved the 2019 Employee Share Purchase Plan (“ESPP”) in April 2019, which then became effective on May 8, 2019. The number of common shares initially reserved for issuance under the ESPP was 278,734 common shares. The number of shares reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2020 through January 1, 2029, by the lesser of (1) 1% of the total number of shares of the Company’s share capital outstanding on the last day of the calendar month before the date of the automatic increase and (2) 487,837 shares; provided that before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). As of the date hereof, no shares of the Company’s share capital have been purchased under the ESPP.

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

The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Prospectus that forms a part of our Registration Statement on Form S-1 (File No. 333-230846), which was filed with the Securities and Exchange Commission, or SEC, pursuant to Rule 424 on May 9, 2019, or the Prospectus.

Overview

We are a Phase 3 clinical-stage biopharmaceutical company dedicated to developing and commercializing etripamil for the treatment of cardiovascular indications. Etripamil is a novel, potent and short-acting calcium channel blocker that we designed and are developing as a rapid-onset nasal spray to be administered by the patient to terminate episodes of paroxysmal supraventricular tachycardia, or PSVT, as they occur. PSVT is a rapid heart rate condition that starts and stops without warning, often experienced by patients with symptoms including palpitations, sweating, chest pressure or pain, shortness of breath, sudden onset of fatigue, lightheadedness or dizziness, fainting and anxiety. Calcium channel blockers have long been approved for the treatment of PSVT as well as other cardiac conditions. For episodes of PSVT, however, calcium channel blockers are administered intravenously under medical supervision, usually in the emergency department. Etripamil’s combination of convenient delivery, rapid-onset and short duration of action has the potential to shift the current treatment paradigm away from the burdensome and costly emergency department setting. If approved, we believe that etripamil will be the first self-administered therapy for the rapid termination of episodes of PSVT wherever and whenever they occur.

We completed our Phase 2 clinical trial of etripamil for the treatment of PSVT in the United States and Canada, with results published in the Journal of the American College of Cardiology. Investigators reported an 87% termination rate of induced PSVT within 15 minutes at the dose selected for Phase 3 versus a 35% termination rate for placebo. We are actively recruiting patients for our Phase 3 clinical trial of etripamil, which may serve as a single pivotal efficacy trial, and we expect top-line data in the first half of 2020. In addition to the efficacy trial, our Phase 3 clinical program for etripamil for PSVT includes two open-label safety studies, one of which we initiated in December 2018, and the other we expect to initiate in the second half of 2019. We are also planning to initiate a Phase 2 clinical trial in the second half of 2019 in atrial fibrillation, another rapid heart rate condition, and expect to subsequently initiate an additional Phase 2 clinical trial in angina to establish proof-of-concept for the broader use of etripamil in 2020.

Since the commencement of our operations in 2003, we have devoted substantially all of our resources to performing research and development activities in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We do not currently have any products approved for sale, and we continue to incur significant research and development and general administrative expenses related to our operations.

Since inception, we have incurred significant operating losses. For the three months ended March 31, 2019 and 2018, we recorded net losses of $10.5 million and $4.2 million, respectively. As of March 31, 2019, we had an accumulated deficit of $68.7 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development, obtaining regulatory approval and preparing for potential commercialization of our product candidates.

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

·                  continue our ongoing and planned development of etripamil, including our Phase 3 clinical trial of etripamil for the treatment of PSVT;

·                  seek marketing approvals for etripamil for the treatment of PSVT and other cardiovascular indications and any future product candidates that successfully complete clinical trials;

·                  establish a sales, marketing, manufacturing and distribution capability to commercialize etripamil or any future product candidate for which we may obtain marketing approval;

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

·                  initiate preclinical studies and clinical trials for etripamil for any additional indications we may pursue, including the Phase 2 clinical trials for the treatment of atrial fibrillation and angina, and for any additional product candidates that we may pursue in the future;

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·                  maintain, protect and expand our intellectual property portfolio;

·                  hire additional clinical, regulatory and scientific personnel; and

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

Initial Public Offering

On May 13, 2019, we completed our initial public offering, or IPO, whereby we issued 5,500,000 common shares at a public offering price of $15.00 per share. The shares began trading on The Nasdaq Global Select Market on May 9, 2019. On May 15, 2019, the underwriters fully exercised their option to purchase an additional 825,000 common shares at the public offering price of $15.00 per share. We received net proceeds from the IPO of approximately $85.5 million, after deducting underwriting discounts and commissions and other estimated offering expenses. Upon the closing of the IPO, all outstanding shares of our preferred shares converted into 17,550,802 common shares.

Reverse Stock Split

On April 26, 2019, the Company’ Board of Directors approved an amendment to the Company’s articles of incorporation to effect a 1-for-5.3193 reverse stock split of the Company’s common shares, convertible preferred shares and the share options of the Company.  Accordingly, all common shares, convertible preferred shares, share options and per share amounts in the consolidated financial statements and MD&A have been retroactively adjusted for all periods presented to give effect to the reverse stock split.  The reverse stock split was effected on April 26, 2019.

Components of Results of Operations

Research and Development Expenses

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

To date, substantially all of our research and development expenses have been related to the preclinical and clinical development of etripamil. Historically, we have incurred research and development expenses that primarily relate to the development of etripamil for the treatment of PSVT.  As we advance etripamil or other product candidates for other indications, we expect to allocate our direct external research and development costs across each of the indications or product candidates. Further, while we expect our research and development costs for the development of etripamil in atrial fibrillation and angina to increase in preparation for each of their respective Phase 2 clinical trials, we expect our research and development expenses related to the development of etripamil for PSVT to remain a large majority of our research and development expenses. The following table shows our research and development expenses by type of activity for the three months ended March 31, 2019 and 2018.

We expect our research and development expenses to increase substantially as we increase personnel costs, including share-based compensation, and as we continue the development of etripamil and pursue regulatory approval. The process of conducting the necessary

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clinical research to obtain regulatory approval is costly and time-consuming. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if at all.

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

General and Administrative Expenses

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

We expect to incur additional expenses as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities, and other administrative and professional services. We also expect to increase our administrative headcount significantly to operate as public company and as we advance etripamil and any future product candidates through clinical development, which will also increase our general and administrative expenses.

Interest Income

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

Results of Operations

Comparison of the Three Months Ended March 31, 2019 and 2018

The following table summarizes our results of operations and changes:

Research and Development Expenses

Research and development (“R&D”) expenses increased by $4.7 million, or 151%, for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. During the quarter ended March 31, 2019, the Company recorded $7.8 million in research and development expenses.  Spending during the period was primarily related to advancing its Phase 3 efficacy and safety trials in etripamil for the treatment of PSVT and increases in headcount related expenses to support the trials. The company spent approximately $5.4 million on these programs in the first quarter of 2019 and recorded personnel and related R&D costs of $2.5 million. During the same period of 2018 the Company recorded expenses of $3.1 million including $1.3 million related to the start-up costs for the efficacy trial in etripamil for the treatment of PSVT and recorded personnel and R&D related costs of $1.9 million. We also recognized $0.1 million of research and development investment tax credits provided by the provincial government of Québec in the three-month periods ended March 31, 2019 and 2018 which are recorded as a reduction of our research and development expenses.

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General and Administrative Expenses

General and administrative expenses increased by $0.5 million, or 123% for the three months ended March 31, 2019 compared to the three months ended March 31, 2018. During the first quarter of 2019, we increased our managerial headcount and professional fees to support the Company’s growth, and as a result, the related personnel costs.  In addition, we incurred increased spending for consulting fees, recruiting fees and professional fees, including legal and accounting services incurred to support the preparation work for the IPO.

Commercial Expenses

Commercial expenses increased by $1.5 million, or 202%, for the three months ended March 31, 2019 when compared to 2018, primarily to support increased commercial headcount and related costs, conduct additional commercial and market research, increase the scope of our patient advocacy activities and initiate a small medical affairs team focused on key opinion leaders’ engagement and disease awareness.

Interest Income, Net

Interest income, net of bank charges was $0.5 million and $0.1 million for the three-month periods ended March 31, 2019 and 2018, respectively. The increase in the first quarter of 2019 reflects increased earnings on cash, cash equivalents and short-term investments related to the proceeds from the October 2018 Series D preferred share financing.

Net Loss

For the foregoing reasons, we had net losses of $10.4 million and $4.2 million for the three months ended March 31, 2019 and 2018, respectively.

Liquidity and Capital Resources

Sources of Liquidity

Prior to our IPO, we financed our operations primarily through sales of our convertible preferred shares to accredited investors generating net proceeds of approximately $138.8 million.

We have incurred operating losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years. As of March 31, 2019, we had cash, cash equivalents and short-term investments of $71.3 million and an accumulated deficit of $68.7 million.

Based on our current operating plan, we expect our existing cash, cash equivalents and short-term investments, together with the net proceeds from the IPO, will be sufficient to fund our operations into the third quarter of 2021. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect.

Funding Requirements

We use our cash primarily to fund research and development expenditures. We expect to incur an increase in research and development expenses as well as general and administrative expenses and commercial activities as our R&D progresses. We expect to incur increasing operating losses for the foreseeable future as we continue the clinical development of our product candidate. At this time, due to the inherently unpredictable nature of clinical development, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval, and commercialize etripamil or any future product candidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast whether current or future product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

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

·                  the timing, progress and results of our ongoing and planned clinical trials of etripamil in PSVT and in other cardiovascular indications;

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

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

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

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

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

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

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

·                  the costs of operating as a public company;

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into collaboration arrangements or selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition, results of operations and prospects.

Cash Flows

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