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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(Mark One)

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

For the quarterly period ended September 30, 2020

OR

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

For the transition period from                     to

Commission File Number: 001-38899


Milestone Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)


Quebec

    

Not applicable

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

1111 Dr. Frederik-Philips Boulevard, Suite 420

Montréal, Québec CA H4M 2X6

(514) 336-0444

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


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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Shares

MIST

The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of November 6, 2020, the registrant had 29,822,897 common shares, no par value per share, outstanding.


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Table of Contents

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

1

SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS

2

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statements of Loss and Comprehensive Loss

5

Condensed Consolidated Statements of Shareholders’ Equity and Convertible Preferred Shares

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3.

Defaults Upon Senior Securities

71

Item 4.

Mine Safety Disclosures

71

Item 5.

Other Information

71

Item 6.

Exhibits

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

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

the initiation, timing, progress and results of our current and future clinical trials of etripamil, including our Phase 3 clinical trials of etripamil for the treatment of paroxysmal supraventricular tachycardia, or 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 ability to finalize the registration plan for etripamil in PSVT, which is dependent on future discussions with the U.S. Food and Drug Administration, or FDA  and other regulatory agencies;
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;

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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;
the impact of the COVID-19 pandemic, or other public health emergencies, and their effects on our operations, clinical trials and financial position, and potential effects on the operations of third-parties with whom we conduct business;
developments relating to our competitors and our industry; and
the factors that may impact our financial results.

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

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

SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties, including those discussed at length in the section titled "Risk Factors." These risks include, among others, the following:

We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We will require substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate our development of etripamil or other operations.
Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our product candidates.
We have only one product candidate, etripamil, for which we are currently pursuing clinical development. Our future success is substantially dependent on the successful clinical development and regulatory approval of

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etripamil. If we are not able to obtain required regulatory approvals for etripamil or any future product candidates, we will not be able to commercialize etripamil or any future product candidates and our ability to generate revenue will be adversely affected.
We may not be successful in our efforts to expand our pipeline of product candidates beyond etripamil for PSVT.
Success in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials and we cannot assure you that any ongoing, planned or future clinical trials will lead to results sufficient for the necessary regulatory approvals.
Our business, operations and clinical development timelines and plans have been adversely affected by the effects of health epidemics, including the COVID-19 pandemic, and could be affected by future health epidemics.
As an organization, we have never successfully completed pivotal clinical trials, and we may be unable to do so for any product candidates we may develop, including our pivotal Phase 3 clinical trials for the treatment of PSVT.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell etripamil or any future product candidates, we may not be successful in commercializing etripamil or any future product candidates, if and when they are approved.
Even if etripamil or any future product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.
Even if we obtain and maintain approval for etripamil or any future product candidates from the FDA, we may never obtain approval of etripamil or any future product candidates outside of the United States, which would limit our market opportunities and could harm our business.
We will rely on third parties to produce clinical and commercial supplies of etripamil and any future product candidates.
If we are unable to obtain and maintain patent protection for etripamil or any future product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize drugs similar or identical to ours, and our ability to commercialize successfully our product candidates may be impaired.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Milestone Pharmaceuticals Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands of US dollars, except share data)

    

September 30, 2020

    

December 31, 2019

Assets

  

 

  

Current assets

  

 

  

Cash and cash equivalents

$

46,910

 

$

119,818

Short-term investments (note 3)

56,000

Research and development tax credits receivable

822

 

578

Prepaid expenses

3,504

 

1,845

Other receivables

183

 

258

Total current assets

107,419

 

122,499

Operating lease right-of-use assets

1,045

524

Property and equipment

333

 

405

Total assets

$

108,797

 

$

123,428

Liabilities

  

 

  

Current liabilities

  

 

  

Accounts payable and accrued liabilities (note 5)

$

5,647

 

$

7,997

Current portion of operating lease liabilities

234

 

330

Total current liabilities

5,881

 

8,327

Operating lease liabilities

718

 

184

Total liabilities

6,599

 

8,511

Shareholders’ Equity (note 6, note 9)

  

 

  

Share capital

  

 

  

Common shares, no par value, unlimited shares authorized, 24,727,000 shares issued and outstanding as of September 30, 2020, 24,505,748 shares issued and outstanding as of December 31, 2019.

226,758

 

226,245

Pre-funded warrants - 6,655,131 issued and outstanding at September 30, 2020

24,770

Additional paid-in capital

7,104

 

3,805

Cumulative translation adjustment

(1,634)

 

(1,634)

Accumulated deficit

(154,800)

 

(113,499)

Total shareholders’ equity

102,198

 

114,917

Total liabilities, and shareholders’ equity

$

108,797

 

$

123,428

Subsequent Events (note 9)

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)

Three months ended September 30, 

Nine months ended September 30, 

    

2020

   

2019

   

2020

   

2019

Operating expenses

 

  

 

  

  

 

  

Research and development, net of tax credits (note 8)

 

$

8,228

 

$

9,545

$

28,722

 

$

27,836

General and administrative

 

2,952

 

2,104

8,611

 

4,725

Commercial

 

905

 

2,076

4,615

 

6,428

Loss from operations

 

$

(12,085)

 

$

(13,725)

$

(41,948)

 

$

(38,989)

Interest income, net of bank charges

 

89

 

821

630

 

1,993

Loss and comprehensive loss before income taxes

 

(11,996)

 

(12,904)

(41,318)

 

(36,996)

Income tax recovery

 

(17)

 

(73)

(17)

 

(55)

Net loss and comprehensive loss for the period

 

$

(11,979)

 

$

(12,831)

$

(41,301)

 

$

(36,941)

Weighted average number of shares outstanding, basic and diluted

29,774,065

24,490,742

26,329,581

12,848,974

Net loss per share, basic and diluted (note 7)

 

$

(0.40)

 

$

(0.52)

$

(1.57)

 

$

(2.87)

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

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Shareholders’ Equity and Convertible Preferred Shares

(Unaudited)

(thousands of US dollars, except per share data)

Convertible Preferred Shares

Common Shares

Class A1

Class A2

Class B

Class C

Class D1

Class D2

Pre-funded warrants

    

Number
of shares

    

Amount

    

Number
of shares

    

Amount

    

Number
of shares

    

Amount

    

Number
of shares

    

Amount

    

Number
of shares

    

Amount

    

Number
of shares

    

Amount

    

Number
of shares

    

Amount

    

Number
of warrants

    

Amount

    

Additional
paid-in
capital

    

Cumulative
translation
adjustment

    

Accumulated
deficit

    

Total

Balance as of December 31, 2018

596,787

$

2,039

372,211

$

2,027

2,443,914

$

12,643

2,830,907

$

17,198

3,786,878

$

27,236

6,893,236

64,719

1,223,656

14,935

$

$

2,655

$

(1,634)

$

(58,270)

$

83,548

Transactions in three-month period ended March 31, 2019

 

Net loss and comprehensive loss

(10,452)

(10,452)

Exercise of stock options (note 6)

18,153

51

(26)

25

Share-based compensation (note 6)

211

211

Balance at March 31, 2019

614,940

$

2,090

372,211

$

2,027

2,443,914

$

12,643

2,830,907

$

17,198

3,786,878

$

27,236

6,893,236

64,719

1,223,656

14,935

$

$

2,840

$

(1,634)

(68,722)

$

73,332

Transactions in three-month period ended June 30, 2019

Net loss and comprehensive loss

(13,658)

(13,658)

Share-based compensation (note 6)

276

276

Initial public offering

6,325,000

85,363

85,363

Preferred share Conversion (note 6)

17,550,802

138,758

(372,211)

(2,027)

(2,443,914)

(12,643)

(2,830,907)

(17,198)

(3,786,878)

(27,236)

(6,893,236)

(64,719)

(1,223,656)

(14,935)

Balance at June 30, 2019

24,490,742

$

226,211

$

$

$

$

$

$

3,116

$

(1,634)

$

(82,380)

$

145,313

Transactions in three-month period ended September 30, 2019

Net loss and comprehensive loss

(12,831)

(12,831)

Exercise of stock options (note 6)

Share-based compensation (note 6)

350

350

Balance at September 30, 2019

24,490,742

$

226,211

$

$

$

$

$

$

3,466

$

(1,634)

$

(95,211)

$

132,832

Balance as of December 31, 2019

24,505,748

$

226,245

$

$

$

$

$

$

3,805

$

(1,634)

(113,499)

$

114,917

Transactions in three-month period ended March 31, 2020

Net loss and comprehensive loss

(16,343)

(16,343)

Exercise of stock options (note 6)

53,722

133

(56)

77

Share-based compensation (note 6)

981

981

Balance at March 31, 2020

 

24,559,470

$

226,378

 

 

$

 

 

$

 

 

$

 

 

$

 

$

$

$

$

4,730

 

$

(1,634)

 

$

(129,842)

 

$

99,632

Transactions in three-month period ended June 30, 2020

Net loss and comprehensive loss

(12,979)

(12,979)

Exercise of stock options (note 6)

133,483

298

(126)

172

Share-based compensation (note 6)

1,191

1,191

Balance at June 30, 2020

24,692,953

$

226,676

$

$

$

$

$

$

5,795

$

(1,634)

$

(142,821)

$

88,016

Transactions in three-month period ended September 30, 2020

Net loss and comprehensive loss

(11,979)

(11,979)

Exercise of stock options (note 6)

34,047

82

(34)

48

Share-based compensation (note 6)

1,343

1,343

Pre-funded warrants - Private Placement (note 6)

6,655,131

24,770

24,770

Balance at September 30, 2020

24,727,000

$

226,758

$

$

$

$

6,655,131

$

24,770

$

7,104

$

(1,634)

$

(154,800)

$

102,198

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)

Nine months ended September 30, 

2020

    

2019

Cash flows from

Operating activities

Net loss for the period

$

(41,301)

$

(36,940)

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of property and equipment

72

14

Share-based compensation expense (note 6)

3,515

837

Changes in operating assets and liabilities:

Other receivables

75

(110)

Research and development tax credits receivable

(244)

(166)

Prepaid expenses

(1,659)

(2,119)

Operating lease right of use asset, net

(83)

(11)

Accounts payable and accrued liabilities

(2,350)

4,001

Income taxes payable (receivable)

(55)

Net cash used in operating activities

(41,975)

(34,549)

Investing Activities

Acquisition of property and equipment

(312)

Acquisition of short-term investments

(60,000)

(35,000)

Redemption of short-term investments

4,000

5,029

Net cash used in investing activities

(56,000)

(30,283)

Financing activities

Net proceeds from issuance of common shares in Initial Public Offering

85,361

Issuance of common shares on exercise of share options (note 6)

297

25

Net proceeds from issuance of pre-funded warrants in a private placement (note 9)

24,770

Net cash provided by financing activities

25,067

85,386

Net increase (decrease) in cash and cash equivalents during the period

(72,908)

20,554

Cash and cash equivalents – Beginning of period

119,818

85,947

Cash and cash equivalents – End of period

$

46,910

$

106,501

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

2     Summary of significant accounting policies

a)  Basis of consolidation

The consolidated financial statements include the accounts of the Company and Milestone Pharmaceuticals USA, Inc. 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 new standard described in note 2 c). 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, 2019.

In the opinion of the Company's management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of  September 30, 2020, and its results of operations for the three and nine months ended September 30, 2020 and 2019.

The condensed consolidated balance sheet as of December 31, 2019, was derived from audited annual consolidated financial statements, but does not contain all of the footnote disclosures required by accounting principles generally accepted in the United States of America.

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

The preparation of unaudited interim condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the 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.

The Company will continue to evaluate the COVID-19 pandemic impact on the development timelines of its clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and

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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)

judgments. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.

c) Recently adopted accounting pronouncement

New Accounting Policies - Financial Instruments - Credit Losses

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. The Company adopted ASU 2016-13 effective January 1, 2020 and the adoption did not have an impact on the measurement of credit losses.

d) Significant Risks and Uncertainties

With the global spread of the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business.  The Company anticipates that the COVID-19 pandemic will continue to have an impact on the development timelines for its clinical programs.  The extent to which the COVID-19 pandemic continues to impact its business, its clinical development and regulatory efforts, its corporate development objectives and the value of and market for its common shares will depend on future developments that remain highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease.  The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidate; delays or problems in the supply of its study drug or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing its intellectual property rights; and complying with applicable regulatory requirements.  In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

e) Sources of Liquidity and Funding Requirements

Since inception, the Company incurred significant operating losses. Prior to May 2019, the Company financed its operations primarily through sales of convertible preferred shares to accredited investors generating net proceeds of $138.8 million. In May 2019, the Company received net proceeds of $85.4 million from its Initial Public Offering (IPO).

In July 2020, the Company received $24.7 million of net proceeds from the private placement of pre-funded warrants to existing shareholders (note 6).

The Company has incurred operating losses and experienced negative operating cash flows since its inception and anticipates to continue to incur losses for at least the next several years. As of September 30, 2020, the Company had cash, cash equivalents and short-term investments of $102.9 million and an accumulated deficit of $154.8 million. In October 2020, the Company concluded an offering of common shares and pre-funded warrants for gross proceeds of $51.7 million (note 9).

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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)

Management expects the Company’s current operating plan and existing cash, cash equivalents and short-term investments to be sufficient to fund its operations and determined that there are no events or conditions that may cast substantial doubt on the Company’s ability to continue as a going concern for at least the next 12 months from the date of issuance of these unaudited interim financial statements.

3 Short-term investments

Short-term investments are comprised of term deposits issued in US currency, earning interest between 0.48% and 0.86%, maturing between October 1, 2020 and August 16, 2021. These short term investments are in scope of ASC 320, Investments - Debt Securities. The short term investments maturity is greater than 90 days but less than one year, they are classified as held to maturity, recorded as current assets and are accounted for at amortized cost.

4     Operating lease

On July 1, 2020, the Company entered into an arrangement for the lease renewal for its headquarters located in Ville Saint-Laurent, Quebec. The 5-year lease term is from December 1, 2020 expiring on November 30, 2025. The Company revalued the operating lease right-of-use asset and operating lease liabilities at the effective lease arrangement date of July 1, 2020. The interest rate implicit in lease contracts is not readily determinable and the Company does not have a public credit rating and carries no debt.  As such, several factors were considered in the determination of the Company’s incremental borrowing rate used in determining the present value of lease payments.  The Company’s examined credit ratings for similar companies, assumed equivalency between the Canadian and U.S. markets for collateralized debt and used rates for the remaining lease term of 65 months.  This resulted in an incremental borrowing rate of 5.26%. Lease expenses are recognized on a straight-line basis over the lease term, which is accomplished by increasing the amortization of the right-of-use asset as interest expense on the lease liability declines over the lease term. The Company is not reasonably certain of renewing the lease following the current renewal option and recognized the right-of-use asset and operating lease liabilities to November 30, 2025.

Right-of-use balance as at January 1, 2020

    

$

524

Right-of-use adjustment renewal on July 1, 2020

735

Amortization of right-of-use asset nine-month period ended September 30, 2020

(214)

$

1,045

Operating lease expenses for the nine-month period ended September 30, 2020 was $240 [2019 – $202], which are included in general and administrative operating expenses in the consolidated statement of loss and comprehensive loss, and within operating activities in the statement of cash flows for the nine-month period ended September 30, 2020, and are comprised of two operating lease right-of-use assets.

The following table summarizes the future minimum lease payments of operating lease right-of-use assets as at September 30, 2020:

October 1, 2020 to September 30, 2021

    

$

283

October 1, 2021 to September 30, 2022

277

October 1, 2022 to September 30, 2023

167

October 1, 2023 to September 30, 2024

167

October 1, 2024 to September 30, 2025

167

October 1, 2025 to November 30, 2025

15

1,076

Less interest

(124)

$

952

10


Table of Contents

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)

5     Accounts payable and accrued liabilities

Accounts payable and accrued liabilities comprised the following:

    

September 30, 2020

December 31, 2019

Trade accounts payable

 

$

4,256

$

4,376

Accrued research and development liabilities

 

413

1,513

Other accrued liabilities

 

296

331

Accrued compensation and benefits payable

 

682

1,777

 

$

5,647

$

7,997

6      Shareholders’ equity

Authorized share capital

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

As of September 30, 2020, 523,821 common shares were available under the ESPP and no common shares have been issued.

During the nine-month period ended September 30, 2020, the Company issued a total of 221,252 common shares [2019 –18,153] for a total cash consideration of $297 [2019 - $25] pursuant to the exercise of 221,252 stock options [2019 – 18,153] at an average exercise price of US$1.34 per option [2019 – US$1.32]. As a result, an amount of $216 [2019 - $26] 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.

Pre-funded warrants – Private Placement

On July 23, 2020, the Company entered into a securities purchase agreement to sell and issue in a private placement pre-funded warrants to purchase up to an aggregate of 6,655,131 of the Company’s common shares, at a purchase price of $3.7465 per pre-funded warrant for aggregate net proceeds of $24.8 million (the Private Placement).  The Private Placement closed on July 24, 2020. Each pre-funded warrant is exercisable for one of the Company’s common shares at an exercise price of $0.01 per share, has no expiration date, and is immediately exercisable, subject to certain beneficial ownership limitations. The pre-funded warrants are classified and accounted for as equity.  

 

Open Market Sale Agreement

On July 29, 2020, the Company entered into an Open Market Sale Agreement℠ (the Sales Agreement) with respect to an at-the-market offering program (ATM Program) under which the Company may issue and sell its common shares having an aggregate offering price of up to $50 million. The Company has not sold shares under the ATM program as of the date of this filing.

Additional paid-in capital

Three months ended September 30, 

Nine months ended September 30, 

2020

    

2019

2020

    

2019

Opening balance

$

5,795

 

$

3,116

$

3,805

 

$

2,655

Share-based compensation expense

1,343

 

350

3,515

 

837

Exercise of stock options

(34)

 

(216)

 

(26)

Closing balance

$

7,104

 

$

3,466

$

7,104

 

$

3,466

11


Table of Contents

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)

Share-based compensation

Under the 2019 Plan and 2011 Plan, unless otherwise decided by the Board of Directors, options vest and are exercisable as follows: 25% vest and are exercisable on the one year anniversary of the grant date and one thirty-sixth (1/36th) of the remaining options vest and are exercisable each month thereafter, such that options are vested in full on four-year anniversary of the grant date. In the nine-month period ended on September 30, 2020, the Company granted stock options under the 2019 Plan that also vest and are exercisable in equal monthly installments over periods of 12 months to 48 months.

On January 1, 2020, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 980,229 common shares.  In addition, 42,576 options forfeited under the 2011 Plan after adoption of the 2019 Plan and became available for issuance under the 2019 Plan. As of September 30, 2020, there were 3,339,738 shares available for issuance under the 2019 Plan, of which 1,686,048 shares were available for future grants.

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

2020

2019

Weighted

Weighted

Number

average

Number

average

of shares

exercise

of shares

exercise

    

2019 Plan

   

2011 Plan

   

Total

   

price

   

2019 Plan

   

2011 Plan

   

Total

   

price

Outstanding at beginning of period - 2011 Plan

 

2,364,526

2,364,526

$

2.15

 

2,295,045

2,295,045

$

1.77

Outstanding at beginning of period - 2019 Plan

220,140

220,140

20.78

Granted - 2011 Plan

 

 

116,739

116,739

9.42

Granted - 2019 Plan

1,474,460

1,474,460

12.91

241,378

241,378

20.34

Exercised - 2011 Plan

(221,252)

(221,252)

1.34

(18,153)

(18,153)

1.32

Forfeited - 2011 Plan

 

(28,478)

(28,478)

2.57

 

Forfeited - 2019 Plan

(37,913)

(37,913)

21.46