SEC Filing | Milestone Pharmaceuticals, Inc.

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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 June 30, 2023

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

For the transition period from to

Commission File Number: 001-38899

Milestone Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)

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

1111 Dr. Frederik-Philips Boulevard, Suite 420

Montréal, Québec CA H4M 2X6

(514) 336-0444

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

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

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

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

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

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

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

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

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

As of August 10^th, 2023, the registrant had 33,382,769 common shares, no par value per share, outstanding.

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		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		1

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Loss	4
	Condensed Consolidated Statements of Shareholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION	27

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

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

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

●

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

●

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

●

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

●

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

●

our ability to establish collaborations or obtain additional funding;

●

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

●

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

●

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

●

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;

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●

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

●

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

●

our ability to compete in the markets we serve;

●

the impact of government laws and regulations;

●

developments relating to our competitors and our industry; and

●

other factors that may impact our financial results.

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

In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the section titled "Risk Factors" previously disclosed in Part I, Item 1A. in our Annual Report on Form 10-K, filed with the SEC and under Milestone’s SEDAR profile at www.sedar.com on March 29, 2023, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Milestone Pharmaceuticals Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands of US dollars, except share data)



	June 30, 2023		December 31, 2022
Assets

Current assets
Cash and cash equivalents	$	32,591	$	7,636
Short-term investments		55,000		56,949
Research and development tax credits receivable		483		331
Prepaid expenses		5,400		6,005
Other receivables		1,092		882
Total current assets		94,566		71,803
Operating lease assets		2,175		2,423
Property and equipment		278		257
Total assets	$	97,019	$	74,483

Liabilities, and Shareholders' Equity

Current liabilities
Accounts payable and accrued liabilities	$	6,287	$	5,644
Operating lease liabilities		522		495
Total current liabilities		6,809		6,139
Operating lease liabilities, net of current portion		1,729		1,996
Senior secured convertible notes		48,073		—
Total liabilities		56,611		8,135


Shareholders’ Equity
Common shares, no par value, unlimited shares authorized 33,363,971 shares issued and outstanding as of June 30, 2023, 34,286,002 shares issued and outstanding as of December 31, 2022		260,169		273,900
Pre-funded warrants - 9,577,257 issued and outstanding as of June 30, 2023 and 8,518,257 as of December 31, 2022		48,459		34,352
Additional paid-in capital		29,114		24,437
Accumulated deficit		(297,334)		(266,341)

Total shareholders’ equity		40,408		66,348

Total liabilities and shareholders’ equity	$	97,019	$	74,483

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

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Loss (Unaudited)

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



	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022

Revenue	$	—	$	—	$	1,000	$	—

Operating expenses
Research and development, net of tax credits		8,622		10,657		18,879		19,425
General and administrative		4,445		3,918		8,334		7,561
Commercial		3,369		2,231		5,725		3,867

Loss from operations		(16,436)		(16,806)		(31,938)		(30,853)

Interest income		1,213		158		1,801		198
Interest expense		(820)		—		(856)		—

Net loss and comprehensive loss	$	(16,043)	$	(16,648)	$	(30,993)	$	(30,655)

Weighted average number of shares and pre-funded warrants outstanding, basic and diluted		42,937,036		42,278,563		42,895,387		42,260,682

Net loss per share, basic and diluted	$	(0.37)	$	(0.39)	$	(0.72)	$	(0.73)

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

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands of US dollars, except share data)


	Common Shares			Pre-funded warrants
	Number of shares	Amount		Number of warrants	Amount		Additional paid-in capital		Accumulated deficit		Total
Balance as of March 31, 2022	29,917,326	$	251,990	12,327,780	$	52,941	$	17,785	$	(221,960)	$	100,756
Transactions in three-month period ended June 30, 2022
Net loss	—		—	—		—		—		(16,648)		(16,648)
Exercise of stock options	88,558		246	—		—		(106)		—		140
Share-based compensation	—		—	—		—		2,411		—		2,411
Balance as of June 30, 2022	30,005,884	$	252,236	12,327,780	$	52,941	$	20,090	$	(238,608)	$	86,659

Balance as of March 31, 2023	33,337,214	$	260,126	9,577,257	$	48,459	$	26,641	$	(281,291)	$	53,935
Transactions in three-month period ended June 30, 2023
Net loss	—		—	—		—		—		(16,043)		(16,043)
Exercise of stock options	26,757		43	—		—		(19)		—		24
Share-based compensation	—		—	—		—		2,492		—		2,492
Balance as of June 30, 2023	33,363,971	$	260,169	9,577,257	$	48,459	$	29,114	$	(297,334)	$	40,408


Balance as of December 31, 2021	29,897,559	$	251,901	12,327,780	$	52,941	$	15,711	$	(207,953)	$	112,600
Transactions in six-month period ended June 30, 2022
Net loss	—		—	—		—		—		(30,655)		(30,655)
Exercise of stock options	108,325		335	—		—		(146)		—		189
Share-based compensation	—		—	—		—		4,525		—		4,525
Balance as of June 30, 2022	30,005,884	$	252,236	12,327,780	$	52,941	$	20,090	$	(238,608)	$	86,659

Balance as of December 31, 2022	34,286,002	$	273,900	8,518,257	$	34,352	$	24,437	$	(266,341)	$	66,348
Transactions in six-month period ended June 30, 2023
Net loss	—		—	—		—		—		(30,993)		(30,993)
Exercise of stock options	93,981		256	—		—		(108)		—		148
Pre-funded warrants - Private Placement, net of issuance costs	—		—	1,059,000		14,107		—		—		14,107
Share-based compensation	—		—	—		—		4,785		—		4,785
Cancellation of common shares	(1,059,000)		(14,115)	—		—		—		—		(14,115)
Employee stock purchase plan purchases	42,988		128	—		—		—		—		128
Balance as of June 30, 2023	33,363,971	$	260,169	9,577,257	$	48,459	$	29,114	$	(297,334)	$	40,408

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

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Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands of US dollars)


	Six months ended June 30,
	2023		2022
Cash flows used in operating activities
Net loss	$	(30,993)	$	(30,655)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment		42		47
Amortization of debt costs		80		—
Accretion of investment discount		(51)		—
Non-cash interest expense related to debt		775		—
Share-based compensation expense		4,785		4,525
Changes in operating assets and liabilities:
Other receivables		(210)		(134)
Research and development tax credits receivable		(152)		(183)
Prepaid expenses		605		834
Operating lease assets and liabilities		8		(4)
Accounts payable and accrued liabilities		643		(2,464)

Net cash used in operating activities		(24,468)		(28,034)

Cash provided by (used in) investing activities
Acquisition of property and equipment		(63)		(59)
Acquisition of short-term investments		(70,000)		(23,000)
Redemption of short-term investments		72,000		—

Net cash provided by (used in) investing activities		1,937		(23,059)

Cash provided by financing activities
Proceeds from exercise of options		148		189
Proceeds from issuance of senior secured convertible debt		50,000		—
Pre-funded warrant issuance costs		(8)		—
Proceeds from employee stock purchase plan		128		—
Payment of debt issuance costs		(2,782)		—

Cash provided by financing activities		47,486		189

Net increase (decrease) in cash and cash equivalents		24,955		(50,904)

Cash and cash equivalents – Beginning of period		7,636		114,141

Cash and cash equivalents – End of period	$	32,591	$	63,237

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

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 2023 and 2022 (Unaudited)

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

1 Organization and Nature of Operations

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

2 Summary of Significant Accounting Policies

a) Basis of Consolidation

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

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

These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and on a basis consistent with those accounting principles followed by the Company and disclosed in Note 2 of its most recent annual consolidated financial statements. Certain information, in particular the accompanying notes normally included in the annual financial statements prepared in accordance with US GAAP have been omitted or condensed. Accordingly, these 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, 2022.

In the opinion of the Company's management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its balance sheet as of June 30, 2023, and its statements of loss and shareholders’ equity for the three and six months ended June 30, 2023 and 2022 and its statement of cash flows for the six months ended June 30, 2023 and 2022.

The condensed consolidated balance sheet as of December 31, 2022, was derived from audited annual consolidated financial statements, but does not contain all the footnote disclosures required by accounting principles generally accepted in the United States of America.

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

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

●

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

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

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

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

●

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

c) Significant Risks and Uncertainties

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

Further, the Company may be impacted by general economic, political, and market conditions, including deteriorating market conditions due to investor concerns regarding inflation and Russian hostilities in Ukraine and overall fluctuations in the financial markets in the U.S. and abroad.

d) Recent Accounting Pronouncements

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

e) Sources of Liquidity and Funding Requirements

The Company incurred operating losses and has experienced negative operating cash flows since its inception and anticipates to continue to incur losses for at least the next several years. As of June 30, 2023, the Company had cash, cash equivalents and short-term investments of $87.6 million and an accumulated deficit of $297.3 million. Management has evaluated the Company’s current operating plan against our existing cash and cash equivalents and determined that we expect to be able to support our ongoing operations for at least the next 12 months.

3 Revenues

The Company recorded no revenue for the three months ended June 30, 2023 and $1.0 million in revenue during the six months ended June 30, 2023. This revenue is due to a milestone reached as a result of the successful initiation of a Phase 1 Clinical Trial of the product by or on behalf of Ji Xing for the treatment of PSVT in the Territory. For details on the arrangement with Ji Xing, see Note 3 to our audited consolidated financial statements for the year ended December 31, 2022, filed on Form 10-K. The Company recorded no revenue for the three and six months ended June 30, 2022.

4 Short-term Investments

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

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

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

5 Debt

On March 27, 2023, we entered into a note purchase agreement, or the “Note Purchase Agreement”, with RTW Investments LP and certain of its affiliates, or collectively, RTW.

On March 29, 2023, we closed the transactions contemplated by the Note Purchase Agreement, and issued and sold $50.0 million principal amount of 6.0% Convertible Senior Notes due 2029, or the “2029 Convertible Notes”, to the holders.

The 2029 Convertible Notes are senior secured obligations and are guaranteed on a senior secured basis by our wholly owned subsidiary, Milestone Pharmaceuticals USA, Inc. Interest at the annual rate of 6.0% is payable quarterly in cash or, at our option, payable in kind for the first three years. The maturity date for the 2029 Convertible Notes is March 31, 2029, the “Maturity Date”. The obligations under the 2029 Convertible Notes are secured by substantially all of our and our subsidiary guarantor’s assets.

Each $1,000 of principal of the 2029 Convertible Notes (including any interest added thereto as payment in kind) is convertible into 191.0548 shares of our common shares, equivalent to an initial conversion price of approximately $5.23 per share, subject to customary anti-dilution and other adjustments. In addition, following a notice of redemption or certain corporate events that occur prior to the Maturity Date, we will, in certain circumstances, increase the conversion rate for a Holder who elects to convert its 2029 Convertible Notes in connection with such notice of redemption or corporate event.

Subject to specified conditions, on or after March 27, 2027, the 2029 Convertible Notes are redeemable by us, subject to certain conditions, if the closing sale price of the common shares exceeds 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the 2029 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accounting for the issuance of the Convertible Notes, the Company determined there were no embedded features, which require bifurcation between debt and equity components. As a result, the Convertible Notes are accounted for as a liability. As of June 30, 2023, the estimated fair value of the Convertible Notes was approximately $48.0 million.

The net carrying amount of the Convertible Note were as follows:


	June 30, 2023		December 31, 2022
Original principal	$	50,000	$	—
Paid in kind (PIK) interest		775		—
Unamortized debt discount		(583)		—
Unamortized debt issuance costs		(2,119)		—
Total	$	48,073	$	—

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

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

The following table presents the total amount of interest cost recognized relating to the 2029 Convertible Notes (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Contractual interest expense	$	743	$	—	$	775	$	—
Amortization of debt discount		16		—		18		—
Amortization of debt issuance costs		61		—		63		—
Total interest expense	$	820	$	—	$	856	$	—

6 Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are comprised of the following:


	June 30, 2023		December 31, 2022

Trade accounts payable	$	2,397	$	2,263
Accrued compensation and benefits payable		1,887		2,573
Accrued research and development liabilities		1,366		404
Other accrued liabilities		637		404
Total	$	6,287	$	5,644

7 Shareholders’ Equity

Authorized Share Capital

The Company has authorized and issued common shares, voting and participating, without par value, of which unlimited shares were authorized and 33,363,971 shares were issued and outstanding as of June 30, 2023.

As of June 30, 2023, there were 1,420,948 common shares available for issuance under the Employee Stock Purchase Plan, or the “ESPP”. The Company has issued 42,988 shares of common stock pursuant to the ESPP as of June 30, 2023.

On March 22, 2023, the Company entered into an exchange agreement, or the“Exchange Agreement”, with entities affiliated with RTW, or the “Exchanging Stockholders”, pursuant to which the Company exchanged an aggregate of 1,059,000 shares of the Company’s common shares owned by the Exchanging Stockholders for pre-funded warrants, or the Exchange Warrants, to purchase an aggregate of 1,059,000 common shares, with an exercise price of $0.001 per share and no expiration date. The Exchange Warrants are exercisable immediately and no additional cash consideration was rendered in exchange for the warrants. A holder of the Exchange Warrants (together with its affiliates and other attribution parties) may not exercise any portion of an Exchange Warrant to the extent that immediately prior to or after giving effect to such exercise the holder, together with its affiliates, would beneficially own more than 9.99% of the Company’s outstanding common shares immediately after exercise, which percentage may be increased or decreased to any other percentage specified not in excess of 9.99% at the holder's election upon 61 days' notice to the Company subject to the terms of the Exchange Warrants.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

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

Additional Paid-in Capital

The additional paid-in capital balances were as follows:


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Opening balance	$	26,641	$	17,785	$	24,437	$	15,711
Share-based compensation expense		2,492		2,411		4,785		4,525
Exercise of stock options		(19)		(106)		(108)		(146)
Closing balance	$	29,114	$	20,090	$	29,114	$	20,090

8 Share Based Compensation

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

On January 1, 2023 and on January 1, 2022, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,361,440 and 1,195,902 common shares, respectively. Further, on July 5, 2022, the number of the Company’s common shares reserved for issuance under the 2019 Plan increased by 1,000,000 common shares. In addition, 125,323 options have been forfeited under the 2011 Plan since the adoption of the 2019 Plan and have become available for issuance under the 2019 Plan. As of June 30, 2023, there were 8,182,946 common shares available for issuance under the 2019 Plan, of which 1,009,062 common shares were available for future grants.

On November 10, 2021, the Company established a 2021 Inducement Plan through the granting of awards. This 2021 Inducement Plan is intended to help the Company provide an inducement material for certain individuals to enter into employment with the Company, incentives for such persons to exert maximum efforts for the success of the Company and provide a means by which employees may benefit from increases in value of the common shares. As of June 30, 2023, there were 1,000,000 shares available for issuance under the 2021 Inducement Plan, of which 497,000 shares were available for future grants.

On July 15, 2022, the Company offered an ESPP, in which participation is available to substantially all of our employees in the United States and Canada who meet certain service eligibility requirements. On January 1, 2023 the number of common shares reserved for issuance under the ESPP increased by 342,860 shares. As of June 30, 2023, the Company has 1,420,948 common shares available under the ESPP. As of June 30, 2023, the Company has issued 42,988 shares of common stock pursuant to the ESPP.

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

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

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


	2023
								Weighted
	Number							average
	of shares							exercise
	2019 Plan			Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan		—		—		1,802,672	1,802,672	$	2.05
Outstanding at beginning of year - 2019 Plan		5,314,312		—		—	5,314,312		8.35
Outstanding at beginning of year - Inducement Plan		—		503,000		—	503,000		6.41
Granted - 2019 Plan		1,827,400		—		—	1,827,400		3.63
Exercised - 2019 Plan		(7,000)		—		—	(7,000)		3.74
Exercised - 2011 Plan		—		—		(86,981)	(86,981)		1.40
Forfeited - 2019 Plan		(7,300)		—		—	(7,300)		7.45
Expired - 2019 Plan		(24,617)		—		—	(24,617)		17.80
Outstanding at end of period		7,102,795		503,000		1,715,691	9,321,486	$	6.15
Outstanding at end of period - Weighted average exercise price	$	7.11	$	6.41	$	2.08
Exercisable at end of period		3,187,010		158,958		1,715,691	5,061,659	$	6.77
Exercisable at end of period - Weighted average exercise price	$	9.30	$	6.42	$	2.08


	2022
								Weighted
	Number							average
	of shares							exercise
	2019 Plan			Inducement Plan	2011 Plan		Total	price
Outstanding at beginning of year - 2011 Plan		—		—		1,995,971	1,995,971	$	2.07
Outstanding at beginning of year - 2019 Plan		3,759,834		—		—	3,759,834		9.51
Granted - 2019 Plan		1,385,700		—		—	1,385,700		5.47
Granted - Inducement Plan		—		523,000			523,000		6.37
Exercised - 2019 Plan		(14,100)		—		—	(14,100)		3.76
Exercised - 2011 Plan		—		—		(94,225)	(94,225)		1.43
Forfeited - 2019 Plan		(13,893)		—		—	(13,893)		13.36
Forfeited - 2011 Plan		—		—		(19,387)	(19,387)		9.42
Expired - 2011 Plan		—		—		(1,121)	(1,121)		0.96
Outstanding at end of period		5,117,541		523,000		1,881,238	7,521,779	$	6.68
Outstanding at end of period - Weighted average exercise price	$	8.42	$	6.37	$	2.03
Exercisable at end of period		2,017,527		—		1,796,396	3,813,923	$	6.09
Exercisable at end of period - Weighted average exercise price	$	9.74		—	$	1.99

The weighted average remaining contractual life was 7.6 and 8.1 years for outstanding options as of June 30, 2023 and 2022, respectively. The weighted average remaining contractual life was 6.5 and 6.9 years for vested options, as of June 30, 2023 and 2022, respectively.

There was $16.2 million and $19.0 million total unrecognized compensation cost related to non-vested share options as of June 30, 2023 and 2022, respectively. The share options are expected to be recognized over a remaining weighted average vesting period of 2.4 years and 2.7 years as of June 30, 2023 and 2022, respectively.

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

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Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

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

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


	2023
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		2,126	2,126	$	6.64
Non-vested share options at beginning of year - 2019 Plan		2,923,763		—		—	2,923,763		5.30
Non-vested share options at beginning of year - Inducement Plan		—		503,000		—	503,000		4.84
Granted - 2019 Plan		1,827,400		—		—	1,827,400		2.88
Vested, outstanding 2011 Plan		—		—		(2,126)	(2,126)		6.64
Vested, outstanding 2019 Plan		(830,055)		—		—	(830,055)		5.74
Vested, outstanding Inducement Plan		—		(158,958)		—	(158,958)		4.85
Forfeited - 2019 Plan		(5,323)		—		—	(5,323)		5.69
Non-vested share options at end of period		3,915,785		344,042		—	4,259,827	$	4.14
Non-vested share options at end of period - Weighted average fair value	$	4.07	$	4.84	$	—


	2022
	Number							Weighted
	of options							average
	2019 Plan		Inducement Plan		2011 Plan		Total	fair value
Non-vested share options at beginning of year - 2011 Plan		—		—		200,639	200,639	$	1.86
Non-vested share options at beginning of year - 2019 Plan		2,665,518		—		—	2,665,518		6.39
Granted - 2019 Plan		1,385,700		—		—	1,385,700		4.13
Granted - Inducement Plan		—		523,000		—	523,000		4.81
Vested, outstanding 2011 Plan		—		—		(115,797)	(115,797)		1.74
Forfeited - 2019 Plan		(8,731)		—		—	(8,731)		6.27
Vested, outstanding 2019 Plan		(942,473)		—		—	(942,473)		5.63
Non-vested share options at end of period		3,100,014		523,000		84,842	3,707,856	$	5.42
Non-vested share options at end of period - Weighted average fair value	$	5.62	$	4.81