# Definium Therapeutics, Inc. (DFTX) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Definium Therapeutics, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1813814/000095017022004724/mnmd-20211231.htm
Accession: 0000950170-22-004724
Filing date: 2022-03-28
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/DFTX/
All MD&A years: /company/DFTX/mda/
Next year: /company/DFTX/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K, including the following sections, contains forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see Item 1A “Risk Factors” in this Annual Report on Form 10-K. See also “Cautionary Note Regarding Forward-Looking Statements.” We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Annual Report. We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Annual Report.

Our U.S. GAAP accounting policies are referred to in Note 2 of the Consolidated Financial Statements. All amounts are in United States dollars, unless otherwise indicated. References to “CAD$” are to Canadian dollars.

Overview

We are a clinical stage biopharmaceutical company developing novel products to treat brain health disorders, with a particular focus on psychiatry, addiction, pain and neurology. Our mission is to be the global leader in the development and delivery of treatments that unlock new opportunities to improve patient outcomes. We are developing a pipeline of innovative drug candidates, with and without acute perceptual effects, targeting the serotonin, dopamine and acetylcholine systems. This specifically includes pharmaceutically optimized drug products derived from the psychedelic and empathogen drug classes including LSD, R(-)-MDMA and zolunicant, or 18-MC, a congener of ibogaine.

We were incorporated under the laws of the Province of British Columbia. Our wholly owned subsidiary, Mind Medicine, Inc. (“MindMed US”) was incorporated in Delaware. Prior to February 27, 2020, our operations were conducted through MindMed US.

On February 27, 2020, we completed a reverse takeover transaction with Broadway Gold Mining Ltd. ("Broadway") by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia) pursuant to the arrangement agreement dated as of October 15, 2019 between Broadway, Madison Metals Inc., Broadway Delaware Subco Inc. and MindMed US (the “Arrangement Agreement”) which resulted in Broadway becoming the legal parent company of MindMed US. MindMed US is deemed to be the acquirer in the reverse takeover transaction. As a result, the consolidated statements of financial position are presented as a continuance of MindMed US and the comparative figures presented are those of MindMed US.

On February 26, 2021 the Company acquired 100% of the issued and outstanding shares of HealthMode Inc. (“HealthMode”), a developer of technologies using Artificial Intelligence (AI)-enabled digital measurement to increase the precision and speed of clinical research and patient monitoring. The Company plans to utilize these technologies in its clinical trials to enhance the quality of the data that is collected during the Company’s clinical trials.

Since inception, we have incurred losses while advancing the research and development of our products and processes. Our net losses were $93.0 million for the year ended December 31, 2021, $33.9 million for the year ended December 31, 2020 and $10.7 million for the period from May 30, 2019 (inception) through December 31, 2019. As of December 31, 2021, we had an accumulated deficit of $137.7 million and cash of $133.5 million

During the period ended December 31, 2021, we continued to enhance the resources it requires to build our pipeline of opportunities. This included adding personnel and contract resources and ramping up the nonclinical aspects of our activities. In addition, considerable effort was directed towards employing a successful financing strategy.

Impact of COVID-19 Pandemic

We continue to monitor the ongoing COVID-19 global pandemic, which has resulted in travel and other restrictions to reduce the spread of the disease. To date, we have not experienced any significant disruptions from the ongoing COVID-19 pandemic. All clinical and chemistry, manufacturing and control activities are currently active.

The safety, health and well-being of all patients, medical staff and our internal and external teams is paramount and is our primary focus. As the pandemic and its resulting restrictions evolve in jurisdictions across the country, we are aware that the potential exists for further disruptions to our projected timelines. We are in close communication with our clinical teams and key vendors and are prepared to take action should the pandemic worsen and impact our business in the

96

future.

Components of Operating Results

Operating Expenses

Research and Development

To date, our resources have focused primarily on the development of our MM-120 and MM-110 programs and the commencement of related clinical activities. We have commenced clinical studies and have funded data and study acquisitions and acquired the materials required to supply our studies.

Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of direct and indirect costs incurred for the development of our product candidates, as follows:

•
payroll, consulting and benefits expenses;

•
licensing fees;

•
manufacturing costs to produce clinical trial materials;

•
clinical research costs associated with discovery, preclinical and clinical testing of our product candidates;

•
data and study acquisition cost; and

•
other costs.

We may also incur in-process research and development expense as we acquire or in-license assets from other parties. Technology acquisitions are expensed or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. Acquired in-process research and development costs that have no alternative future use are immediately expensed.

General and Administrative

General and administrative expenses consist primarily of compensation costs, including stock-based compensation, for executive management and administrative employees, including finance and accounting, legal, human resources and other offices supporting administrative functions, professional services fees, insurance expenses and allocated expenses.

We expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to support our research and development activities, grow our business and, if any of our product candidates receive marketing approval, commercialization activities. We also expect to increase the size of our administrative function and facility costs to support the growth of our business.

97

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following tables summarize our results of operations for the periods presented (in thousands):

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31, 2021","","","For the Year Ended December 31, 2020","","","$ Change","","","% Change"],["Operating expenses:"],["Research and development","","$","34,789","","","$","18,631","","","$","16,158","","","","87","%"],["General and administrative","","","59,065","","","","14,399","","","","44,666","","","*"],["Total operating expenses","","","93,854","","","","33,030","","","","60,824","","","","184","%"],["Loss from operations","","","(93,854",")","","","(33,030",")","","","(60,824",")","","","184","%"],["Other income (expense):"],["Interest expense, net","","","(359",")","","","(164",")","","","(195",")","","","119","%"],["Foreign exchange (loss) gain, net","","","(86",")","","","130","","","","(216",")","","","-166","%"],["Other income","","106","","","","\u2014","","","","106","","","","100","%"],["Loss on revaluation of derivative liability","","","\u2014","","","","(873",")","","","873","","","","-100","%"],["Total other expense, net","","","(339",")","","","(907",")","","","568","","","","-63","%"],["Loss before income taxes","","","(94,193",")","","","(33,937",")","","","(60,256",")","","","178","%"],["Income tax benefit","","","(1,157",")","","","\u2014","","","","(1,157",")","","","100","%"],["Net loss","","$","(93,036",")","","$","(33,937",")","","$","(59,099",")","","","174","%"],["Other comprehensive gain:"],["Gain on foreign currency translation","","762","","","","284","","","","478","","","","168","%"],["Comprehensive loss","","$","(92,274",")","","$","(33,653",")","","$","(58,621",")","","","174","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Year Ended December 31, 2020 and Period from May 30, 2019 to December 31, 2019

The following tables summarize our results of operations for the periods presented (in thousands):

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31, 2020","","","For the Period from May 30, 2019 (Date of Incorporation) to December 31, 2019","","","$ Change","","","% Change"],["Operating expenses:"],["Research and development","","$","18,631","","","$","7,549","","","$","11,082","","","","147","%"],["General and administrative","","","14,399","","","","3,178","","","","11,221","","","*"],["Total operating expenses","","","33,030","","","","10,727","","","","22,303","","","","208","%"],["Loss from operations","","","(33,030",")","","","(10,727",")","","","(22,303",")","","","208","%"],["Other income (expense):"],["Interest (expense) income, net","","","(164",")","","","10","","","","(174",")","","*"],["Foreign exchange gain, net","","","130","","","","18","","","","112","","","*"],["Loss on revaluation of derivative liability","","","(873",")","","","\u2014","","","","(873",")","","","100","%"],["Total other (expense) income, net","","","(907",")","","","28","","","","(935",")","","*"],["Loss before income taxes","","","(33,937",")","","","(10,699",")","","","(23,238",")","","","217","%"],["Income taxes","","","\u2014","","","","\u2014","","","","\u2014"],["Net loss","","$","(33,937",")","","$","(10,699",")","","$","(23,238",")","","","217","%"],["Other comprehensive gain:"],["Gain on foreign currency translation","","","284","","","","\u2014","","","","284","","","","100","%"],["Comprehensive loss","","$","(33,653",")","","$","(10,699",")","","$","(22,954",")","","","215","%"]]
[[/GREPCENT_TABLE]]

* Represents a change greater than 300%

98

Operating Expenses

Research and Development (in thousands):

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31, 2021","","","For the Year Ended December 31, 2020","","","$ Change","","","% Change"],["External Costs"],["MM-120 research program","","$","4,591","","","$","1,893","","","$","2,698","","","","143","%"],["MM-110 research program","","","6,999","","","","4,667","","","","2,332","","","","50","%"],["External R&D collaborations","","","4,237","","","","7,748","","","","(3,511",")","","","-45","%"],["Preclinical and other programs","","","6,107","","","","2,605","","","","3,502","","","","134","%"],["Total external costs","","","21,934","","","","16,913","","","","5,021","","","","30","%"],["Internal Costs","","","12,855","","","","1,718","","","","11,137","","","*"],["Total research and development expenses","","$","34,789","","","$","18,631","","","$","16,158","","","","87","%"]]
[[/GREPCENT_TABLE]]

* Represents a change greater than 300%

Research and development expenses increased by $16.2 million, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to an increase of $2.7 million in expenses related to our MM-120 clinical research, $2.3 million of expense related to our MM-110 clinical research, $3.5 million in expenses related to other preclinical and other research programs, offset by a $3.5 million decrease of expense in connection with various external R&D collaborations. Internal costs increased $11.1 million primarily related to an increase non-cash expenses of $6.6 million of stock-based compensation expenses and $2.6 million of amortization of our developed technology.

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31, 2020","","","For the Period from May 30, 2019 (Date of Incorporation) to December 31, 2019","","","$ Change","","","% Change"],["External Costs"],["MM-120 research program","","$","1,893","","","$","824","","","$","1,069","","","","130","%"],["MM-110 research program","","","4,667","","","","5,500","","","","(833",")","","","-15","%"],["External R&D collaborations","","","7,748","","","","\u2014","","","","7,748","","","","100","%"],["Preclinical and other programs","","","2,605","","","","1,159","","","","1,446","","","","125","%"],["Total external costs","","","16,913","","","","7,483","","","","9,430","","","","126","%"],["Internal Costs","","","1,718","","","","66","","","","1,652","","","*"],["Total research and development expenses","","$","18,631","","","$","7,549","","","$","11,082","","","","147","%"]]
[[/GREPCENT_TABLE]]

* Represents a change greater than 300%

Research and development expenses increased by $11.1 million, for the year ended December 31, 2020 compared to the period from May 30, 2019 to December 31, 2019. The increase was primarily due to an increase of $1.1 million in expenses related to our MM-120 clinical research, $7.7 million of expense in connection with various external R&D collaborations, and $1.4 million in expenses related to other preclinical and other research programs, offset by a decrease of $0.8 million in expenses related to our MM-110 clinical research. Internal costs increased by $1.7 million primarily due to $1.4 million of costs incurred due to increased headcount of research and development personnel.

General and Administrative

General and administrative expenses increased by $44.7 million, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to an increase of $28.7 million in non-cash stock-based compensation expenses of which $21.9 million related to the modification of stock options and RSUs. Other contributors to the increase included higher professional services including accounting, audit, legal, compliance, director and officer insurance, and investor and public relations and personnel costs to support the growth of the company.

99

General and administrative expenses increased by $11.2 million, for the year ended December 31, 2020 compared to the period from May 30, 2019 to December 31, 2019. The increase was primarily due $6.8 million in non-cash stock-based compensation due to director compensation expense, an increase of $2.2 million in investor relations expenses, and an increase of $1.5 million in personnel-related expenses due to an increase in headcount and related employee costs. There were partially offset by $0.2 million in legal fees.

Other Income (Expense)

Interest Income (Expense), Net

Interest expense, net increased by $0.2 million for the year ended year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to interest incurred on our contribution payable.

Interest expense, net increased by $0.2 million for the year ended December 31, 2020 compared to the period from May 30, 2019 to December 31, 2019. The increase was primarily due to interest incurred on our contribution payable.

Foreign Exchange Gain (Loss), Net

Foreign exchange loss increased by $0.2 million for the year ended year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to unfavorable changes in foreign exchange rates during the year.

Foreign exchange gain increased by $0.1 million for the year ended December 31, 2020 compared to the period from May 30, 2019 to December 31, 2019. The increase was primarily due to favorable changes in foreign exchange rates during the year.

Other Income

Other income was $0.1 million for the year ended December 31, 2021. There was no other income recorded for the year ended December 21, 2020. Other income primarily consists of branded merchandise sales.

Loss on Revaluation of Derivative Liability

Loss on revaluation of derivative liability was $0.9 million for the year ended December 31, 2020. There was no loss on revaluation of derivative liability for the years ended December 31, 2021 or 2019. Loss on revaluation of derivative liability consists of revaluation losses on the Company's foreign currency denominated warrants.

Income Tax Benefit

Income tax benefit was $1.2 million for the year ended December 31, 2021. There was no income tax benefit or expense for the years ended December 31, 2020 or 2019. Income tax benefit is primarily due to the HealthMode acquisition.

Liquidity and Capital Resources

Sources of Liquidity

Since inception, we have financed our operations primarily from the issuance of equity. Our primary capital needs are for funds to support our scientific research and development activities including staffing, manufacturing, preclinical studies, clinical trials, administrative costs and for working capital.

We have experienced operating losses and cash outflows from operations since inception and will require ongoing financing in order to continue our research and development activities and we have not earned any revenue or reached successful commercialization of our products. Our future operations are dependent upon our ability to finance our cash requirements which will allow us to continue our research and development activities and the commercialization of our products. There can be no assurance that we will be successful in continuing to finance our operations.

On December 19, 2019, MindMed US entered into an agency agreement with Canaccord Genuity Corp. (“Canaccord”) and completed the first tranche of a private placement by MindMed US (the “MindMed US Offering”), issuing a total of 18,771,897 Subordinate Voting Shares at a price of CAD$0.33 ($0.25) per share for gross proceeds of $4.7 million, before deducting cash share issuance costs of $0.4 million. On closing of the first tranche of the MindMed US Offering, MindMed issued Canaccord, as agent, 1,314,033 compensation warrants.

100

On February 18, 2020, MindMed US completed the second tranche of the MindMed US Offering, issuing a total of 37,105,370 Subordinate Voting Shares at a price of CAD$0.33 ($0.25) per share for gross proceeds of $9.3 million. On closing of the second tranche, MindMed issued Canaccord, as agent, 2,596,376 compensation warrants.

On February 26, 2020, MindMed US completed the third tranche of the MindMed US Offering, issuing a total of 41,227,788 Subordinate Voting Shares at a price of CAD$0.33 ($0.25) per share for gross proceeds of $10.3 million. On closing of the third tranche, MindMed US issued Canaccord, as agent, 2,885,945 compensation warrants.

On May 26, 2020, we completed a bought deal financing resulting in the issuance of 24,953,850 units at a price per unit of CAD$0.53 ($0.38) for gross proceeds of $9.5 million. Each unit was comprised of one Subordinate Voting Share and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a “May Warrant”). Each May Warrant is exercisable at CAD$0.79 ($0.57) until May 26, 2022. Also, in connection with this transaction, the Company issued 994,034 compensation warrants to its agent.

On October 30, 2020, we completed a bought deal financing resulting in the issuance of 27,381,500 units of the Company at a price per unit of CAD$1.05 ($0.79) for gross proceeds of $21.6 million. Each unit was comprised of one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, an "October Warrant"). Each October Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$1.40 ($1.05) until October 30, 2023. Also, in connection with this transaction, the Company issued 1,642,890 compensation warrants to its agent.

On December 11, 2020, we completed a bought deal financing resulting in the issuance of 18,170,000 units of the Company at a price per unit of CAD$1.90 ($1.49) for gross proceeds of $27.1 million. Each unit was comprised of one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a "December Warrant"). Each December Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$2.45 ($1.92) until December 11, 2023. Also, in connection with this transaction, the Company issued 1,090,200 compensation warrants to its agent.

On January 7, 2021, we completed a bought deal financing resulting in the issuance of 20,930,000 units of the Company at a price per unit of CAD$4.40 ($3.47) for gross proceeds of $72.6 million. Each unit comprised one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a “January Warrant”). Each January Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$5.75 ($4.53) until January 7, 2024. Also, in connection with this transaction, the Company issued 1,255,800 compensation warrants to its underwriter.

On March 9, 2021, we completed a private placement bought deal financing resulting in the issuance of 6,000,000 units of the Company at a price per unit of CAD$3.25 ($2.57) for gross proceeds of $15.4 million. Each unit was comprised of one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a “March Warrant”). Each March Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$4.40 ($3.48) until March 9, 2024. Also, in connection with this transaction, the Company issued 360,000 compensation warrants to its underwriter.

Our cash and working capital as at December 31, 2021 were $133.5 million and $127.5 million, respectively. The increase in cash was due mainly to the $81.9 million of net financings mentioned above net of the cash used in operations of $45.8 million.

Future Funding Requirements

To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if at all, that will occur. We will continue to require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Moreover, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the development of and seek regulatory approvals for our product candidates. Further, we are subject to all the risks incident in the development of new pharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. Our expenses will increase if, and as, we:

•
advance our product candidates through preclinical and clinical development;

•
seek regulatory approvals for any product candidates that successfully complete clinical trials;

•
seek to discover and develop additional product candidates;

101

•
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly;

•
expand our operational, financial and management systems and increase personnel, including personnel to support our development, manufacturing and commercialization efforts and our operations as a public company;

We expect our current cash will be sufficient to fund our current 2022 and 2023 operating plan and will extend our cash runway into 2024. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. Until we can generate a sufficient amount of revenue from the commercialization of our product candidates, we may seek to raise any necessary additional capital through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties or from grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, including restricting our operations and limiting our ability to incur liens, issue additional debt, pay dividends, repurchase our Subordinate Voting Shares, make certain investments or engage in merger, consolidation, licensing or asset sale transactions. If we raise funds through collaborations, strategic partnerships and other similar arrangements with third parties, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts. We have based our projections of operating capital requirements on our current operating plan, which is based on several assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount and timing of our working capital requirements. Our future funding requirements will depend on many factors, including:

•
the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;

•
the costs, timing and outcome of regulatory review of our product candidates;

•
the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

•
the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;

•
the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

•
the cost and timing of hiring new employees to support our continued growth;

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

•
the ability to establish and maintain collaborations on favorable terms, if at all;

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

•
the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.

102

Cash Flows

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31, 2020","","","For the Year Ended December 31, 2020","","","For the period May 30, 2019 (date of incorporation) to December 31, 2019"],["Net cash used in operating activities","","$","(45,824",")","","$","(23,597",")","","$","(3,199",")"],["Net cash used in investing activities","","","(297",")","","","\u2014","","","","\u2014"],["Net cash provided by financing activities","","","98,824","","","","96,704","","","","9,902"],["Foreign exchange impact on cash","","","742","","","","284","","","","\u2014"],["Net increase in cash","","$","53,445","","","$","73,391","","","$","6,703"]]
[[/GREPCENT_TABLE]]

Cash flows from operating activities

Cash used in operating activities for the year ended December 31, 2021 was $45.8 million, which consisted of a net loss of $93.0 million, partially offset by $45.3 million in non-cash charges and a net change of $1.9 million in our net operating assets and liabilities. The non-cash charges consisted of share-based payments of $42.7 million, and amortization of intangible assets of $2.6 million.

Cash used in operating activities for the year ended December 31, 2020 was $23.6 million, which consisted of a net loss of $33.9 million, partially offset by $8.3 million in non-cash charges and a net change of $2.1 million in our net operating assets and liabilities. The non-cash charges consisted of share-based payments of $7.4 million, the loss on revaluation of derivative liability of $0.9 million.

Cash used in operating activities for the period from May 30, 2019 through December 31, 2019 was $3.2 million, which consisted of a net loss of $10.7 million, partially offset by $5.6 million in non-cash charges and a net change of $1.9 million in our net operating assets and liabilities. The non-cash charges consisted of share-based payments of $0.1 million, and a write-off of acquired IPR&D intangible assets of $5.5 million.

Cash flows from investing activities

Cash used in investing activities for the year ended December 31, 2021 was $0.3 million, which consisted of cash paid for the acquisition of HealthMode, net of cash acquired.

Cash flows from financing activities

Cash provided by financing activities for the year ended December 31, 2021 was $98.8 million, which consisted of the net proceeds of $ 81.9 million from the issuance of common shares and warrants, net of issuance costs, the net proceeds from exercise of warrants of $11.2 million, and proceeds of $5.7 million from exercise of options.

Cash provided by financing activities for the year ended December 31, 2020 was $96.7 million, which consisted of the net proceeds of $72.0 million from the issuance of common shares and warrants, net of issuance costs, the net proceeds from exercise of warrants of $24.5 million, proceeds of $0.6 million from exercise of options, and $0.4 million from share issuance costs associated with the reverse takeover.

Cash provided by financing activities for period from May 30, 2019 through December 31, 2019 was $9.9 million, which consisted of the net proceeds of $9.9 million from the issuance of common shares, net of issuance costs.

Contractual Obligations and Contingencies

We enter into research, development and license agreements in the ordinary course of business where we receive research services and rights to proprietary technologies. Milestone and royalty payments that may become due under various agreements are dependent on, among other factors, clinical trials, regulatory approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain.

We periodically enter into research and license agreements with third parties that include indemnification provisions customary in the industry. These indemnities generally require us to compensate the other party for certain damages and costs incurred as a result

103

of claims arising from research and development activities undertaken by us or on our behalf. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay. Historically, we have not made any indemnification payments under such agreements and no amount has been accrued in our financial statements with respect to these indemnification obligations.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Business Combinations

At the time of acquisition, the Company determines whether what is acquired meets the definition of a business, in which case if it does, the transaction is considered a business combination, and otherwise it is recorded as an asset acquisition.

For an asset acquisition, the net identifiable assets acquired and liabilities assumed are measured at the fair value of the consideration paid, based on their relative fair values at the acquisition date. Acquisition related costs are included in the consideration paid and capitalized. No goodwill is recorded and no deferred tax asset or liability arising from the assets acquired or liabilities assumed is recognized upon the acquisition of the assets.

Business combinations are accounted for using the acquisition method. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the fair value of the consideration transferred, over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the fair value of the net identifiable assets acquired and liabilities assumed.

Acquisition costs are expensed as incurred, unless they qualify to be treated as debt issue costs, or as cost of issuing equity securities. The measurement period is the period from the date of acquisition to the date the Company obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year.

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and

104

liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•
Level 1 – Quoted prices in active markets for identical assets or liabilities.

•
Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•
Level 3 – Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Cash prepaid and other current assets, accounts payable, and accrued liabilities are all short-term in nature and, as such, their carrying values approximate fair values.

Share-Based Payments

When equity-settled share payments are awarded to management, employees and consultants, the fair value of the equity instruments at the date of grant is charged to the consolidated statements of operations and comprehensive loss. When the terms and conditions are modified before they vest, any increase in the fair value of the shares, measured immediately before and after the modification, is also charged to the consolidated statements of operations and comprehensive loss.

We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model.

This model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:

Fair Value of Subordinate Voting Shares— The fair value of the Company's Subordinate Voting Shares is determined based upon the closing price of the Company's stock one day prior to grant.

Risk-free interest rate—The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of our stock options.

Expected volatility—Due to our limited operating history and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

Expected term—The expected term represents the period that the stock-based awards are expected to be outstanding. The Company have opted to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option, which is generally 5 years.

Dividend Yield—We have never paid dividends on our Subordinate Voting Shares and have no plans to pay dividends on our Subordinate Voting Shares. Therefore, we used an expected dividend yield of zero.

Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.

105

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.