Definium Therapeutics, Inc. (DFTX) FY 2023 MD&A

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. This Annual Report, including the following section, 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. 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, except as required by law.

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 product candidates to treat brain health disorders. Our mission is to be the global leader in the development and delivery of treatments for brain health disorders that unlock new opportunities to improve patient outcomes. We are developing a pipeline of innovative product candidates, with and without acute perceptual effects, targeting neurotransmitter pathways that play key roles in brain health disorders. This specifically includes pharmaceutically optimized product candidates derived from the psychedelic and empathogen drug classes, including MM120 and MM402, our lead product candidates.

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 26, 2021, we acquired 100% of the issued and outstanding shares of HealthMode Inc. (“HealthMode”), a digital medicine and therapeutics company that used artificial intelligence enabled digital measurement to increase the precision and speed of clinical research and patient monitoring.

Since inception, we have incurred losses while advancing the research and development of our products and processes. Our net losses were $95.7 million for the year ended December 31, 2023 and $56.8 million for the year ended December 31, 2022. As of December 31, 2023, we had an accumulated deficit of $290.2 million and cash and cash equivalents of $99.7 million.

During the period ended December 31, 2023, we continued to enhance the resources required to build our pipeline of opportunities. This included adding personnel and contract resources and ramping up the non-clinical aspects of our activities.

Research & Development Program Update

MM120 (Lysergide D-tartrate)

On August 3, 2023, we announced that, based on a review of the Company’s statistical assumptions, the target patient enrollment for our Phase 2b trial evaluating MM120 (lysergide D-tartrate) for generalized anxiety disorder (“GAD”) has been lowered from 200 to 180 participants while maintaining the statistical power (approximately 90%) to achieve the trial’s objectives. However, on September 12, 2023, we announced that we had completed patient enrollment, with 198 patients having been enrolled in the trial who received a single administration of 25 µg, 50 µg, 100 µg or 200 µg of MM120 or placebo. In December 2023, we announced positive topline results from our Phase 2b clinical trial of MM120 GAD. The trial met its primary endpoint, with MM120 demonstrating statistically significant and clinically meaningful dose-dependent improvements on the Hamilton Anxiety (“HAM-A”) rating scale compared to placebo at Week 4. MM120 was administered as a single-dose in a monitored clinical setting with no additional therapeutic intervention. MM120 100 µg – the dose achieving the highest level of clinical activity – demonstrated a 7.6-point reduction compared to placebo at Week 4 (-21.3 MM120 vs. -13.7 placebo; p0.0004; Cohen’s d=0.88). Clinical Global Impressions—Severity (“CGI-S”) scores on average improved from 4.8 to 2.4 in the 100 ug dose group, representing a two-category shift from ‘markedly ill’ to ‘borderline’ at Week 4 (p0.001). This clinical activity was observed to be rapid and durable beginning on Day 2 and continuing through Week 4 with no loss of activity observed on either HAM-A or CGI-S.

Additional secondary and exploratory endpoints included in the primary topline results included HAM-A response and remission rates and CGI-S scores. Clinical response (50% or greater improvement in HAM-A) at Week 4 was achieved in 78% of participants treated with MM120 (100 µg or 200 µg) compared to 31% for placebo. Clinical remission (HAM-A ≤ 7) at Week 4 was achieved in

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50% of participants treated with MM120 100 µg compared to 18% for placebo. CGI-S scores demonstrated a statistically significant and clinically meaningful improvement compared to placebo in the 100 µg (p≤0.001) and 200 µg (p≤0.01) dose groups. On average, participants receiving MM120 (100 µg or 200 µg) experienced a 2-unit improvement in the CGI-S score at Week 4, with statistically significant improvements observed as early as one day after treatment and continuing at all evaluated timepoints through Week 4. We expect to present additional topline 12-week data from the trial in the first quarter of 2024 and to present full results at a scientific meeting in 2024.

MM120 was generally observed to be well tolerated, with mostly transient mild-to-moderate adverse events ("AEs") that appear consistent with the pharmacodynamic effects of MM120. The overall four-week completion rate in the trial was approximately 90% and was 97.5% in the high dose groups, and no participants in the high dose groups discontinued due to an adverse event through Week 4. There were no drug-related serious adverse events. The most common adverse events (at least 10% incidence in the high dose groups) occurred on dosing day and included illusion, hallucinations, euphoric mood, anxiety, thinking abnormal, headache, paraesthesia, dizziness, tremor, nausea, vomiting, feeling abnormal, mydriasis and hyperhidrosis.

We expect that results of this trial will support the advancement of MM120 into Phase 3 clinical development for GAD. We plan to hold an End-of-Phase 2 meeting with the FDA in the first half of 2024 and expect to initiate Phase 3 clinical trials in the second half of 2024.

In October 2023, we announced that the enrollment for our Phase 2a trial evaluating MM120 in a subperceptual repeat administration dosing regimen for the treatment of attention deficit hyperactivity disorder (“ADHD”) was completed. This proof-of-concept trial for the treatment of ADHD is designed to assess the safety and efficacy of repeated low-dose MM120 administration in 53 patients. In January 2024, we announced that our Phase 2a trial in ADHD did not meet its primary endpoint. We do not plan any further development activities for the sub-perceptual dose regimen. We believe that the results of our Phase 2a trial, in conjunction with the findings from our Phase 2b trial of MM120 in GAD, support the critical role of perceptual effects of MM120 in mediating a clinical response. We intend to continue prioritizing development of the MM120 program in GAD and other psychiatric indications, using the single perceptual dose (100 μg or greater) regimen that has shown strong positive results in numerous studies.

In April 2023, our collaborators at the University Hospital Basel (“UHB”) released positive topline data from a double-blind, investigator-initiated trial evaluating lysergide in the treatment of major depressive disorder (“MDD”). The topline data demonstrated significant, rapid, durable and beneficial effects of lysergide and its potential to mitigate symptoms of MDD. The high dose lysergide regimen in which patients received 100 µg at their first dosing day and 200 µg at their second dosing day (separated by four weeks) resulted in statistically and clinically significant improvements on the primary endpoint, which was the change in clinician-rated Inventory of Depressive Symptomatology (“IDS-C”) scores 6 weeks after the first administration as compared to control (whether or not the patient received a second administration). The control group in this trial received a lower dose regimen of 25 µg on both treatment days. Patients in the high dose arm (n=28) demonstrated a least square mean change from baseline in IDS-C scores of -12.9 points compared to -3.6 points in the lower dose arm (n=27, p=0.02). The statistically significant benefit as measured by IDS-C was maintained up to 16 weeks after the first administration compared to placebo (p=0.008). Data from the secondary endpoints were also encouraging. The investigational drug was generally well-tolerated, as indicated by reported adverse events, changes in vital signs and laboratory values.

MM402 (R(-)-MDMA)

MM402, or R(-)-MDMA, is our proprietary form of the R-enantiomer of MDMA (3,4-Methylenedioxymethamphetamine), which we are developing for the treatment of Autism Spectrum Disorder (“ASD”). MDMA is a synthetic molecule that is often referred to as an empathogen because it is reported to increase feelings of connectedness and compassion. R(-)-MDMA is thought to increase the levels of serotonin and, to a lesser extent, norepinephrine, and dopamine, in the brain, resulting in feelings of increased sociability and interpersonal emotional warmth. Preclinical studies of R(-)-MDMA demonstrate its acute pro-social and empathogenic effects, while its diminished dopaminergic activity suggest that it could exhibit less stimulant activity, neurotoxicity, hyperthermia and abuse liability compared to racemic MDMA or the S(+)-enantiomer. In the third quarter of 2022, our collaborator, UHB, began conducting a Phase 1 investigator-initiated trial of R(-)-MDMA, S(+)-MDMA and R/S-MDMA in healthy volunteers to compare the tolerability, pharmacokinetics and acute subjective, physiological and endocrine effects of the three molecules. We anticipate topline results from UHB’s trial to be presented in the first half of 2024. In addition, we have initiated our first clinical trial of MM402, a single-ascending dose trial in adult healthy volunteers in the fourth quarter of 2023. Our Phase 1 clinical trial is intended to characterize the tolerability, pharmacokinetics and pharmacodynamics of MM402 and will enable further clinical trials to characterize the effects of repeated daily doses of MM402 and the exploration of early signs of efficacy in the ASD population.

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August 2022 Reverse Share Split

As previously disclosed, on May 27, 2022 we received a letter from Nasdaq’s Listing Qualifications Department notifying us that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price for our listed securities was less than $1.00 for the previous 30 consecutive business days. We had a period of 180 calendar days, or until November 23, 2022, to regain compliance with the rule referred to in this paragraph.

Our Board approved a reverse share split of our common shares on a 15-for-1 basis, which was effected on August 26, 2022 and which brought the bid price of our common shares above the minimum bid price requirement under the Nasdaq Listing Rules (“August Share Split”). No fractional common shares were issued as a result of the August Share Split. Each fractional common share remaining upon the August Share Split that was less than 1/2 of a common share was cancelled and each fractional common share that was at least 1/2 of a common share was changed to one whole common share. The August Share Split affected all common shares outstanding immediately prior to the effective time of the August Share Split, as well as the number of common shares available under our stock option plan and equity incentive plan. In addition, the August Share Split effected a reduction in the number of common shares issuable upon exercise of stock options, vesting of Restricted Share Units and exercise of warrants outstanding immediately prior to the effectiveness of the August Share Split. All references to common shares, options to purchase common shares, share data, per share data, and related information contained in this report have been retrospectively adjusted to reflect the effect of the August Share Split for all periods presented.

On September 13, 2022, following the completion of the August Share Split, we received a notice from the Nasdaq Listing Qualifications Office indicating that we had regained compliance with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2).

Components of Operating Results

Operating Expenses

Research and Development

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.

External expenses include:

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payments to third parties in connection with the clinical development of our product candidates, including licensing fees and fees to contract research organizations ("CROs") and consultants;

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the cost of manufacturing products for use in our preclinical studies and clinical trials, including payments to contract manufacturing organizations ("CMOs") and consultants;

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payments to third parties in connection with the preclinical development of our product candidates, including outsourced professional scientific development services, consulting research fees and sponsored research arrangements with third parties; and

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allocated operational expenses, which include direct or allocated expenses for information technologies and human resources.

We may also incur in-process research and development expenses 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.

Internal expenses include employee-related costs such as salaries, related benefits and non-cash stock-based compensation expense for employees engaged in research and development functions.

We expect our research and development expenses to increase for the foreseeable future as we continue the clinical development of our product candidates and other preclinical programs in GAD, ASD and other potential or future indications, including initiating additional and larger clinical trials.

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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 administrative functions, professional services fees, advisory and professional service fees in connection with financing transactions, insurance expenses and allocated expenses.

We expect our general and administrative expenses to continue to increase for the foreseeable future as we continue to advance our research and development programs, grow our business and, if any of our product candidates receive marketing approval, commence commercialization activities.

Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

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

* Represents a change greater than 300%

Operating Expenses

Research and Development (in thousands):

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Research and development expenses increased by $15.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to increases of $16.1 million in expenses related to clinical research and product development for the MM120 GAD trial, $2.6 million in internal personnel costs as a result of increasing research and development capacities, offset by a decrease of $0.7 million in expenses related to our MM402 program, a decrease of $0.8 million of expenses in connection with various external research and development collaborations, and a decrease of $1.2 million in expenses related to preclinical activities and the MM110 program.

General and Administrative

General and administrative expenses increased by $11.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was attributable to professional services fees and expenses related to the proxy contest in connection with our 2023 annual general meeting of shareholders and costs to support the growth of our business.

Other Income (Expense)

Interest Income, Net

Interest income, net increased by $3.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This was primarily due to interest earned on our cash and cash equivalents as a result of higher interest rates during the year ended December 31, 2023, partially offset by interest expense related to our credit facility.

Foreign Exchange Gain, Net

Foreign exchange gain for the year ended December 31, 2023 was consistent with the amount compared to the year ended December 31, 2022.

Other (Expense)/Income

Other (expense)/income for the year ended December 31, 2023 was materially consistent with the amount compared to the year ended December 31, 2022.

Change in fair value of 2022 USD Financing Warrants

Revaluation loss on the 2022 USD Financing Warrants liability was $6.6 million for the year ended December 31, 2023. Revaluation gain on the 2022 USD Financing Warrants liability was $7.8 million for the year ended December 31, 2022. Change in fair value of 2022 USD Financing Warrants consists of revaluation gains and losses attributed to the change in the fair value of our 2022 USD Financing Warrants that were issued as part of our public equity offering which closed on September 30, 2022.

Liquidity and Capital Resources

Sources of Liquidity

Since inception, we have financed our operations primarily from the issuance of equity and our Loan Agreement (as defined below). 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. We have not earned any revenue or reached successful commercialization of our product candidates. 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 product candidates. There can be no assurance that we will be successful in continuing to finance our operations.

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K2 HealthVentures Loan Agreement

On August 11, 2023 (the “Closing Date”), we and certain of our subsidiaries party thereto, as co-borrowers (together with us, the “Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with K2 HealthVentures LLC (“K2HV”), as administrative agent and Canadian collateral agent for lenders thereunder (K2HV, and any other lender from time to time, the “Lenders”), and Ankura Trust Company, LLC, as collateral trustee for the Lenders. The Loan Agreement provides for up to an aggregate principal amount of $50.0 million in term loans (“Term Loans”) consisting of a first tranche term loan of $15.0 million funded on the Closing Date, subsequent tranches of term loans totaling $20.0 million to be funded upon the achievement of certain time-based, clinical and regulatory milestones, and an additional tranche term loan of up to $15.0 million upon our request, subject to review by the Lenders of certain information from us and discretionary approval by the Lenders.

The Term Loans mature on August 1, 2027, and the obligations of the Borrowers under the Loan Agreement are secured by substantially all of the assets of the Borrowers, excluding intellectual property. The Term Loans bear a variable interest rate equal to the greater of (i) 10.95% and (ii) the sum of (a) the Prime Rate as reported in The Wall Street Journal plus (b) 2.95%. We may prepay, at our option, all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the Term Loans, subject to certain prepayment notice requirements; provided that such prepayment notice may be conditioned upon the effectiveness of a refinancing or any other transaction, in which case such prepayment notice may be revoked by the Borrowers. The Lenders may elect at any time following the Closing Date and prior to the full repayment of the Term Loans to convert any portion of the principal amount of the Term Loans then outstanding, up to an aggregate principal amount of $4.0 million, into our common shares (the “Conversion Shares”), at a conversion price equal to $4.01 per Conversion Share, subject to certain limitations. The conversion price will be subject to adjustment upon the occurrence of certain events which include, but are not limited to, payment of dividends and distribution of shares. The Loan Agreement also provides the Lenders with certain piggyback registration rights with respect to the Conversion Shares.

The Loan Agreement contains customary representations and warranties and affirmative and negative covenants for financings of this type, including covenants that limit or restrict the ability of the Borrowers or their subsidiaries to, among other things: dispose of assets; make changes to their business, management, ownership or business locations; merge or consolidate; incur additional indebtedness, encumbrances or liens; pay dividends or other distributions or repurchase equity; make investments; and enter into certain transactions with affiliates, in each case subject to certain enumerated exceptions. The Loan Agreement contains customary events of default for financings of this type, including pursuant to a change in control. Upon the occurrence and continuation of an event of default, all amounts due under the Loan Agreement become (in the case of a bankruptcy event), or may become (in the case of all other events of default and at the option of the administrative agent), immediately due and payable. The proceeds of borrowings under the Loan Agreement are expected to be used for working capital and other general corporate purposes and/or to further support commercial activities and/or business development opportunities. Once repaid, the Term Loans may not be reborrowed.

Equity Financings

On September 30, 2022, we closed an underwritten public offering of 7,058,823 common shares and accompanying warrants to purchase 7,058,823 common shares (the “2022 USD Financing Warrants”) at a combined offering price of $4.25 per common share, for net proceeds of $27.5 million. Each 2022 USD Financing Warrant is immediately exercisable for one common share at an exercise price of $4.25 per common share, subject to certain adjustments and will expire on September 30, 2027.

On May 4, 2022, we filed a shelf registration statement on Form S-3 (the “Registration Statement”). Pursuant to the Registration Statement, we may offer and sell securities having an aggregate public offering price of up to $200.0 million. In connection with the filing of the Registration Statement, we also entered into a sales agreement with Cantor Fitzgerald & Co. and Oppenheimer & Co. Inc. as sales agents (together, the “Sales Agents”), pursuant to which we may issue and sell common shares for an aggregate offering price of up to $100.0 million under an at-the-market offering program (the “ATM”). Pursuant to the ATM, we will pay the Sales Agents a commission rate equal to 3.0% of the gross proceeds from the sale of any common shares. We are not obligated to make any sales of our common shares under the ATM. During the year ended December 31, 2023, we sold 2,232,113 common shares for net proceeds of $7.8 million under the ATM. As of December 31, 2023, we had raised an aggregate of $40.2 million under the ATM and may issue and sell common shares for an aggregate offering price of up to an additional $59.8 million.

Our cash and cash equivalents and working capital as of December 31, 2023 were $99.7 million and $71.6 million, respectively.

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

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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:

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advance our product candidates through preclinical and clinical development;

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

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seek to discover and develop additional product candidates;

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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; and

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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 cash and cash equivalents will be sufficient to fund our current operating plans into 2026, if certain milestones are achieved that unlock additional capital under our credit facility. 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 shareholders 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 shareholders. 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 Common 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:

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

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

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

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

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

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

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

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

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

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the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our product candidates.

Cash Flows

Cash flows from operating activities

Cash used in operating activities for the year ended December 31, 2023 was $64.4 million, which consisted of a net loss of $95.7 million, partially offset by $25.1 million in non-cash charges and a net change of $6.2 million in our net operating assets and liabilities. The non-cash charges primarily consisted of a change in fair value on the 2022 USD Financing Warrants liability of $6.6 million, share-based compensation of $15.5 million, and amortization of intangible assets of $3.2 million.

Cash used in operating activities for the year ended December 31, 2022 was $50.1 million, which consisted of a net loss of $56.8 million, partially offset by $10.5 million in non-cash charges and a net change of $3.8 million in our net operating assets and liabilities. The non-cash charges consisted of stock-based compensation of $13.7 million, amortization of intangible assets of $3.2 million, partially offset by a change in fair value on the 2022 USD Financing Warrants liability of $7.8 million.

Cash flows from financing activities

Cash provided by financing activities for the year ended December 31, 2023 was $21.8 million, which consisted of proceeds of $15.0 million from our credit facility partially offset by $0.8 million payment of our credit facility issuance costs, $7.5 million of net proceeds from the issuance of common shares under our ATM, net of issuance costs, and $0.1 million of proceeds from the exercise of the 2022 USD Financing Warrants.

Cash provided by financing activities for the year ended December 31, 2022 was $59.0 million, which consisted of the net proceeds of $42.3 million from the issuance of common shares, net of issuance costs, proceeds of $17.7 million from the issuance of warrants, the proceeds of $0.7 million from exercise of warrants, and proceeds of $0.2 million from exercise of options, partially offset by $1.5 million of warrant issuance costs and $0.4 million of withholding taxes paid on vested RSUs.

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 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

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indemnification payments under such agreements and no amount has been accrued in our financial statements with respect to these indemnification obligations.

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. 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, we determine 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 our 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 we obtain 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 of our assets and liabilities 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 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:

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

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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.

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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.

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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 us 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 and cash equivalents, 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.

The 2022 USD Financing Warrants (as defined in Note 7 in the notes to our annual financial statements) are liability classified due to being denominated in USD and not the Company's functional currency. Accordingly, the 2022 USD Financing Warrants were recognized at fair value upon issuance and are remeasured to fair value at the end of each reporting period. Any change in fair value is recognized in general and administrative expense on the consolidated statements of operations. Issuance costs related to warrants were expensed within general and administrative expense on the consolidated statements of operations.

Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate research and development costs incurred during the period, which impacts the amount of accrued expenses and prepaid balances related to such costs as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel and service providers to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. To date, our estimated accruals have not differed materially from actual costs incurred.

Research and development costs are expensed in the periods in which they are incurred. External costs consist primarily of payments to outside consultants, third-party CROs, CDMOs, clinical trial sites and central laboratories in connection with our discovery and preclinical activities, process development, manufacturing and clinical development activities. External costs also include laboratory supplies as well as allocated facilities, depreciation and other expenses. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We allocate external costs by program, clinical or preclinical. Internal costs consist primarily of employee-related costs including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions. We do not allocate internal costs by program because these costs are deployed across multiple programs and, as such, are not separately classified.

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 over the vesting period. 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 common shares— The fair value of our common shares is determined based upon the closing price of our common shares 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.

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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. We 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. We 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 between 5 to 10 years.

Dividend Yield—We have never paid dividends on our common shares and have no plans to pay dividends on our common 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.

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.

Fully Diluted Share Capital

The number of issued and outstanding common shares on a fully converted basis as of December 31, 2023 was as follows: