UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from                    to

Commission File Number: 001-38899

Milestone Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)

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

1111 Dr. Frederik-Philips Boulevard, Suite 420

Montréal, Québec CA H4M 2X6

(514) 336-0444

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

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

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

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

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

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
Emerging growth company	x

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

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

As of August 7, 2019, the registrant had 24,490,742 common shares, no par value per share, outstanding.

Table of Contents

		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		1
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Loss and Comprehensive Loss	3
	Condensed Consolidated Statements of Shareholders’ Equity (Deficit) and Convertible Preferred Shares	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23
PART II.	OTHER INFORMATION	23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

·our ability to establish collaborations or obtain additional funding;

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

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

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

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

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

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

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

·our ability to compete in the markets we serve;

·the impact of government laws and regulations;

·developments relating to our competitors and our industry; and

·the factors that may impact our financial results.

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

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

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

1

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, 2019			December 31, 2018
Assets
Current assets
Cash and cash equivalents	$	110,824		$	85,947
Short-term investments (note 3)	35,000			29
Research and development tax credits receivable	357			290
Prepaid expenses	5,032			1,398
Other receivables	338			387
Total current assets	151,551			88,051
Operating lease right-of-use asset (note 2)	243			—
Property and equipment	43			30
Total assets	$	151,837		$	88,081
Liabilities
Current liabilities
Accounts payable and accrued liabilities (note 4)	$	6,288		$	4,477
Current portion of operating lease liabilities (note 2)	175			—
Income taxes payable	—			56
Total current liabilities	6,463			4,533
Operating lease liabilities (note 2)	61			—
Total liabilities	6,524			4,533
Convertible Preferred Shares (note 1 and 5)
Class A-1 preferred shares, no par value, unlimited shares authorized, 372,211 shares issued	—			2,027
Class A-2 preferred shares, no par value, unlimited shares authorized, 2,443,914 shares issued	—			12,643
Class B preferred shares, no par value, unlimited shares authorized, 2,830,907 shares issued	—			17,198
Class C preferred shares, no par value, unlimited shares authorized, 3,786,878 shares issued	—			27,236
Class D1 preferred shares, no par value, unlimited shares authorized, 6,893,236 shares issued	—			64,719
Class D2 preferred shares, no par value, unlimited shares authorized, 1,223,656 shares issued	—			14,935
Total convertible preferred shares	—			138,758
Shareholders’ Equity (Deficit) (note 1 and 5)
Share capital
Common shares, no par value, unlimited shares authorized, 24,490,742 shares issued and outstanding as of June 30, 2019 596,787 shares issued and outstanding as of December 31, 2018	226,211			2,039
Additional paid-in capital	3,116			2,655
Cumulative translation adjustment	(1,634		)	(1,634		)
Accumulated deficit	(82,380		)	(58,270		)
Total shareholders’ equity (deficit)	145,313			(55,210		)
Total liabilities, convertible preferred shares and shareholders’ equity	$	151,837		$	88,081

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

2

Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

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

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Operating expenses
Research and development, net of tax credits (note 7)	$	10,527		$	2,551		$	18,292		$	5,642
General and administrative	1,641			750			2,620			1,189
Commercial	2,166			375			4,352			1,100
Loss from operations	$	(14,334	)	$	(3,676	)	$	(25,264	)	$	(7,931	)
Interest income, net of bank charges	672			89			1,172			180
Loss and comprehensive loss before income taxes	(13,662		)	(3,587		)	(24,092		)	(7,751		)
Income tax (recovery) expense	(4		)	2			18			18
Net loss and comprehensive loss for the period	$	(13,658	)	$	(3,589	)	$	(24,110	)	$	(7,769	)
Weighted average number of shares outstanding, basic and diluted (note 1)	13,190,638			282,322			6,931,611			275,450
Net loss per share, basic and diluted (note 8)	$	(1.04	)	$	(12.71	)	$	(3.48	)	$	(28.20	)

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

3

Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) and Convertible Preferred Shares

(Unaudited)

(thousands of US dollars, except per share data)

				Convertible Preferred Shares
	Common Shares			Class A1					Class A2					Class B					Class C					Class D1				Class D2				Additional			Cumulative
	Number of shares	Amount		Number of shares		Amount			Number of shares		Amount			Number of shares		Amount			Number of shares		Amount			Number of shares		Amount		Number of shares		Amount		paid-in capital			translation adjustment			Accumulated deficit			Total
Balance at December 31, 2017	239,990	$	1,228	372,211		$	2,027		2,443,914		$	12,643		2,830,907		$	17,198		3,786,878		$	27,236		—		—		—		—		$	2,372		$	(1,634	)	$	(35,085	)	$	25,985
Transactions in three-month period ended March 31, 2018
Net loss and comprehensive loss	—	—		—		—			—		—			—		—			—		—			—		—		—		—		—			—			(4,181		)	(4,181		)
Exercise of stock options (note 5)	37,675	55				—			—		—			—		—			—		—			—		—		—		—		(25		)	—			—			30
Share-based compensation (note 5)	—	—		—		—			—		—			—		—			—		—			—		—		—		—		125			—			—			125
Balance at March 31, 2018	277,665	$	1,283	372,211		$	2,027		2,443,914		$	12,643		2,830,907		$	17,198		3,786,878		$	27,236		—		—		—		—		$	2,472		$	(1,634	)	$	(39,266	)	$	21,959
Transactions in three-month period ended June 30, 2018
Net loss and comprehensive loss	—	—		—		—			—		—			—		—			—		—			—		—		—		—		—			—			(3,589		)	(3,589		)
Exercise of stock options (note 5)	5,106	14				—			—		—			—		—			—		—			—		—		—		—		(7		)	—			—			7
Share-based compensation (note 5)	—	—		—		—			—		—			—		—			—		—			—		—		—		—		79			—			—			79
Balance at June 30, 2018	282,771	$	1,297	372,211		$	2,027		2,443,914		$	12,643		2,830,907		$	17,198		3,786,878		$	27,236		—		—		—		—		$	2,544		$	(1,634	)	$	(42,855	)	$	18,456
Balance at December 31, 2018	596,787	2,039		372,211		2,027			2,443,914		12,643			2,830,907		17,198			3,786,878		27,236			6,893,236		64,719		1,223,656		14,935		2,655			(1,634		)	(58,270		)	83,548
Transactions in three-month period ended March 31, 2019
Net loss and comprehensive loss	—	—		—		—			—		—			—		—			—		—			—		—		—		—		—			—			(10,452		)	(10,452		)
Exercise of stock options (note 5)	18,153	51		—		—			—		—			—		—			—		—			—		—		—		—		(26		)	—			—			25
Share-based compensation (note 5)	—	—		—		—			—		—			—		—			—		—			—		—		—		—		211			—			—			211
Balance at March 31, 2019	614,940	$	2,090	372,211		$	2,027		2,443,914		$	12,643		2,830,907		$	17,198		3,786,878		$	27,236		6,893,236		64,719		1,223,656		14,935		$	2,840		$	(1,634	)	$	(68,722	)	$	73,332
Transactions in three-month period ended June 30,2019
Net loss and comprehensive loss	—	—		—		—			—		—			—		—			—		—			—		—		—		—		—			—			(13,658		)	(13,658		)
Exercise of stock options (note 5)	—	—		—		—			—		—			—		—			—		—			—		—		—		—		—			—			—			—
Share-based compensation (note 5)	—	—		—		—			—		—			—		—			—		—			—		—		—		—		276			—			—			276
Initial public offering (note 5)	6,325,000	85,363		—		—			—		—			—		—			—		—			—		—		—		—		—			—			—			85,363
Preferred share conversion (note 5)	17,550,802	138,758		(372,211	)	(2,027		)	(2,443,914	)	(12,643		)	(2,830,907	)	(17,198		)	(3,786,878	)	(27,236		)	(6,893,236	)	(64,719	)	(1,223,656	)	(14,935	)	—			—			—			—
Balance at June 30, 2019	24,490,742	$	226,211	—		—			—		—			—		—			—		—			—		—		—		—		$	3,116		$	(1,634	)	$	(82,380	)	$	145,313

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

4

Milestone Pharmaceuticals Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(thousands of US dollars)

	Six months ended June 30,
	2019			2018
Cash flows from:
Operating activities
Net loss for the period	$	(24,110	)	$	(7,769	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of property and equipment	5			5
Share-based compensation expense (note 5)	487			204
Changes in operating assets and liabilities:
Other receivables	49			(69		)
Research and development tax credits receivable	(67		)	247
Prepaid expenses	(3,634		)	(343		)
Operating lease, net	(7		)	—
Accounts payable and accrued liabilities	1,082			(415		)
Income taxes payable	(56		)	(4		)
Net cash used in operating activities	(26,251		)	(8,144		)
Investing activities
Acquisition of property and equipment	(18		)	(5		)
Acquisition of short-term investments	(35,000		)	—
Redemption of short-term investments	29			15,035
Net cash (used) provided by investing activities	(34,989		)	15,030
Financing activities
Net proceeds from issuance of common shares in Initial Public Offering (note 5)	86,092			—
Issuance of common shares on exercise of share options (note 5)	25			37
Net cash provided by financing activities	86,117			37
Net increase in cash and cash equivalents during the period	24,877			6,923
Cash and cash equivalents — Beginning of period	85,947			10,880
Cash and cash equivalents — End of period	$	110,824		$	17,803

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

5

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

1Organization and nature of operations

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

Reverse stock split

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

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

2Summary of significant accounting policies

a) Basis of consolidation

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

b) Basis of presentation and use of accounting estimates

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

In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of June 30, 2019, and its results of operations for the three and six months ended June 30, 2019 and 2018.

6

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

2Summary of significant accounting policies (Cont’d)

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

The condensed consolidated balance sheet as of December 31, 2018, was derived from audited annual consolidated financial statements, but does not contain all of the footnote disclosures required by accounting principles generally accepted in the United States of America.

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

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

c) Adoption of New Accounting Standards

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

The Company does not record an operating lease right-of-use asset and corresponding lease liability for leases with an initial term of twelve months or less and recognizes lease expense for these leases as incurred over the lease term.  Upon adoption date, the Company had only one operating lease with a remaining term of less than 12 months for its offices located in Charlotte, NC, which had a termination date of July 31, 2019, and for which the Company was not reasonably certain of renewing the lease. In the second quarter ended June 30, 2019, the lease was extended for an additional month to end on August 31, 2019. The remaining operating lease payments are $12 as of June 30, 2019.

Operating lease right-of-use asset and operating lease liabilities are recognized upon the adoption date based on the present value of lease payments over the remaining lease term. The Company does not have a public credit rating and carries no debt.  As such, several factors were considered in the determination of its incremental borrowing rate used in determining the present value of lease payments.  The Company examined the Bloomberg credit ratings for similar companies; assumed equivalency between the Canadian and US markets for collateralized debt; factored in the cumulative dividend rate on convertible preferred shares; and used short-term rates for the remaining lease term of 23 months.  This resulted in an incremental borrowing rate of 8%.  Lease expense is recognized on a straight-line basis over the lease term, which is accomplished by increasing the amortization of the right-of-use asset as interest expense on the lease liability declines over the lease term.  The Company’s lease arrangement does not have lease and non-lease components which are accounted for separately.  The adoption of the accounting standard did not

7

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

2Summary of significant accounting policies (Cont’d)

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

materially impact the Company’s consolidated statement of operations or its consolidated statement of cash flows for the six months ended June 30, 2019.

The Company’s only one-operating lease right-of-use asset is as follows as at June 30, 2019:

Right-of-use adoption date of January 1, 2019	$	321
Amortization of right-of-use asset during the six-month period ending June 30, 2019	(78		)
	$	243

Operating lease expenses of $78 are included in general and administrative operating expenses in the consolidated statement loss and comprehensive loss, and within operating activities in the statement of cash flows for the six-month period ended June 30, 2019.

The following table summarizes the future minimum lease payments of right-of-use assets operating lease as at June 30, 2019:

July 1, 2019 to June 30, 2020	$	187
July 1, 2020 to November 30, 2020	62
	249
Less interest	(13		)
	$	236

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

	Lease operating expenses		Lease base rent expenses		Total lease commitment
2019	$	86	$	130	$	216
2020	79		85		164
	$	165	$	215	$	380

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

On June 3, 2019, the Company entered into a new lease arrangement for a three-year term for its office located in Charlotte, NC.  The Company will recognize the operating lease right-of-use asset and operating lease liabilities at the lease expected commencement date on September 1, 2019.  A security deposit of $19 was recorded in prepaid expenses as at June 30, 2019 related to the new lease arrangement.

8

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

3Short-term investments

Short-term investments are comprised of term deposits issued in US currency, earning interest ranging from 2.47% to 2.48%, maturing between September 30, 2019 and October 25, 2019.

4Accounts payable and accrued liabilities

Accounts payable and accrued liabilities comprised the following:

	June 30, 2019		December 31, 2018
Trade accounts payable	$	3,228	$	2,603
Accrued research & development liabilities	1,691		1,012
Other accrued liabilities	645		164
Accrued compensation and benefits payable	724		698
	$	6,288	$	4,477

5Shareholders’ equity (deficit)

Authorized share capital

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

In May 2019, the Company completed its initial public offering (“IPO”), whereby the Company issued in total 6,325,000 common shares at a public offering price of $15.00 per share (note 1). The gross proceeds received by the Company from the offering were $94.9 million. Upon the closing of the IPO, all outstanding shares of Class A1, A2, B, C, D1 and D2 preferred shares converted into 17,550,802 common shares.

The Company’s board of directors adopted and its shareholders approved the 2019 Employee Share Purchase Plan (“ESPP”) in April 2019, which became effective on May 8, 2019. The number of common shares initially reserved for issuance under the ESPP was 278,734 common shares. The number of shares reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2020 through January 1, 2029, by the lesser of (1) 1% of the total number of shares of the Company’s share capital outstanding on the last day of the calendar month before the date of the automatic increase and (2) 487,837 shares; provided that before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). As of June 30, 2019, no common shares have been issued under the ESPP.  The first offering period has not yet been decided by the Company’s board of directors.

During the six-month period ended June 30, 2019, the Company issued a total of 18,153 common shares [2018 — 42,781] for a total cash consideration of $25 [2018 - $37] pursuant to the exercise of 18,153 stock options [2018 — 42,781] at an average exercise price of US$1.3225 per option [2018 — US$0.8298]. As a result, an amount of $26 [2018 - $32] previously included in additional paid-in capital related to the exercised options has been credited to share capital and deducted from additional paid-in capital.

9

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

5Shareholders’ equity (deficit) (Cont’d)

Additional paid-in capital

	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019			2018
Opening balance	$	2,840	$	2,472		$	2,655		$	2,372
Share-based compensation expense	276		79			487			204
Exercise of stock options	—		(7		)	(26		)	(32		)
Closing balance	$	3,116	$	2,544		$	3,116		$	2,544

Share-based compensation

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

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

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

The 2011 Plan was terminated as of May 8, 2019 and a total of 2,393,631 options are still outstanding at June 30, 2019.

As of June 30, 2019, there were 2,322,573 options available for awards under the 2019 Plan, of which 46,998 were granted, leaving 2,275,575 available for future grants.

10

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

5Shareholders’ equity (deficit) (Cont’d)

Share-based compensation (Cont’d)

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

	2019				2018
	Number of shares		Weighted average exercise price		Number of shares		Weighted average exercise price
Outstanding at beginning of period	2,295,045		$	1.7714	968,782		$	1.1330
Forfeited/cancelled	—		—		(12,198	)	1.0958
Granted – 2011 Plan	116,739		9.4152		887,432		1.5400
Granted – 2019 Plan	46,998		15.0000		—		—
Exercised	(18,153	)	1.3225		(42,781	)	0.8298
Outstanding at end of period	2,440,629		$	2.3963	1,801,235		$	1.3405
Exercisable at end of period	771,478		$	1.3777	563,565		$	1.0266

As of June 30, 2019, the weighted average remaining contractual life was 8.3 years [2018 – 8.6 years]. The weighted average remaining contractual life was 6.6 years for vested options [2018 – 6.9 years].  There were no options forfeited for the six-month period ended June 30, 2019 (2018 –12,198).

Options granted are valued using the Black-Scholes option pricing model. Amortization of the fair value of the options over vesting years has been expensed and credited to additional paid-in capital in shareholders’ equity (deficit). The weighted average fair values of options granted in the six-month period ended June 30, 2019 was $7.8518 per share [2018 - $1.1114]. Share-based compensation expense recognized for the six-month period ended June 30, 2019 was $487 [2018 - $204].

As of June 30, 2019, there was $3,434 [2018 - $1,360] of total unrecognized compensation cost, related to non-vested share options, which is expected to be recognized over a remaining weighted average vesting period of 2.9 years [2018 – 3.2 years].

11

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

5Shareholders’ equity (deficit) (Cont’d)

Share-based compensation (Cont’d)

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

	2019				2018
	Number of options		Weighted average fair value		Number of options		Weighted average fair value
Non-vested at beginning of period	1,706,303		$	1.3458	451,113		$	1.0266
Forfeited/cancelled	—		—		(12,198	)	1.0639
Granted – 2011 Plan	116,739			6.6491	887,432		1.1114
Granted – 2019 Plan	46,998			10.7731	—		—
Vested, outstanding	(200,889	)		1.1787	(88,600	)		1.0958
Non-vested share options at end of period	1,669,151		$	2.0041	1,237,747		$	1.0798

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

The fair value of options granted was estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for the options granted for the three-month and six-month periods ended June 30:

	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Exercise price	$	12.05		$	1.54		$	11.02		$	1.54
Share price	$	12.05		$	1.54		$	11.02		$	1.54
Volatility	82		%	82		%	81		%	82		%
Risk-free interest rate	2.36		%	2.73		%	2.41		%	2.77		%
Expected life	6.25 years			6.25 years			6.25 years			6.25 years
Dividend	0		%	0		%	0		%	0		%

Expected volatility is determined using comparable companies for which the information is publicly available. The risk-free interest rate is determined based on the US sovereign rates benchmark in effect at the time of grant with a remaining term equal to the expected life of the option. Expected option life is determined based on the simplified method as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The simplified method

12

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

5Shareholders’ equity (deficit) (Cont’d)

Share-based compensation (Cont’d)

is an average of the contractual term of the options and its ordinary vesting period. Dividend yield is based on the share option’s exercise price and expected annual dividend rate at the time of grant.

The Company recognized share-based compensation expense as follows for the three and six months ended June 30:

	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018
Administration	$	133	$	21	$	203	$	50
Research and development	109		49		234		125
Commercial activities	34		10		50		29
	$	276	$	80	$	487	$	204

6Net loss per share

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

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of June 30, as they would be anti-dilutive:

	2019	2018
Convertible preferred shares	—	9,433,910
Share options and unvested restricted share awards	2,440,629	1,801,235
	2,440,629	11,235,145

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

7Government assistance

The Company incurred research and development expenditures that are eligible for investment tax credits. The investment tax credits recorded are based on management’s estimates of amounts expected to be recovered and are subject to audit by the taxation authorities. These amounts have been recorded as a reduction of research and development expenditures for an amount of $171 for the six-month period ended June 30, 2019 [2018 - $148].

13

Milestone Pharmaceuticals Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

8Fair value of financial instruments

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

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

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

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

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

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

14

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

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

Overview

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

We completed our Phase 2 clinical trial of etripamil for the treatment of PSVT in the United States and Canada, with results published in the Journal of the American College of Cardiology. The study showed an 87% termination rate of induced PSVT within 15 minutes at the 70 mg dose versus a 35% termination rate for placebo. The 70 mg dose was selected for testing in Phase 3 and we are actively recruiting patients for our first Phase 3 clinical trial of etripamil, designated as NODE-301, which may serve as a single pivotal efficacy trial required for approval by the US Food and Drug Administration (FDA).  We expect top-line data for NODE-301 in the first half of 2020. In addition to the pivotal efficacy trial, our Phase 3 clinical program for etripamil for PSVT includes two open-label safety studies, designated as NODE-302 which we initiated in December 2018, and NODE-303, which we expect to initiate before the end of the year.

We also recently announced positive regulatory updates from our recent interactions with the FDA.  The FDA agreed to our request to increase the target number of PSVT events in NODE-301 trial to 150 events, up from 100 events. The upsized trial satisfies a regulatory request from the European Medicines Agency (EMA) to eliminate the use of un-blinded, third-party data reviews for purposes of handling potential randomization imbalances.  The increased number of evaluable events adds potentially valuable sub-population analyses and pharmaco-economic assessments.  The rate of events in NODE-301, which remains blinded, are tracking ahead of our initial projections, enabling us to maintain the expectation of topline data in the first half of 2020, even with the additional PSVT events. Further, after the NODE-301 trial reaches its target adjudicated PSVT events, collection of blinded data from randomized patients who have not yet experienced an event will continue.  These data will be analyzed separately as a secondary data set, referred to as NODE-301B, and may contribute further to sub-population analyses and pharmaco-economic assessments.

Additionally, based on a review of etripamil safety data to date, we proposed and the FDA has agreed to allow patient enrollment in the NODE-303 study to begin without an in-office safety test dose that is currently utilized in the NODE-301 pivotal study and with a broad patient population consistent with ongoing studies, including the older patients and those patients taking concomitant beta-blockers and calcium channel blockers.

We plan to initiate a Phase 2 clinical trial in the fourth quarter of 2019 in atrial fibrillation, another supraventricular tachycardia in which some patients experience a rapid heart rate. We plan to subsequently initiate an additional Phase 2 etripamil clinical proof of concept trial in angina based on the utility of other calcium channel blockers.

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

Since inception, we have incurred significant operating losses. For the six months ended June 30, 2019 and 2018, we recorded net losses of $24.1 million and $7.8 million, respectively. As of June 30, 2019, we had an accumulated deficit of $82.4 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development activities required for obtaining regulatory approval and preparing for potential commercialization of our product candidates.

15

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

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

·seek marketing approvals for etripamil for the treatment of PSVT and other cardiovascular indications;

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

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

·build a portfolio of product candidates through development, or the acquisition or in-license of drugs, product candidates or technologies and further develop and/or prepare to commercialize those product candidates;

·maintain, protect and expand our intellectual property portfolio;

·hire additional clinical, regulatory and scientific personnel; and

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

·incur additional legal, accounting and other expenses associated with operating as a public company.

Initial Public Offering

On May 13, 2019, we completed our initial public offering, or IPO, whereby we issued 5,500,000 common shares at a public offering price of $15.00 per share. The shares began trading on The Nasdaq Global Select Market on May 9, 2019. On May 15, 2019, the underwriters fully exercised their option to purchase an additional 825,000 common shares at the public offering price of $15.00 per share. We received net proceeds from the IPO and the over-allotment exercise of $85.4 million, after deducting underwriting discounts and commissions and other offering expenses. Upon the closing of the IPO, all outstanding shares of our preferred shares converted into 17,550,802 common shares.

Reverse Stock Split

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

Components of Results of Operations

Research and Development Expenses

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

To date, substantially all of our research and development expenses have been related to the preclinical and clinical development of etripamil. Historically, we have incurred research and development expenses that primarily relate to the development of etripamil for the treatment of PSVT.  As we advance etripamil or other product candidates for other indications, we expect to allocate our direct external research and development costs across each of the indications or product candidates. Further, while we expect our research and development costs for the development of etripamil in atrial fibrillation and angina to increase for each of their respective Phase 2 clinical trials, we expect our research and development expenses related to the development of etripamil for PSVT to remain a large

16

majority of our total research and development expenses. The following table shows our research and development expenses by type of activity for the three and six months ended June 30, 2019 and 2018.

	Three months ended June 30,						Six months ended June 30,
(in thousands)	2019			2018			2019			2018
Clinical and pre-clinical	$	8,463		$	2,030		$	15,212		$	4,054
Drug manufacturing and formulation	1,638			336			2,268			1,155
Regulatory and other costs	519			250			982			581
Less: investment tax credits	(93		)	(65		)	(170		)	(148		)
Total research and development expenses	$	10,527		$	2,551		$	18,292		$	5,642

We expect our research and development expenses to increase substantially as we increase personnel costs, including share-based compensation, and as we continue the development of etripamil and pursue regulatory approval. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if at all.

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

General and Administrative Expenses

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

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

Commercial Expenses

Commercial expenses consist primarily of personnel and related compensation costs, market and health economic research, and market development activities for PSVT and, to a lesser extent, atrial fibrillation and angina. The focus of these expenses is three-fold: first, we want to leverage rigorous primary and secondary research to fully understand our target disease states from the perspective of the patient, healthcare provider, and payor; second, we want to understand and document the burden of disease posed by PSVT from an epidemiology, healthcare resource use, and cost perspective; and third, we want to engage our target patient, physician, and payor stakeholders with evidence-based and compliant educational materials that serve to increase the awareness and understanding of the impact of PSVT on patients and the overall healthcare system.

We expect our commercial expenses to remain relatively consistent until after we file our new drug application, or NDA with the FDA, at which time we anticipate they will increase substantially as we invest in the infrastructure and personnel required to launch our first product in the United States.

Interest Income

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

17

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2019 and 2018

The following table summarizes our results of operations and changes:

	Three months ended June 30,
(in thousands)	2019			2018			$ Change			% Change
Operating expenses
Research and development, net of tax credits	$	10,527		$	2,551		$	7,976		313	%
General and administrative	1,641			750			891			119	%
Commercial	2,166			375			1,791			478	%
Total operating expenses	14,334			3,676			10,658			290	%
Loss from operations	(14,334		)	(3,676		)	(10,658		)	290	%
Interest income, net of bank charges	672			89			583			655	%
Loss and comprehensive loss before income taxes	(13,662		)	(3,587		)	(10,075		)	281	%
Income tax expense	(4		)	2			6			(300	)%
Net loss and comprehensive loss	$	(13,658	)	$	(3,589	)	$	(10,069	)	281	%

	Six months ended June 30,
(in thousands)	2019			2018			$ Change			% Change
Operating expenses
Research and development, net of tax credits	$	18,292		$	5,642		$	12,650		224	%
General and administrative	2,620			1,189			1,431			120	%
Commercial	4,352			1,100			3,252			296	%
Total operating expenses	25,264			7,931			17,333			219	%
Loss from operations	(25,264		)	(7,931		)	(17,333		)	219	%
Interest income, net of bank charges	1,172			180			992			551	%
Loss and comprehensive loss before income taxes	(24,092		)	(7,751		)	(16,341		)	210	%
Income tax expense	18			18			—			—
Net loss and comprehensive loss	$	(24,110	)	$	(7,769	)	$	(16,341	)	210	%

Research and Development Expenses

Research and development, or R&D, expenses increased by $8.0 million, or 313%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. Similarly, R&D expenses increased by $12.7 million, or 224% for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. During the quarter ended June 30, 2019, we recorded $10.5 million in R&D expenses.  During the six months ended June 30, 2019, we recorded $18.3 million in research and development expenses.  Spending during both periods was primarily related to advancing our Phase 3 efficacy and safety trials in etripamil for the treatment of PSVT and increases in headcount related expenses to support the trials and activities important for regulatory approvals. We spent $7.2 million on these programs in the second quarter of 2019 and recorded personnel and related R&D costs of $3.4 million. During the same period of 2018, we recorded expenses of $2.6 million including $1.5 million related to the start-up costs for the efficacy trial in etripamil for the treatment of PSVT and recorded personnel and R&D related costs of $1.2 million. Additionally, we spent $12.5 million on these programs in the first six months of 2019 and recorded personnel and related R&D costs of $6.0 million. During the same period of 2018, we recorded expenses of $5.6 million including $2.8 million related to the start-up costs for the efficacy trial in etripamil for the treatment of PSVT and recorded personnel and R&D related costs of $3.0 million. We also recognized $0.1 million of R&D investment tax credits provided by the provincial government of Québec in the three-month periods ended June 30, 2019 and 2018 and $0.2 million of such tax credits in the six-month periods ended June 30, 2019 and 2018.  Tax credits are recorded as a reduction of our R&D expenses.

General and Administrative Expenses

General and administrative expenses increased by $0.9 million, or 119% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and increased by $1.4 million, or 120% for the six months ended June 30, 2019. During these three and six-month periods ended on June 30, 2019, we increased our administrative headcount and, as a result, compensation and related personnel costs increased when compared to the same periods in 2018.  In addition, we incurred increased spending for consulting fees, recruiting fees and professional fees, including legal and accounting services incurred to support our IPO.  Following the IPO, insurance costs increased in the second quarter of 2019 to support risk management activities as a public company.

18

Commercial Expenses

Commercial expenses increased by $1.8 million, or 478%, for the three months ended June 30, 2019 and by $3.3 million, or 296% for the six months ended June 30, 2019 when compared to the same periods in 2018. During these three and six-month periods, commercial expenses reflect increased commercial headcount and related costs, conduct of additional commercial and market research, increases in the scope of our patient advocacy activities, and costs of a medical affairs team focused on engaging key opinion leaders’ and raising disease awareness.

Interest Income, Net

Interest income, net of bank charges was $0.7 million and $0.1 million for the three-month periods ended June 30, 2019 and 2018, respectively and $1.2 million and $0.2 million for the six months ended June 30, 2019 and 2018, respectively. The increase in the second quarter of 2019 and in the six months ended June 30, 2019 reflects increased earnings on cash, cash equivalents and short-term investments related to the proceeds from the October 2018 Series D preferred share financing and the net cash proceeds from the IPO and over-allotment exercised in May 2019.

Net Loss

For the foregoing reasons, we had net losses of $13.7 million and $3.6 million for the three months ended June 30, 2019 and 2018, and $24.1 million and $7.8 million for the six months ended June 30, 2019 and 2018, respectively.

Liquidity and Capital Resources

Sources of Liquidity

Prior to our IPO, we financed our operations primarily through sales of our convertible preferred shares to accredited investors generating net proceeds of $138.8 million. In May 2019, we received net proceeds of $85.4 million from our IPO.

We have incurred operating losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years. As of June 30, 2019, we had cash, cash equivalents and short-term investments of $145.8 million and an accumulated deficit of $82.4 million.

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

Funding Requirements

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

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

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

19

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

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

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

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

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

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

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

·the costs of operating as a public company;

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

Cash Flows

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

	Six months endedJune 30,
(in thousands)	2019			2018			$ Change			% Change
Net cash (used in) provided by:
Operating activities	$	(26,251	)	$	(8,144	)	$	(18,107	)	222	%
Investing activities	(34,989		)	15,030			(50,019		)	(333	)%
Financing activities	86,117			37			86,080			232,649	%
Net increase (decrease) in cash and cash equivalents during the period	$	24,877		$	6,923		$	17,954

Operating Activities

In the six months ended June 30, 2019, we used $26.2 million of cash in operating activities, which consisted of a net loss of $24.1 million and a net change of $2.6 million in our net operating assets and non-cash charges of $0.5 million. The non-cash charges primarily consist of share-based compensation expense for grants to employees. The change in our net operating assets and liabilities was primarily due to an increase of $3.6 million for prepaid expenses in addition to an increase of $1.1 million for accounts payable and accrued liabilities offset by a net decrease of $0.1 million primarily related to other receivables, income tax payable and research and development tax credits receivable.

In the six months ended June 30, 2018, we used $8.1 million of cash in operating activities which consisted of a net loss of $7.8 million and a net change of $0.5 million in our net operating assets and non-cash charges of $0.2 million. The non-cash charges mainly consist of share-based compensation expense for grants to employees.  The change in our net operating assets and liabilities was primarily due to an increase of $0.4 million for prepaid expenses offset by a decrease of $0.2 million in R&D tax credits receivable, a decrease of $0.4 million in accounts payable and accrued liabilities and a net decrease of $0.1million primarily related to other receivables and income tax payable.

20

Investing Activities

In the six months ended June 30, 2019, there was a net use of cash of $35.0 million for the acquisition of short-term investments compared to the same period in 2018 where the investing activities provided $15.0 million of cash due to the redemption of short-term investments that we had acquired during the year ended December 31, 2017.

Financing Activities

In the six months ended June 30, 2019, the IPO and the exercise by the underwriters of their option to purchase additional common shares provided a net cash consideration of $86.1 million. Financing fees amounting to $0.7 million were not paid at June 30, 2019 and are included in accounts payable and accrued liabilities. In the same period when compared to 2018, financing activities provided $25 thousand and $37 thousand, respectively, which consisted of the exercise of share options.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.

Contractual Obligations

During the six months ended June 30, 2019, there were no material changes to our contractual obligations and commitments described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Prospectus.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited interim consolidated financial statements as at June 30, 2019, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP and on a basis consistent with those accounting principles followed by us and disclosed in note 2 of our most recent annual consolidated financial statements, except for the adoption of ASC 842 “Leases” described below. The preparation of these unaudited interim condensed consolidated financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. 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. Significant estimates and judgments include, but are not limited to, research and development tax credits recoverable, research and development expenses, and share-based compensation. Accordingly, actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

There have been no significant changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Prospectus other than what is noted below.

Leases

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

We did not record an operating lease right-of-use asset and corresponding lease liability for leases with an initial term of 12 months or less. We recognize lease expense for these leases as incurred over the lease term.  Upon adoption date, we had only one operating lease with a remaining term of less than 12 months for our offices located in Charlotte, NC, which had a termination date of July 31, 2019, and for which we were not reasonably certain of renewing the lease. In the second quarter ended June 30, 2019, the lease was extended for an additional month to end on August 31, 2019. The remaining operating lease payments are $12,000 at June 30, 2019.

21

Operating lease right-of-use asset and operating lease liabilities are recognized upon the adoption date based on the present value of lease payments over the remaining lease term. We do not have a public credit rating and carry no debt.  As such, several factors were considered in the determination of our incremental borrowing rate used in determining the present value of lease payments.  We examined the Bloomberg credit ratings for similar companies; assumed equivalency between the Canadian and US markets for collateralized debt; factored in the cumulative dividend rate on convertible preferred shares; and used short-term rates for the remaining lease term of 23 months.  This resulted in an incremental borrowing rate of 8%.  Lease expense is recognized on a straight-line basis over the lease term, which is accomplished by increasing the amortization of the right-of-use asset as interest expense on the lease liability declines over the lease term.  Our lease arrangement does not have lease and non-lease components which are accounted for separately.  The adoption of the accounting standard did not materially impact our consolidated statement of operations or our consolidated statement of cash flows for the six months ended June 30, 2019.

Our operating lease right-of-use asset is as follows as at June 30, 2019:

(in thousands)
Adoption as at January 1, 2019	$	321
Recognition of right-of-use asset in the six-month period ending June 30, 2019	(78		)
	$	243

Operating lease expenses of $78,000 are included in general and administrative operating expenses in the consolidated statement loss and comprehensive loss, and within operating activities in the statement of cash flows for the six-month period ended June 30, 2019.

The following table summarizes the future minimum lease payments of right-of-use assets operating lease as at June 30, 2019:

(in thousands)
July 1, 2019 to June 30, 2020	$	187
July 1, 2020 to November 30, 2020	62
	249
Less interest	(13		)
	$	236

Recent Accounting Pronouncements

Refer to Note 2, “Summary of Significant Accounting Policies,” for a discussion of recent accounting pronouncements in the accompanying notes to our audited consolidated financial statements as at December 31, 2018 appearing in the Prospectus, and in Note 2 of our unaudited interim consolidated financial statements as at June 30, 2019.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate risks. We had cash, cash equivalents and short-term investments of $145.8 million as of June 30, 2019, which consist primarily of bank deposits and guaranteed investment certificates. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

We undertake certain transactions in Canadian dollars and as such are subject to risk due to fluctuations in exchange rates. Canadian dollar denominated payables are paid at the converted rate as due. We do not use derivative instruments to hedge exposure to foreign

22

exchange rate risk due to the low volume of transactions denominated in foreign currencies. At June 30, 2019, our net monetary assets denominated in Canadian dollars were equivalent to $0.4 million in U.S. dollars.

Our operating results and financial position are reported in U.S. dollars in our consolidated financial statements. The fluctuation of the Canadian dollar in relation to the U.S. dollar might, consequently, have an impact upon our loss and may also affect the value of our assets and the amount of shareholders’ equity.

We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein. We do not have a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have a material effect on our consolidated financial results.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Vice President, Finance, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. Based upon the evaluation, our Chief Executive Officer and Vice President, Finance concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting.

Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until after the filing of our Annual Report on Form 10-K for the year ended December 31, 2019. As a result, this Quarterly Report on Form 10-Q does not address whether there have been any changes in our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have an adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors.

An investment in shares of our common shares involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes hereto before deciding to invest in our common shares. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common shares could decline and you may lose all or part of your investment. We cannot assure you that any of the events discussed below will not occur.

Risks Related to Our Financial Position and Capital Needs

We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability.

Since inception in 2003, we have incurred significant operating losses. Our net loss was $8.1 million and $23.2 million for the years ended December 31, 2017 and 2018, respectively, and $24.1 million for the six months ended June 30, 2019. As of June 30, 2019, we had an accumulated deficit of $82.4 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Since inception, we have devoted substantially all of our efforts to research and preclinical and clinical development of etripamil, as well as to expanding our management team and infrastructure. It could be several years, if ever, before

23

we have a commercialized drug. The net losses we incur may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if, and as, we:

·continue our ongoing and planned development of etripamil, including our Phase 3 clinical trials of etripamil for the treatment of paroxysmal supraventricular tachycardia, or PSVT;

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

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

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

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

·maintain, protect and expand our intellectual property portfolio;

·hire additional clinical, regulatory and scientific personnel;

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

·incur additional legal, accounting and other expenses associated with operating as a public company.

To become and remain profitable, we must succeed in developing and eventually commercializing drugs that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing clinical trials of etripamil and any future product candidates that way may pursue, obtaining regulatory approval, procuring commercial-scale manufacturing, marketing and selling etripamil and any future products for which we may obtain regulatory approval, as well as discovering or acquiring and then developing additional product candidates. We are only in the preliminary stages of some of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability.

Because of the numerous risks and uncertainties associated with drug development, we are unable to accurately predict the timing or amount of expenses or when, or if, we will be able to achieve profitability.

Our expenses could increase beyond our expectations if we are required by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency or other regulatory authorities to perform studies in addition to those we currently expect, or if there are any delays in the initiation and completion of our clinical trials or the development of etripamil or any future product candidates.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our common shares could also cause you to lose all or part of your investment.

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We are a clinical-stage company founded in 2003, and our operations to date have been largely focused on raising capital, organizing and staffing our company, and undertaking preclinical studies and conducting clinical trials for etripamil. As an organization, we have not yet demonstrated an ability to successfully complete clinical development, obtain regulatory approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history.

We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

Additionally, we expect our financial condition and operating results to continue to fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

24

We will require substantial additional funding to finance our operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate our development of etripamil or other operations.

Based on our research and development plans, we expect that our existing cash, cash equivalents and short-term investments, will be sufficient to fund our operations into the third quarter of 2021. However, we will need to obtain substantial additional funding in connection with our continuing operations and planned activities. Our future capital requirements will depend on many factors, including:

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

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

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

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

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

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

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

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

·the costs of operating as a public company.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, etripamil and any future product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or altogether terminate our research and development programs or future commercialization efforts.

Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our product candidates.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as redeeming our shares, making investments, incurring additional debt, making capital expenditures, declaring dividends or placing limitations on our ability to acquire, sell or license intellectual property rights.

If we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise develop and market ourselves.

Our ability to use our non-capital loss carryforwards to offset future taxable income may be subject to certain limitations.

In general, where control of a corporation has been acquired by a person or group of persons, subsection 111(5) of the Income Tax Act (Canada), or the Canadian Tax Act, and equivalent provincial income tax legislation restrict the corporation’s ability to carry forward non-capital losses from preceding taxation years. We have not performed a detailed analysis to determine whether an acquisition of control for the purposes of subsection 111(5) of the Canadian Tax Act has occurred after each of our previous issuances of common shares or preferred shares. In addition, if we undergo an acquisition of control, our ability to utilize non-capital losses could be limited by subsection 111(5) of the Canadian Tax Act. As of December 31, 2018, we had Canadian federal and provincial non-capital loss carry forwards of $46.4 million and $45.7 million, respectively, which expire beginning in 2027 through 2038. In addition, we also have scientific research and experimental development expenditures of $5.8 million and $8.0 million, respectively, for Canadian federal and provincial income tax purposes, which have not been deducted. These expenditures are available to reduce future taxable income and have an unlimited carry-forward period. Research and development tax credits and expenditures are subject to verification by the tax authorities, and, accordingly, these amounts may vary. Future changes in our share ownership, some of which are outside of

25

our control, could result in an acquisition of control for the purposes of subsection 111(5) of the Canadian Tax Act. Furthermore, our ability to utilize non-capital losses (or U.S. equivalents) of companies that we may acquire in the future may be subject to limitations. As a result, even if we attain profitability, we may be unable to use a material portion of our non-capital losses and other tax attributes, which could negatively impact our future cash flows.

Risks Related to the Development of Our Product Candidates

We have only one product candidate, etripamil, for which we are currently pursuing clinical development. Our future success is substantially dependent on the successful clinical development and regulatory approval of etripamil. If we are not able to obtain required regulatory approvals for etripamil or any future product candidates, we will not be able to commercialize etripamil or any future product candidates and our ability to generate revenue will be adversely affected.

Etripamil is currently our only product candidate. We have not obtained regulatory approval for etripamil or any product candidate, and it is possible that neither etripamil nor any product candidates we may seek to develop in the future will ever obtain regulatory approval. Neither we nor any future collaborator is permitted to market any drug product candidates in the United States or other countries until we receive regulatory approval from the FDA or applicable foreign regulatory agency. The time required to obtain approval or other marketing authorizations by the FDA and comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions.

Prior to obtaining approval to commercialize etripamil and any other drug product candidate in the United States or elsewhere, we must demonstrate with substantial evidence from well controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional nonclinical studies, including human factor studies, or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program. Our current Phase 3 program involves only one efficacy trial, designed with a threshold p-value of p<0.01. This threshold was accepted by the FDA for our single efficacy trial to be used to support an NDA submission. While we believe that this is sufficient support for our NDA submission plan based on our end-of-Phase 2 meeting with the FDA, the standard FDA guidelines require two efficacy trials each with a threshold p-value of p<0.05 or a single trial with a threshold p-value of p<0.00125. Accordingly, there is a risk that additional clinical trials could be required. In addition, the FDA typically refers applications for novel drugs, like etripamil and potentially any future product candidates, to an advisory committee composed of outside experts. The FDA is not bound by the recommendation of the advisory committee, but it considers such recommendation when making its decision.

Of the large number of products in development, only a small percentage successfully complete the FDA or comparable foreign regulatory authorities’ approval processes and are commercialized. The lengthy approval or marketing authorization process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval or marketing authorization to market etripamil or any future product candidates, which would significantly harm our business, financial condition, results of operations and prospects.

We have invested a significant portion of our time and financial resources in the development of etripamil. Our business is dependent on our ability to successfully complete development of, obtain regulatory approval for, and, if approved, successfully commercialize etripamil and any future product candidates in a timely manner.

Even if we eventually complete clinical testing and receive approval of a new drug application, or NDA, or foreign marketing application for etripamil and any future product candidates, the FDA or the comparable foreign regulatory authorities may grant approval or other marketing authorization contingent on the performance of costly additional clinical trials, including post-market clinical trials. The FDA or the comparable foreign regulatory authorities also may approve or authorize for marketing a product candidate for a more limited indication or patient population that we originally request, and the FDA or comparable foreign regulatory authorities may not approve or authorize the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory approval or other marketing authorization would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.

In addition, the FDA and comparable foreign regulatory authorities may change their policies, adopt additional regulations or revise existing regulations or take other actions, which may prevent or delay approval of our future products under development on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain approvals, increase the costs of compliance or restrict our ability to maintain any marketing authorizations we may have obtained.

26

We may not be successful in our efforts to expand our pipeline of product candidates beyond etripamil for PSVT.

We intend to build a pipeline of product candidates beyond etripamil for PSVT and progress these product candidates through clinical development. We may not be able to expand the scope of cardiovascular indications for etripamil beyond PSVT, or leverage our expertise and experience with etripamil in PSVT to other product candidates. We may not be able to in-license, acquire or develop future product candidates that are safe and effective. Even if we are successful in continuing to expand etripamil to other indications and further build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of safety, tolerability, efficacy or other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval, achieve market acceptance or obtain reimbursements from third-party payors. If we do not successfully execute on our strategy of expanding our product pipeline, it could significantly harm our financial position and adversely affect the trading price of our common shares.

The development of additional product candidates is risky and uncertain.

Efforts to identify, acquire or in-license, and then develop product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our efforts may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development, approved products or commercial revenues for many reasons, including the following:

·the methodology used may not be successful in identifying potential product candidates;

·competitors may develop alternatives that render any product candidates we develop obsolete;

·any product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

·a product candidate may be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

·a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

·a product candidate may not be accepted as safe and effective by physicians, patients, the medical community or third-party payors.

We have limited financial and management resources and, as a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater market potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in circumstances under which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. If we are unsuccessful in identifying and developing additional product candidates or are unable to do so, our business may be harmed.

Success in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials and we cannot assure you that any ongoing, planned or future clinical trials will lead to results sufficient for the necessary regulatory approvals.

Success in preclinical testing and earlier clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Preclinical tests and Phase 1 and Phase 2 clinical trials are primarily designed to test safety, to study pharmacokinetics and pharmacodynamics and to understand the side effects of product candidates at various doses and schedules. Success in preclinical studies and earlier clinical trials does not ensure that later efficacy trials will be successful, nor does it predict final results. For example, our Phase 2 clinical trial of etripamil for PSVT was conducted in an electrophysiology lab, a controlled setting, in which PSVT episodes were induced and etripamil was administered by healthcare providers. Our Phase 3 clinical trials are and will be conducted in an outpatient setting with patients self-administering etripamil and monitoring their cardiac activity as episodes of PSVT occur. Additionally, in our Phase 2 clinical trial, four sprays of study drug were dispensed to patients using four separate FDA-approved single-spray devices. In our Phase 3 clinical trials, patients self-administer two sprays of study drug from an FDA-approved device that is capable of delivering two separate sprays. Accordingly, the results of our Phase 2 trial of etripamil may not be replicated in the outpatient setting of our Phase 3 clinical trials. In addition, until completion of our NODE-301 Phase 3 clinical trial, patients are in general only eligible to enroll in our open-label NODE-302 extension trial after successfully dosing in NODE-301. Etripamil and any future product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through earlier clinical trials.

In addition, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Clinical trial design flaws are more likely in therapy areas, such as PSVT, where there are limited previous trials from which to learn and model clinical trials. As an organization, we have limited experience designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier clinical trials. Data obtained from preclinical and clinical activities

27

are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.

We may encounter substantial delays or difficulties in our clinical trials.

We may not commercialize, market, promote or sell any product candidate without obtaining marketing approval from the FDA or comparable foreign regulatory authorities, and we may never receive such approvals. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans and will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We may experience numerous unforeseen events prior to, during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize etripamil and any future product candidates, including:

·delays in reaching a consensus with regulatory authorities on design or implementation of our clinical trials;

·regulators or institutional review boards, or IRBs, may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

·delays in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites;

·the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, patients may drop out of these clinical trials at a higher rate than we anticipate or fail to return for post-treatment follow-up or we may fail to recruit suitable patients to participate in a trial;

·clinical trials of our product candidates may produce negative or inconclusive results;

·imposition of a clinical hold by regulatory authorities as a result of a serious adverse event, concerns with a class of product candidates or after an inspection of our clinical trial operations, trial sites or manufacturing facilities;

·occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

·changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; or

·we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs.

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue from future drug sales or other sources. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional testing to bridge our modified product candidate to earlier versions. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates, if approved, or allow our competitors to bring competing drugs to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business, financial condition, results of operations and prospects.

Additionally, if the results of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with our product candidates, we may:

·be delayed in obtaining marketing approval, if at all;

·obtain approval for indications or patient populations that are not as broad as intended or desired;

·obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

·be subject to additional post-marketing testing requirements;

·be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;

·have regulatory authorities withdraw, or suspend, their approval of the drug or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy, or REMS;

·be subject to the addition of labeling statements, such as warnings or contraindications;

·be sued; or

·experience damage to our reputation.

Our product development costs will also increase if we experience delays in testing or obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, need to be restructured or be completed on schedule, if at all.

Further, we, the FDA or an IRB may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements, including the FDA’s current Good Clinical Practice, or GCP, regulations, that we are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our investigational new drug

28

applications, or INDs, or the conduct of these trials. Therefore, we cannot predict with any certainty the schedule for commencement and completion of future clinical trials. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of our product candidates could be negatively impacted, and our ability to generate revenues from our product candidates may be delayed.

Clinical trials are very expensive, time consuming and difficult to design and implement.

Our product candidates will require clinical testing before we are prepared to submit an NDA for regulatory approval. We cannot predict with any certainty if or when we might submit an NDA for regulatory approval for any of our product candidates or whether any such NDA will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with our proposed endpoints for any future clinical trial of our product candidates, which may delay the commencement of our clinical trials. In addition, we may not succeed in developing and validating disease-relevant clinical endpoints based on insights regarding biological pathways for the diseases we are studying. The clinical trial process is also time consuming. We estimate that the successful completion of clinical trials for etripamil and any future product candidates will take several years to complete. Furthermore, failure can occur at any stage, and we could encounter problems that cause us to abandon or repeat clinical trials.

Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be delayed, made more difficult or rendered impossible by multiple factors outside our control.

Identifying and qualifying patients to participate in our clinical trials is critical to our success. If the actual number of patients with PSVT, or any other indications that we may pursue for etripamil or future product candidates, is smaller than we anticipate, we may encounter difficulties in enrolling patients in our clinical trials, thereby delaying or preventing development and approval of etripamil and any future product candidates. Even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data, the number and nature of competing treatments and ongoing clinical trials of competing therapies for the same indication, the proximity of patients to clinical sites, the experience and capabilities of the clinical sites to recruit the correct patients, and the eligibility criteria for the trial. In our Phase 3 clinical trial, we are attempting to enroll higher risk elderly patients. We are doing this in order to obtain efficacy and safety data on patients representing the most vulnerable subset of our intended population. Such patients may be difficult to enroll in this trial, and the lack of data on these patients may negatively impact the approvability or labeling of etripamil.

In our Phase 2 clinical trial of etripamil for the treatment of PSVT, only 104 of 199 enrolled patients completed the trials, with 70 patients unable to induce or sustain PSVT during the trial period. The first Phase 3 trial of PSVT for etripamil will enroll up to 500 diagnosed PSVT patients meeting inclusion and exclusion criteria and based on recent FDA guidance, will be completed when a total of 150 adjudicated PSVT events are treated. PSVT is episodic and unpredictable, and our Phase 3 trial design depends on patients experiencing and recognizing an episode of PSVT, self-administering etripamil and monitoring their cardiac activity using a monitoring device. We cannot control the timing of these episodes or guarantee that patients will correctly recognize the episode, self-administer etripamil and use the cardiac monitor as directed. We also cannot predict with certainty the number or timing of any PSVT episodes for those patients that enroll in the trial. Conducting a Phase 3 clinical trial for a PSVT treatment in an outpatient setting is paradigm changing, and subject to a number of risks. There is limited, if any, meaningful precedent from which to inform our trial design and make assumptions about patient enrollment and compliance. Accordingly, our Phase 3 trial design is subject to significantly more risks than if there were numerous studies upon which we could model our protocols. Our efficacy and safety databases could take significantly longer to populate than projected, which would add cost to our development program and delay any potential approval of etripamil.

Furthermore, our efforts to build relationships with patient communities may not succeed, which could result in delays in patient enrollment in our clinical trials. In addition, any negative results we may report in clinical trials of etripamil and any future product candidate may make it difficult or impossible to recruit and retain patients in other clinical trials of that same product candidate. Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop etripamil or any future product candidates or could render further development impossible. In addition, we expect to rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while we intend to enter into agreements governing their services, we will be limited in our ability to compel their actual performance. Similarly, our formulation of etripamil is designed to be self-administered as a nasal spray during a PSVT episode by patients enrolled in our Phase 3 trials. While we expect enrolled patients to adhere to the protocol, our ability to ensure patient compliance is limited.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial potential or result in significant negative consequences following any potential marketing approval.

During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries and discomforts, to their doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions. Regulatory authorities

29

may draw different conclusions or require additional testing to confirm these determinations, if they occur. For example, in our Phase 2 clinical trial for PSVT, three serious adverse events, or SAEs, were considered possibly related to etripamil, including a second degree AV block that subsequently resolved. Calcium channel blockers have known side effects, such as slowing the heart rate below normal levels and hypotension, or low blood pressure. While we designed etripamil to have a short half-life to lower these risks, if etripamil is not quickly metabolized as designed, these known side effects may become more pronounced in patients who use etripamil.

In addition, it is possible that as we test etripamil or any future product candidates in larger, longer and more extensive clinical trials, such as our Phase 3 clinical trials, or as use of etripamil or any future product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects or patients. Many times, side effects are only detectable after investigational drugs are tested in large-scale pivotal trials or, in some cases, after they are made available to patients on a commercial scale after approval. If additional clinical experience indicates that etripamil or any future product candidates have side effects or causes serious or life-threatening side effects, the development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may be revoked, which would harm our business, prospects, operating results and financial condition.

Interim, “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim, “top-line” or preliminary data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common shares to fluctuate significantly.

As an organization, we have never completed pivotal clinical trials, and we may be unable to do so for any product candidates we may develop, including our pivotal Phase 3 clinical trials for the treatment of PSVT.

We will need to successfully complete pivotal clinical trials in order to obtain the approval of the FDA and other regulatory agencies to market etripamil or any of our other product candidates. Carrying out later-stage clinical trials and the submission of a successful NDA is a complicated process. As an organization, we have not previously completed any later stage or pivotal clinical trials and have limited experience in preparing, submitting and prosecuting regulatory filings. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA submission and approval of etripamil for the treatment of PSVT. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials could prevent us from or delay us in commercializing etripamil for the treatment of PSVT.

Etripamil is intended to be used with a nasal spray device, which may result in additional supply and regulatory risks.

We currently obtain the nasal spray device for administration of Etripamil from a single source supplier. Our nasal spray device supplier relies on multiple suppliers for certain components of the device, some of whom are single source suppliers. There are a limited number of device suppliers that address our particular design requirements. While we intend to explore alternative nasal spray devices for the delivery of etripamil that are produced by other suppliers to have backup sources for future commercial needs, we may not identify other nasal device suppliers that meet our requirements, and such alternative devices may not be as effective at the delivery of etripamil as our current supplier’s device. We do not currently have a formal supply agreement with our current sole nasal spray device supplier, and obtain such devices as needed. Even if we reach agreement for commercial supply, if we do not have additional nasal spray device suppliers, our sole supplier may be unable to meet our demands. Unpredictability of supply could have a material adverse effect on our commercialization plans for etripamil, if approved, and could have a material adverse effect on our business and financial condition.

Our finished drug product in the nasal delivery system will be regulated as a drug/device combination product. There are additional regulatory risks for drug/device combination products. We may experience delays in obtaining regulatory approval of etripamil given the increased complexity of the review process when approval of the product and a delivery device is sought under a single marketing application. In the United States, each component of a combination product is subject to the requirements established by the FDA for that type of component, whether a drug, biologic or device. The delivery system device will be subject to FDA device requirements regarding design, performance and validation as well as human factors testing, among other things. Delays in or failure of the studies conducted by us, or failure of our company, our collaborators, if any, or the third-party providers or suppliers to obtain or maintain regulatory approval could result in increased development costs, delays in or failure to obtain regulatory approval, and associated delays in etripamil reaching the market.

30

We may explore strategic collaborations that may never materialize, or we may be required to relinquish important rights to and control over the development of our product candidates to any future collaborators.

We intend to periodically explore a variety of possible strategic collaborations in an effort to gain access to additional product candidates or resources. At the current time, we cannot predict what form such a strategic collaboration might take. We are likely to face significant competition in seeking appropriate strategic collaborators, and strategic collaborations can be complicated and time consuming to negotiate and document. We may not be able to negotiate strategic collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any strategic collaborations because of the numerous risks and uncertainties associated with establishing them.

Future collaborations could subject us to a number of risks, including:

·we may be required to undertake the expenditure of substantial operational, financial and management resources;

·we may be required to issue equity securities that would dilute our shareholders’ percentage ownership of our company;

·we may be required to assume substantial actual or contingent liabilities;

·we may not be able to control the amount and timing of resources that our strategic collaborators devote to the development or commercialization of our product candidates;

·strategic collaborators may select indications or design clinical trials in a way that may be less successful than if we were doing so;

·strategic collaborators may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new version of a product candidate for clinical testing;

·strategic collaborators may not pursue further development of products resulting from the strategic collaboration arrangement or may elect to discontinue research and development programs;

·strategic collaborators may not commit adequate resources to the marketing and distribution of our product candidates, limiting our potential revenues from these products;

·disputes may arise between us and our strategic collaborators that result in the delay or termination of the research or development of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;

·strategic collaborators may experience financial difficulties;

·strategic collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

·business combinations or significant changes in a strategic collaborator’s business strategy may adversely affect a strategic collaborator’s willingness or ability to complete its obligations under any arrangement;

·strategic collaborators could decide to move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and

·strategic collaborators could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing our product candidates.

Risks Related to the Commercialization of Our Product Candidates

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell etripamil or any future product candidates, we may not be successful in commercializing etripamil or any future product candidates, if and when they are approved.

To successfully commercialize etripamil or any future product candidate that may result from our development programs, we will need to build out our sales and marketing capabilities, either on our own or with others. The establishment and development of our own commercial team or the establishment of a contract field force to market any product candidate we may develop will be expensive and time-consuming and could delay any drug launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We may seek to enter into collaborations with other entities to use their established marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If any current or future collaborators do not commit sufficient resources to commercialize our product candidates, or we are unable to develop the necessary capabilities on our own, we may be unable to generate sufficient revenue to sustain our business. We may compete with many companies that currently have extensive, experienced and well-funded marketing and sales operations to recruit, hire, train and retain marketing and sales personnel. We will likely also face competition if we seek third parties to assist us with the sales and marketing efforts of etripamil and any future product candidates. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

Even if etripamil or any future product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

Even if etripamil or any future product candidates receive marketing approval, they may fail to gain market acceptance by physicians, patients, third-party payors and others in the medical community. If such product candidates do not achieve an adequate level of

31

acceptance, we may not generate significant drug revenue and may not become profitable. The degree of market acceptance of etripamil or any future product candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to:

·the convenience and ease of administration compared to alternative treatments and therapies;

·the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

·the efficacy and potential advantages compared to alternative treatments and therapies;

·the effectiveness of sales and marketing efforts;

·the prevalence and severity of any side effects;

·the strength of our relationships with patient communities;

·the cost of treatment in relation to alternative treatments and therapies, including any similar generic treatments;

·our ability to offer such drug for sale at competitive prices;

·the strength of marketing and distribution support;

·the availability of third-party coverage and adequate reimbursement; any restrictions on the use of the drug together with other medications; and the awareness and support from key opinion leaders in cardiology.

Our efforts to educate physicians, patients, third-party payors and others in the medical community on the benefits of etripamil or any future product candidates may require significant resources and may never be successful. Such efforts may require more resources than are typically required due to the potential of etripamil to shift the treatment paradigm away from acute-care settings to self-administration. Because we expect sales of etripamil or any future product candidates, if approved, to generate substantially all of our revenues for the foreseeable future, the failure of these product candidates to find market acceptance would harm our business.

Even if we successfully obtain approval for etripamil, its success will be dependent on its proper use.

While we have designed etripamil to be self-administered, we cannot control the successful use of the product. While we have conducted, and intend in the future to conduct, human factors studies to determine how to optimize the instructions for use, the results in our clinical trials may not be replicated by users in the future. If we are not successful in promoting the proper use of etripamil, if approved, we may not be able to achieve market acceptance or effectively commercialize the drug. In addition, even in the event of proper use of etripamil, individual devices may fail. Increasing the scale of production inherently creates increased risk of manufacturing errors, and we may not be able to adequately inspect every device that is produced, and it is possible that individual devices may fail to perform as designed. Manufacturing errors could negatively impact market acceptance of any of our product candidates that receive approval, result in negative press coverage, or increase our liability.

If the market opportunities for etripamil and any future product candidates are smaller than we estimate, our business may suffer.

Our eligible patient population may differ significantly from the actual market addressable by our product candidates. Our projections of both the number of people who have these conditions, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, insurance claims databases or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Likewise, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or access. If the market opportunities for our product candidates are smaller than we estimate, our business and results of operations could be adversely affected.

We may face substantial competition, which may result in others developing or commercializing drugs before or more successfully than us.

The development and commercialization of new drugs is highly competitive. We may face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

More established companies may have a competitive advantage over us due to their greater size, resources and institutional experience. In particular, these companies have greater experience and expertise in securing reimbursement, government contracts and relationships with key opinion leaders, conducting testing and clinical trials, obtaining and maintaining regulatory approvals and distribution relationships to market products and marketing approved drugs. These companies also have significantly greater research and marketing capabilities than we do. If we are not able to compete effectively against existing and potential competitors, our business and financial condition may be harmed.

As a result of these factors, our competitors may obtain regulatory approval of their drugs before we are able to, which may limit our ability to develop or commercialize etripamil and any future product candidates. Our competitors may also develop therapies that are

32

safer, more effective, more widely accepted or less expensive than ours, and may also be more successful than we in manufacturing and marketing their drugs. These advantages could render our product candidates obsolete or non-competitive before we can recover the costs of such product candidates’ development and commercialization.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

If we commercialize etripamil or any future product candidates outside of the United States, a variety of risks associated with international operations could harm our business.

We intend to seek approval to market etripamil outside of the United States, and may do so for future product candidates. If we market approved products outside of the United States, we expect that we will be subject to additional risks in commercialization including:

·different regulatory requirements for approval of therapies in foreign countries;

·reduced protection for intellectual property rights;

·unexpected changes in tariffs, trade barriers and regulatory requirements;

·economic weakness, including inflation, or political instability in particular foreign economies and markets;

·compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

·foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

·foreign reimbursement, pricing and insurance regimes;

·workforce uncertainty in countries where labor unrest is more common than in the United States;

·production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

·business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires.

We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by many of the individual countries in and outside of Europe with which we will need to comply. Many biopharmaceutical companies have found the process of marketing their own products in foreign countries to be very challenging.

Coverage and adequate reimbursement may not be available for etripamil or any future product candidates, which could make it difficult for us to gain market acceptance.

Market acceptance and sales of any product candidates that we commercialize, if approved, will depend in part on the extent to which reimbursement for these drugs and related treatments will be available from third-party payors, including government health administration authorities, managed care organizations and other private health insurers. Third-party payors decide for which therapies and establish reimbursement levels. While no uniform policy for coverage and reimbursement exists in the United States, third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be made on a payor-by-payor basis. Therefore, one payor’s determination to provide coverage for a drug does not assure that other payors will also provide coverage, and adequate reimbursement, for the drug. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage and reimbursement will be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any drug for which we obtain marketing approval. If coverage and adequate reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize etripamil or any future product candidates that we develop.

33

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any product candidates that we may develop.

We face an inherent risk of product liability exposure related to the testing of etripamil or any future product candidates in clinical trials and may face an even greater risk if we commercialize any product candidate that we may develop. If we cannot successfully defend ourselves against claims that any such product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

·decreased demand for any product candidate that we may develop;

·loss of revenue;

·substantial monetary awards to trial participants or patients;

·significant time and costs to defend the related litigation;

·withdrawal of clinical trial participants;

·increased insurance costs;

·the inability to commercialize any product candidate that we may develop; and injury to our reputation and significant negative media attention.

Although we maintain product liability insurance coverage with maximum coverage of C$10 million per incident and an aggregate loss limit of C$10 million, such insurance may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any product candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks Related to Regulatory Compliance

Even if we obtain and maintain approval for etripamil or any future product candidates from the FDA, we may never obtain approval of etripamil or any future product candidates outside of the United States, which would limit our market opportunities and could harm our business.

Approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of etripamil or any future product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable foreign regulatory authorities also must approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for any product candidates, if approved, is also subject to approval. Obtaining approval for etripamil or any future product candidates in the European Union from the European Commission following the opinion of the European Medicines Agency, if we choose to submit a marketing authorization application there, would be a lengthy and expensive process. Even if a product candidate is approved, the FDA or the European Commission, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of etripamil or any future product candidates in certain countries.

Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approval for our product candidates may be withdrawn. If we fail to comply with the regulatory requirements, our target market will be reduced and our ability to realize the full market potential of etripamil or any future product candidates will be harmed and our business, financial condition, results of operations and prospects could be harmed.

Even if we obtain regulatory approval for etripamil or any future product candidates, they will remain subject to ongoing regulatory oversight.

Even if we obtain regulatory approvals for etripamil or any future product candidates, such approvals will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information. Any regulatory approvals that we receive for etripamil or any future product candidates may also be subject to a REMS, limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 trials, and surveillance to monitor the quality, safety and efficacy of the drug. Such regulatory requirements may differ from country to country depending on where we have received regulatory approval.

In addition, drug manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the NDA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a drug, such as adverse

34

events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured or if a regulatory authority disagrees with the promotion, marketing or labeling of that drug, a regulatory authority may impose restrictions relative to that drug, the manufacturing facility or us, including requesting a recall or requiring withdrawal of the drug from the market or suspension of manufacturing.

If we fail to comply with applicable regulatory requirements following approval of etripamil or any future product candidates, a regulatory authority may:

·issue an untitled letter or warning letter asserting that we are in violation of the law;

·seek an injunction or impose administrative, civil or criminal penalties or monetary fines;

·suspend or withdraw regulatory approval;

·suspend any ongoing clinical trials;

·refuse to approve a pending NDA or comparable foreign marketing application or any supplements thereto submitted by us or our partners;

·restrict the marketing or manufacturing of the drug;

·seize or detain the drug or otherwise require the withdrawal of the drug from the market;

·refuse to permit the import or export of product candidates; or

·refuse to allow us to enter into supply contracts, including government contracts.

Moreover, the FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. However, biopharmaceutical companies may share truthful and not misleading information that is otherwise consistent with the labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal and administrative penalties.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize etripamil or any future product candidates and harm our business, financial condition, results of operations and prospects.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

In addition, we cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is d