Trillium Therapeutics Inc.: Exhibit 99.2 - Filed by newsfilecorp.com
| MANAGEMENT’S DISCUSSION AND ANALYSIS |
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| FOR THE THREE AND SIX MONTHS ENDED |
| JUNE 30, 2016 AND 2015 |
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| Dated: August 11, 2016 |
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| 2488 Dunwin Drive |
| Mississauga, Ontario, L5L 1J9 |
| www.trilliumtherapeutics.com |
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
ABOUT THIS MANAGEMENT DISCUSSION AND ANALYSIS
All references in this management’s discussion and analysis, or
MD&A to “the Company”, “Trillium”, “we”, “us”, or “our” refer to Trillium
Therapeutics Inc. and the subsidiaries through which it conducts its business,
unless otherwise indicated.
The following MD&A is prepared as of August 11, 2016 for
Trillium Therapeutics Inc. for the three and six months ended June 30, 2016 and
2015, and should be read in conjunction with the unaudited interim condensed
consolidated financial statements for the three and six months ended June 30,
2016 and 2015, and the annual audited consolidated financial statements and
accompanying notes for the years ended December 31, 2015 and 2014, which have
been prepared by management in accordance with International Financial Reporting
Standards, or IFRS as issued by the International Accounting Standards Board, or
IASB. Our IFRS accounting policies are set out in note 3 of the annual audited
consolidated financial statements for the years ended December 31, 2015 and
2014. All amounts are in Canadian dollars, unless otherwise indicated.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements within the
meaning of applicable securities laws. All statements contained herein that are
not clearly historical in nature are forward-looking, and the words
“anticipate”, “believe”, “expect”, “estimate”, “may”, “will”, “could”,
“leading”, “intend”, “contemplate”, “shall” and similar expressions are
generally intended to identify forward-looking statements. Forward-looking
statements in this MD&A include, but are not limited to, statements with
respect to:
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our expected future loss and accumulated deficit levels;
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our projected financial position and estimated cash burn
rate; |
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our expectations about the timing of achieving milestones
and the cost of our development programs; |
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our observations and expectations regarding the relative
low binding of SIRPαFc to red blood cells compared to anti-CD47 monoclonal
antibodies and proprietary CD47-blocking agents and the potential benefits
to patients; |
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our requirements for, and the ability to obtain, future
funding on favorable terms or at all; |
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our projections for the SIRPαFc development plan and
progress of each of our products and technologies, particularly with
respect to the timely and successful completion of studies and trials and
availability of results from such studies and trials; |
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our expectations about the differentiated nature and
potential for best-in-class product development programs and discovery
research capabilities of Fluorinov Pharma Inc., or Fluorinov; |
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our ability to generate future product development
programs with improved pharmacological properties and acceptable safety
profiles using Fluorinov technology; |
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our expectations about whether various clinical and
regulatory milestones with an existing Fluorinov compound will be
achieved; |
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our expectations of the final quantum and form of any
future contingent milestone payments related to the Fluorinov acquisition;
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our expectations of the ability to secure the requisite
approvals (including TSX and NASDAQ approvals) with respect to the
issuance of any common shares in satisfaction of future milestone
payments; |
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our expectations about our products’ safety and efficacy;
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our belief that TTI-621 is able to convert pro-tumor
macrophages into efficient anti-tumor effector cells; |
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our expectations regarding our ability to arrange for and
scale up the manufacturing of our products and technologies; |
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our expectations regarding the progress, and the
successful and timely completion, of the various stages of the regulatory
approval process; |
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our ability to secure strategic partnerships with larger
pharmaceutical and biotechnology companies; |
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our strategy to acquire and develop new products and
technologies and to enhance the safety and efficacy of existing products
and technologies; |
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our plans to market, sell and distribute our products and
technologies; |
- 2 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
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our expectations regarding the acceptance of
our products and technologies by the market; |
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our ability to retain and access appropriate
staff, management, and expert advisers; |
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our expectations with respect to existing and future
corporate alliances and licensing transactions with third parties, and the
receipt and timing of any payments to be made by us or to us in respect of
such arrangements; and |
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our strategy with respect to the protection of
our intellectual property. |
All forward-looking statements reflect our beliefs and
assumptions based on information available at the time the assumption was made.
These forward-looking statements are not based on historical facts but rather on
management’s expectations regarding future activities, results of operations,
performance, future capital and other expenditures (including the amount, nature
and sources of funding thereof), competitive advantages, business prospects and
opportunities.
By its nature, forward-looking information involves numerous
assumptions, inherent risks and uncertainties, both general and specific, known
and unknown, that contribute to the possibility that the predictions, forecasts,
projections or other forward-looking statements will not occur. In evaluating
forward-looking statements, readers should specifically consider various
factors, including the risks outlined under the heading “Risk Factors” in this
MD&A. Some of these risks and assumptions include, among others:
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substantial fluctuation of losses from quarter to quarter
and year to year due to numerous external risk factors, and anticipation
that we will continue to incur significant losses in the future;
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uncertainty as to the Company’s ability to raise
additional funding to support operations; |
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our ability to generate product revenue to maintain our
operations without additional funding; |
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the risks associated with the development of our product
candidates which are at early stages of development; |
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reliance on third parties to plan, conduct and monitor
our preclinical studies and clinical trials; |
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our product candidates may fail to demonstrate safety and
efficacy to the satisfaction of regulatory authorities or may not
otherwise produce positive results; |
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risks related to filing Investigational New Drug
applications, or INDs, to commence clinical trials and to continue
clinical trials if approved; |
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the risks of delays and inability to complete
clinical trials due to difficulties enrolling patients; |
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competition from other biotechnology and
pharmaceutical companies; |
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our reliance on the capabilities and experience
of our key executives and scientists and the resulting loss of any of
these individuals; |
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our ability to successfully integrate the
operations of Fluorinov or fully realize the benefits of this or other
future acquisitions; |
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our ability to adequately protect our
intellectual property and trade secrets; |
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our ability to source and maintain licenses
from third-party owners; |
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the risk of patent-related litigation; and
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our expectations regarding our status as a
passive foreign investment company, |
all as further and more fully described under the heading “Risk
Factors” in this MD&A.
Although the forward-looking statements contained in this
MD&A are based upon what our management believes to be reasonable
assumptions, we cannot assure readers that actual results will be consistent
with these forward looking statements.
Any forward-looking statements represent our estimates only as
of the date of this MD&A and should not be relied upon as representing our
estimates as of any subsequent date. We undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events, except as may be required by securities legislation.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
BUSINESS
Overview
We are a clinical stage immuno-oncology company developing
innovative therapies for the treatment of cancer. Our lead program is a SIRPαFc
fusion protein that consists of the extracellular CD47-binding domain of human
SIRPα linked to the Fc region of a human immunoglobulin. It is designed to act
as a soluble decoy receptor, preventing CD47 from delivering its inhibitory (“do
not eat”) signal. Neutralization of the inhibitory CD47 signal enables the
activation of macrophage anti-tumor effects by pro-phagocytic (“eat”) signals. A
Phase I clinical trial (NCT02663518) evaluating SIRPαFc (TTI-621) is ongoing.
Trillium also has a proprietary medicinal chemistry platform, using unique
fluorine chemistry, which permits the creation of new chemical entities with
improved pharmacological properties from validated drugs and drug candidates.
Stemming from this platform, our most advanced preclinical program is an
orally-available bromodomain inhibitor, followed by an epidermal growth factor
receptor antagonist. In addition, a number of compounds directed at undisclosed
immuno-oncology targets are currently in the discovery phase.
Our Strategy
Our goal is to become a leading innovator in the field of
oncology by targeting immune-regulatory pathways that tumor cells exploit to
evade the host immune system.
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Rapidly advance the clinical development of
SIRPαFc. We are conducting a
first-in-human Phase I clinical trial of SIRPαFc in patients with relapsed
or refractory lymphoma in a dose escalation phase of up to 36 patients,
and expect to enroll up to 8 cohorts of 12-15 patients with advanced
hematologic malignancies in an expansion phase of the trial after an
optimal dose has been determined. |
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Expand our SIRPαFc
clinical program to include additional cancer indications. Because
CD47 is highly expressed by multiple liquid and solid tumors, and high
expression is correlated with worse clinical outcomes, we believe SIRPαFc
has potential to be effective in a wide variety of cancers. We are
planning future clinical development and carrying out preclinical work
necessary to select additional, high potential cancer indications.
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Maximize value of
SIRPαFc through scientific
collaborations. SIRPαFc has broad potential applicability in
various cancer indications, and we believe it is well suited for use as
both a monotherapy and in combination with other agents. We plan to
continue to selectively and opportunistically pursue scientific
collaborations in order to realize the full value proposition of SIRPαFc.
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Using our proprietary medicinal chemistry platform,
build a pipeline of novel oncology products for development
or out-license. We have initiated IND-enabling preclinical studies
with TTI-281, an oral bromodomain inhibitor that we believe to be highly
potent and which has shown efficacy in AML xenograft models. We plan to
advance novel oncology assets developed using our proprietary fluorine
chemistry platform. |
Our Product Candidates
| Product |
Stage |
| SIRPαFc (TTI-621) |
Phase I (hematologic malignancies) |
| BET Bromodomain inhibitor (TTI-281) |
Entered IND-enabling studies |
| EGFR inhibitor program |
Preclinical |
| Immuno-oncology targets |
Discovery |
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
SIRPαFc (TTI-621)
Our lead program, TTI-621, is a novel SIRPαFc fusion protein
that harnesses the innate immune system by blocking the activity of CD47, a
molecule whose expression is increased on cancer cells to evade the host immune
system. Expressed at high levels on the cell surface of a variety of liquid and
solid tumors, CD47 functions as a signal that inhibits the destruction of tumor
cells by macrophages via phagocytosis. By blocking the activity of CD47, we
believe SIRPαFc has the ability to promote the macrophage-mediated killing of
tumor cells in a broad variety of cancers both as a monotherapy and in
combination with other immune therapies.
The immune system is the body’s mechanism to identify and
eliminate pathogens, and can be divided into the innate immune system and the
adaptive immune system. The innate immune system is the body’s first line of
defense to identify and eliminate pathogens and consists of proteins and cells,
such as macrophages, that identify and provide an immediate response to
pathogens. The adaptive immune system is activated by, and adapts to, pathogens,
creating a targeted and durable response. Cancer cells often have the ability to
reduce the immune system’s ability to recognize and destroy them. We believe
SIRPαFc could play an important role in enhancing the innate immune system and
importantly, because of its ability to target macrophages, also has an important
downstream effect on the adaptive immune system.
SIRPαFc Key Attributes
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Potential efficacy in a broad range of
cancers. SIRPαFc blocks the tumor’s ability to transmit a “do not
eat” signal allowing macrophages to destroy tumor cells; a mechanism that
we believe could have broad applicability. |
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Potential for use as monotherapy and in combination
with other therapies. We intend to develop SIRPαFc as a
monotherapy as well as potentially for use in combination with other
cancer immuno- therapies. |
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Differentiated pharmacokinetic and safety
profile. We believe SIRPαFc’s low level of binding to red blood
cells lowers the risk of anemia and lowers the loss of drug from
circulation. This pharmacokinetic profile potentially allows for lower
dosing and an improved safety profile. |
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May enhance both innate and adaptive immune
response. SIRPαFc may enhance stimulation of tumor attacking T
cells since macrophages, in addition to their role in phagocytosis, can
also prime T cells through antigen presentation. |
SIRPαFc Clinical Development
Plan
We are enrolling patients with advanced hematologic
malignancies in a Phase I clinical trial. The two-part clinical trial is
designed as a multi-center, open-label Phase Ia/Ib trial, evaluating TTI-621 as
a single-agent in patients with relapsed or refractory hematologic malignancies.
During the dose escalation phase set to enroll up to 36 subjects, the safety,
tolerability, pharmacokinetics and pharmacodynamics will be characterized to
determine the optimal dose for subsequent enrollment in the expansion phase. To
characterize potential changes in hematologic parameters that might occur with
blockade of CD47, the dose-escalation portion of the Phase I trial will include
lymphoma patients with relatively normal hematologic parameters and acceptable
marrow function. Once a reasonably well-tolerated dose and schedule of SIRP Fc
has been established for further study, safety and antitumor activity will be
estimated in expansion cohorts of up to 15 patients with advanced hematologic
malignancies including indolent B-cell lymphoma, aggressive B-cell lymphoma,
T-cell lymphoma, Hodgkin lymphoma, chronic lymphocytic leukemia, multiple
myeloma, acute myeloid leukemia, and myelodysplastic syndrome.
Blocking the CD47 “do not eat” signal using a
SIRPαFc decoy receptor
Macrophages are a type of white blood cell that can ingest and
destroy (phagocytose) other cells. They are part of the innate immune system
that helps to protect the body from infection. More recently, a role for
macrophages in the control of tumors has been described.
Macrophage activity is controlled by both positive “eat” and
negative “do not eat” signals. Tumor cells may express “eat” signals (e.g.,
calreticulin) that make themselves visible to macrophages. To counterbalance
this increased visibility the tumor cells often express high levels of CD47,
which transmits a “do not eat” signal by binding signal regulatory protein
alpha, or SIRPα, on the surface of macrophages. We believe that the higher
expression of CD47 on the tumor cell helps it evade destruction by the
macrophage by overwhelming any activating “eat” signals.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
SIRPαFc is an antibody-like protein that consists of the
CD47-binding domain of human SIRPα linked to the Fc region of a human
immunoglobulin. It is designed to act as a soluble decoy receptor, preventing
CD47 from delivering its inhibitory signal. Neutralization of the inhibitory
CD47 signal enables the activation of macrophage anti-tumor effects by the
pro-phagocytic “eat” signals. The Fc region of SIRPαFc may, depending on its
identity, also assist in the activation of macrophages by engaging Fc receptors.
The figure below illustrates how SIRPαFc blocks the CD47 “do
not eat” signal and engages activating Fc receptors on macrophages, leading to
tumor cell phagocytosis.
In addition to their direct anti-tumor activity, macrophages
can also function as antigen-presenting cells and stimulate antigen-specific T
cells. Thus it is possible that increasing tumor cell phagocytosis after SIRPαFc
exposure may result in enhanced adaptive immunity. In support of this, CD47
antibody blockade has been recently shown to augment antigen presentation and
prime an anti-tumor cytotoxic T cell response in immune-competent mice. CD47
blockade has also been reported to promote tumor-specific T cell responses
through a dendritic cell-based mechanism, although the effect of SIRPαFc on
dendritic cells is currently unknown.
SIRPαFc has broad clinical
potential
We believe that SIRPαFc has broad clinical potential in both
hematological and solid tumors. High expression of the CD47 “do not eat” signal
on tumor cells has been observed in AML, MDS, chronic myeloid leukemia, or CML,
acute lymphoblastic leukemia, or ALL, diffuse large B cell lymphoma, or DLBCL,
chronic lymphocytic leukemia, or CLL, follicular lymphoma, mantle cell lymphoma,
marginal zone lymphoma, multiple myeloma and in solid tumors including: bladder,
brain, breast, colon, leiomyosarcoma, liver, melanoma, ovarian and prostate. In
a number of these cancers high CD47 expression was shown to have negative
clinical consequences, correlating with more aggressive disease and poor
survival. In normal karyotype AML patients, for example, high CD47 expression
was correlated with worse event-free survival (6.8 vs. 17.1 months) and worse
overall survival (9.1 vs. 22.1 months) compared to low CD47 expression. These
data are consistent with CD47 providing a survival advantage to tumor cells. Furthermore, numerous studies have shown that antibody
blockade of CD47 has demonstrated activity in mice engrafted with human
tumors.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
In vitro studies with primary tumor samples obtained from AML,
MDS, multiple myeloma, B cell-ALL and T-cell ALL demonstrated that SIRPαFc
frequently triggered significantly macrophage-mediated tumor cell phagocytosis
compared to control treatment. Similar results were observed with tumor cell
lines established from patients with B lymphoma and CML.
The figure below shows how SIRPαFc (TTI-621) triggers
macrophage-mediated phagocytosis of many different human blood cancer samples.
The p value is a probability value, with values <0.05
considered statistically significant versus control treatment. NS indicates
p>0.05, which is considered not statistically significant versus control
treatment.
SIRPα – Minimal Red Blood
Cell Binding - Competition
SIRPαFc competes directly with CD47 blocking antibodies from
Forty Seven Inc. (recently licensed from Stanford University) and Celgene
Corporation, both of which have entered early clinical development. Novimmune SA
has a bispecific (anti-CD47/anti-CD19) antibody program in preclinical
development. Vasculox is also developing a CD47 antibody. Alexo Therapeutics is
developing mutated, high affinity SIRPα monomers as adjuvants for use with
anti-cancer antibodies. Vasculox, Alexo Therapeutics and another company, OSE
Immunotherapeutics, are in the preclinical phase of development.
We believe that our approach of using SIRPα, the natural
binding partner for CD47, may have important advantages over treatment with
CD47-specific antibodies. In April 2015, we presented data at the 106th American
Association for Cancer Research, or AACR, annual meeting demonstrating that our
SIRPαFc fusion proteins exhibit minimal binding to human red blood cells, or
RBCs, compared to anti-CD47 monoclonal antibodies.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
The figure below shows how SIRPαFc binding to human RBCs (n=43
donors) compares to five CD47-specific antibodies.
While it is acknowledged that TTI-621 binds to human platelets
and leukocytes, the very low RBC binding profile of our SIRPαFc proteins may
provide three important advantages over CD47 blocking agents. First, there may
be a lower risk of experiencing drug-induced anemia with SIRPαFc. Second,
SIRPαFc may avoid being removed from circulation by RBCs. Avoiding this
“antigen-sink effect” may result in more favourable drug levels compared to
agents that bind strongly to RBCs. Third, antibodies that bind RBCs have the
potential to interfere with laboratory blood typing tests. The minimal binding
of TTI-621 to human RBCs may minimize this interference compared to anti-CD47
antibodies.
Combination Therapy
We believe that SIRPαFc enhancement of macrophage activity, and
possibly T cell responses, could be synergistic with other immune-mediated
therapies. Published studies conducted by third parties provide evidence that
SIRPαFc may be useful in combination with approved anti-cancer antibodies (e.g.
Rituxan®, Herceptin®, Campath®, and Erbitux®). Since many cancer antibodies work
at least in part by activating cells of the innate immune system, it may be
possible to enhance the potency of these agents by blocking the negative “do not
eat” CD47 signal that tumor cells deliver to macrophages. We hypothesize that
SIRPαFc may act synergistically with other immunological agents, including T
cell checkpoint inhibitors (e.g. pembrolizumab and nivolumab), cancer vaccines,
oncolytic viruses or chimeric antigen receptor, or CAR T cells.
BET Bromodomain Inhibitor (TTI-281)
Bromodomains recognize and bind to DNA-associated proteins that
have been epigenetically modified. These “epigenetic readers” act as scaffolds
for the recruitment of proteins involved in the initiation of gene expression.
Bromodomain-containing proteins regulate genes that play roles in proliferation,
cell cycle progression and apoptosis. Members of the BET (bromodomain and
extra-terminal) subfamily have been implicated in controlling the transcription
of c-Myc, a proto-oncogene that contributes to the pathogenesis of many cancers
but has proven to be difficult to target pharmacologically.
TTI-281 selectively binds the BET proteins BRD2, BRD3 and BRD4
and is 2-6 fold more potent than a leading bromodomain inhibitor. It is strongly
cytotoxic to AML cells but not to normal hematopoietic cells, and reversibly
suppresses the expression of c-Myc. TTI-281 has demonstrated oral efficacy in
xenograft models of human leukemia and myeloma. We have initiated IND-enabling
preclinical studies with TTI-281.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
EGFR Inhibitor
The epidermal growth factor receptor, or EGFR, is a validated
drug target in oncology but the use of EGFR inhibitors has been limited by two
factors. First, toxicities can arise from indiscriminate reactivity with
off-target proteins. Second, the low central nervous system, or CNS, penetration
of existing EGFR inhibitors limits their use for CNS indications such as
glioblastoma multiforme and brain metastasis from lung cancer. The incorporation
of Fluorine into small molecules is known to minimize the formation of highly
reactive metabolites and improve blood brain barrier penetration and thus this
strategy has the potential to overcome the major limitations of existing EGFR
inhibitors.
We have a novel class of highly selective and potent orally
available small molecule EGFR inhibitors that exhibit potent in vitro activity
comparable to approved EGFR inhibitors and improved brain penetration in
multiple animal species. Screening of second- and third-generation brain
penetrant EGFR inhibitors is currently in progress as part of our preclinical
development program for this product candidate.
Immuno-oncology Targets Using Our Fluorine Chemistry
Platform
Our medicinal chemistry platform uses proprietary
fluorine-based chemistry to modify specific properties of validated drug
candidates to yield new chemical entities. We believe the potency and/or safety
of both existing pharmacophores and historically inaccessible chemical
structures may be enhanced using our technology. A number of compounds directed
at undisclosed immuno-oncology targets are currently in the discovery phase.
Recent Developments
Acquisition of Fluorinov
On January 26, 2016, we acquired all the outstanding shares of
Fluorinov, a privately-held oncology company that has developed a proprietary
medicinal chemistry platform using unique fluorine chemistry, which permits the
creation of new chemical entities from validated drugs and drug candidates with
improved pharmacological properties, potentially leading to increased safety and
efficacy. We expect Fluorinov’s fluorine-based chemistry platform will provide
us with an internal drug discovery engine. Fluorinov also has a preclinical
pipeline of oncology assets including potent, orally-available, bromodomain and
proteasome inhibitors, as well as epidermal growth factor receptor antagonists
with increased uptake in the brain, all of which have potential for
best-in-class status.
We anticipate that future cancer treatments will be dominated
by combination therapies that may often involve combining biologics and small
molecules. The acquisition of our own small molecule platform with opportunity
for oral drug delivery may provide us with new drug candidates that we may
either develop in-house or out-license. According to Wang et al. Chem Rev. 2014,
114 (4), approximately 25% of all marketed drugs contain fluorine. The benefits
of fluorine include blocking sites of metabolism to increase drug half-life and
reduce toxicity, lipophilicity that improves oral absorption and blood brain
barrier penetration, and electronegativity that alters chemical properties to
improve binding and potency. We believe that the Fluorinov acquisition de-risks
us and diversifies us for the longer term.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
The acquisition date fair value of consideration transferred
and the fair value of identifiable assets acquired and liabilities assumed are
as follows:
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$ |
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Fair value of consideration
paid: |
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Cash |
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10,000,000 |
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Working capital
adjustment |
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(134,089 |
)
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Contingent consideration |
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1,750,000 |
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11,615,911 |
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Assets acquired: |
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Cash |
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291,078 |
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Amount due from
Fluorinov shareholders |
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36,886 |
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Acquired technology |
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15,439,759 |
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15,767,723 |
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Liabilities assumed: |
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Accounts payable and accrued
liabilities |
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462,138 |
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Deferred tax liabilities |
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3,689,674 |
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4,151,812 |
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Net identifiable assets acquired |
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11,615,911 |
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The upfront consideration for Fluorinov was $10,000,000 less
the working capital deficiency currently estimated to be $134,089. At closing,
the Company paid $9,510,554 in cash, applied $250,000 paid in fiscal 2015 as a
standstill fee, and held back $150,000 until settlement of the final working
capital deficit, expected within nine months of the closing.
The Company may also incur up to $35 million of future payments
contingent on Trillium achieving certain clinical and regulatory milestones with
an existing Fluorinov compound. The amount of contingent consideration
recognized by the Company as of the acquisition date was $1,750,000 and has been
classified as other long-term liabilities on the interim condensed consolidated
statements of financial position. The fair value of the contingent consideration
was calculated using a discounted cash flow approach, where a risk-adjusted
discount rate was applied to future cash flows. Trillium also has an obligation
to pay royalty payments on future sales of such compounds.
At Trillium’s discretion, up to 50% of the future contingent
payments can be satisfied through the issuance of common shares of Trillium
provided that the aggregate number of common shares issuable under such payments
will not exceed 1,558,447 common shares unless shareholder approval has first
been obtained. In addition, any such future share issuance remains subject to
final approval from Trillium’s board of directors and receipt of any requisite
approvals under the applicable rules of the Toronto Stock Exchange and the
NASDAQ Stock Market. Trillium has also committed to use commercially reasonable
efforts to monetize Fluorinov’s central nervous system assets and share 50% of
the net proceeds with Fluorinov shareholders.
Acquisition costs incurred by the Company and included in
general and administrative expenses for year ended December 31, 2015 and for the
six months ended June 30, 2016, were approximately $174,671 and $106,887,
respectively. From the date of the acquisition to June 30, 2016, Fluorinov
contributed revenue of nil and a loss of $3,022,510. If the acquisition had
occurred on January 1, 2016, the combined loss for the Company for the six
months ended June 30, 2016 would be $14,864,467.
In connection with the acquisition, the Company established
deferred tax liabilities related to the acquired identifiable intangible assets
and determined that these deferred tax liabilities exceeded the acquired
deferred tax assets. This allowed the Company to realize a deferred tax benefit
of $3,689,674 by releasing the valuation allowance associated with the Company’s
overall deferred tax assets.
- 10 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Under IFRS, the acquisition of Fluorinov was considered a
related party transaction as two Company directors were determined to be related
parties of Fluorinov. One Company director was a director of Fluorinov and had
an ownership position in Fluorinov at the time of acquisition of less than 2%,
and the second director was a director of an entity that was a beneficiary of a
trust that was a shareholder and debenture holder of Fluorinov. The two
directors declared their conflict of interest and abstained from all discussions
and decisions concerning the Fluorinov acquisition. Accordingly, the Company
determined that the consideration paid on the acquisition was made on terms
equivalent to those that prevail in arm’s length transactions.
Collaboration with University Health Network and the
Hospital for Sick Children
We entered into a collaboration agreement with University
Health Network, or UHN, and the Hospital for Sick Children, or HSC, to fund and
undertake a research program entitled " SIRPαFc: Translating Genomics Research
Into a Novel Cancer Immunotherapy." This project was approved for funding by
Genome Canada under the Genomic Applications Partnership Program. In addition,
The Ontario Ministry of Research and Innovation is supporting the project with a
grant matching Genome Canada’s contribution, providing the collaboration with a
3-year budget of approximately $3.4 million. This new matching funding will
allow us to substantially expand our translational research efforts, focusing
primarily on acute myeloid leukemia. Trillium’s contribution to the overall
budget of this program is $886,000 in cash and $478,000 in kind over three
years.
AACR Presentation
At the 107th Annual Meeting of the AACR in April 2016 we
presented data demonstrating that SIRPαFc promotes the phagocytosis of lymphoma
cells by diverse types of macrophages. The studies also assessed the impact of
macrophage polarizing agents on drug activity and delineated the role of
different Fc gamma receptors in promoting tumor cell killing by SIRPαFc. Our
data indicate that TTI-621enables all macrophage subsets tested, including M2s,
to kill tumor cells. These results suggest that TTI-621 is able to convert
otherwise pro-tumor macrophages into efficient anti-tumor effector cells. Rather
than ablating M2 macrophages in the tumor microenvironment, these data support
using TTI-621 to unleash their tumoricidal function.
Plan of Operations
Our primary focus is the advancement of our Phase I clinical
trial of SIRPαFc in patients with advanced hematologic malignancies. We are also
planning future clinical trials supported by our preclinical research in solid
tumors and in combination studies.
Our bromodomain inhibitor has entered IND-enabling preclinical
studies with the initiation of manufacturing. We are also conducting preclinical
development of the EGFR program focused on identifying lead development
candidates.
Legal Proceedings
To our knowledge, there have not been any legal or arbitration
proceedings, including those relating to bankruptcy, receivership or similar
proceedings, those involving any third party, and governmental proceedings
pending or known to be contemplated, which may have, or have had in the recent
past, significant effect our financial position or profitability.
Also, to our knowledge, there have been no material proceedings
in which any director, any member of senior management, or any of our affiliates
is either a party adverse to us or any of our subsidiaries or has a material
interest adverse to us or any of our subsidiaries.
- 11 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
RESULTS OF OPERATIONS
For the three and six months ended June 30, 2016 and 2015
Overview
Since inception, we have incurred losses while advancing the
research and development of our products. Net loss for the three months ended
June 30, 2016 of $7,603,277 was higher than the loss of $5,568,564 for the three
months ended June 30, 2015. The net loss was higher due mainly to intangible
asset amortization of $966,869 on the acquisition of Fluorinov intangible assets
and higher research and development spending.
Net loss for the six months ended June 30, 2016 of $14,808,012
was higher than the loss of $10,238,877 for the six months ended June 30, 2015.
The net loss was higher due mainly to a higher net foreign currency loss of
$3,857,160 from holding US denominated cash with a weakening US dollar,
intangible asset amortization amount of $1,660,191 on the acquisition of
Fluorinov intangible assets and higher research and development spending. This
was partially offset by the recognition of a deferred tax recovery in relation
to the acquisition of Fluorinov of $3,689,674 where we released a portion of our
income tax valuation adjustment to match a net deferred tax liability that was
created on the acquisition of Fluorinov.
Research and Development
Research and development expenses by program for the three and
six months ended June 30, 2016 and 2015 were as follows:
|
|
|
Three months |
|
|
Three months |
|
|
Six months |
|
|
Six months |
|
|
|
|
ended |
|
|
ended |
|
|
ended |
|
|
ended |
|
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
June 30, 2016 |
|
|
June 30, 2015 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
SIRPαFc |
|
4,532,766 |
|
|
4,709,316 |
|
|
9,754,263 |
|
|
8,692,038 |
|
|
Fluorinov compounds |
|
1,894,588 |
|
|
- |
|
|
3,022,510 |
|
|
- |
|
|
Other |
|
1,160 |
|
|
4,000 |
|
|
30,413 |
|
|
37,659 |
|
|
Total(1) |
|
6,428,514 |
|
|
4,713,316 |
|
|
12,807,186 |
|
|
8,729,697 |
|
Note:
| (1) |
Research and development expenditures in the above table
include all direct and indirect costs for the programs, personnel costs,
intellectual property related costs net of recoveries including
amortization, share- based compensation, and research and development
overhead, and is net of government assistance. Research and development
overhead costs have been allocated to the programs based mainly on
personnel time spent on the programs. |
During 2016 and 2015, most of our resources were focused on the
development of our SIRPαFc program. For the six months ended June 30, 2016,
SIRPαFc research and development costs were higher than the same period in the
prior year due mainly to costs related to the Phase I clinical trial, higher
staffing, facility, and share-based compensation costs, and additional funding
for preclinical collaborations partially offset by lower preclinical studies and
manufacturing costs. As Fluorinov was acquired in January 2016 there are no
comparable amounts. For the six months ended June 30, 2016, Fluorinov research
and development expenses included $1,660,191 for amortization of the acquired
intangible assets, $575,065 for personnel related costs and $787,254 for program
and other related costs.
- 12 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Components of research and development expenses for the three
months ended June 30, 2016 and 2015 were as follows:
|
|
|
2016 |
|
|
2015 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Research and development
programs excluding the below items |
|
3,067,040
|
|
|
2,865,808 |
|
|
Salaries, fees and short-term benefits |
|
1,595,821 |
|
|
1,050,263 |
|
|
Share-based compensation |
|
638,050
|
|
|
807,668 |
|
|
Amortization of intangible assets |
|
975,617 |
|
|
84,837 |
|
|
Depreciation of property and
equipment |
|
173,221
|
|
|
16,271 |
|
|
Investment tax credits |
|
(21,235 |
) |
|
(111,531 |
) |
|
|
|
6,428,514 |
|
|
4,713,316 |
|
Components of research and development expenses for the six
months ended June 30, 2016 and 2015 were as follows:
|
|
|
2016 |
|
|
2015 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Research and development
programs excluding the below items |
|
6,558,595
|
|
|
5,999,762 |
|
|
Salaries, fees and short-term benefits |
|
2,990,726 |
|
|
1,717,667 |
|
|
Share-based compensation |
|
1,349,878
|
|
|
1,059,979 |
|
|
Amortization of intangible assets |
|
1,753,776 |
|
|
169,674 |
|
|
Depreciation of property and
equipment |
|
211,424
|
|
|
34,146 |
|
|
Investment tax credits |
|
(57,213 |
) |
|
(251,531 |
) |
|
|
|
12,807,186 |
|
|
8,729,697 |
|
The increase in research and development program expenses for
the three months ended June 30, 2016 over the same period last year was due
mainly to higher SIRPαFc clinical trial costs, preclinical work on the
bromodomain inhibitor and EGFR inhibitor programs, additional SIRPαFc
preclinical collaborations, and new facility costs, partially offset by lower
SIRPαFc preclinical study and manufacturing costs. Salaries, fees and short-term
benefits increased in the three months ended June 30, 2016 due to higher
staffing and salaries compared to the same period in 2015. Share-based
compensation decreased due mainly to longer average vesting terms for options
granted in the three months ended June 30, 2016 compared to the same period in
2015. Amortization of intangible assets increased due mainly to $966,869 of
expense for the three months ended June 30, 2016 related to the recently
acquired Fluorinov intellectual property. Tax credits were lower for the three
months ended June 30, 2016 compared to the same quarter of 2015 as the Company
is ineligible for certain refundable Ontario tax credits in 2016.
The increase in research and development program expenses for
the six months ended June 30, 2016 over the same period last year was due mainly
to higher SIRPαFc clinical trial costs, preclinical work on the bromodomain
inhibitor and EGFR inhibitor programs, additional SIRPαFc preclinical
collaborations, and new facility costs, partially offset by lower SIRPαFc
preclinical study and manufacturing costs. Salaries, fees and short-term
benefits increased in the six months ended June 30, 2016 due to higher staffing
and salaries compared to the same period in 2015. Share-based compensation
increased due mainly to a higher number of options granted in the six months
ended June 30, 2016 compared to the same period of 2015. Amortization of
intangible assets increased due mainly to $1,660,191 of expense for the six
months ended June 30, 2016 related to the recently acquired Fluorinov
intellectual property. Tax credits were lower for the six months ended June 30,
2016 compared to the same period of 2015 as the Company is ineligible for
certain refundable Ontario tax credits in 2016.
- 13 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
General and Administrative
Components of general and administrative expenses for the three
months ended June 30, 2016 and 2015 were as follows:
|
|
|
2016 |
|
|
2015 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
General and administrative
expenses excluding the below items |
|
388,084
|
|
|
442,369 |
|
|
Salaries, fees and short-term benefits |
|
305,075 |
|
|
175,807 |
|
|
Deferred share units for
director compensation |
|
135,000
|
|
|
300,000 |
|
|
Share-based compensation |
|
118,733 |
|
|
48,262 |
|
|
|
|
946,892 |
|
|
966,438 |
|
Components of general and administrative expenses for the six
months ended June 30, 2016 and 2015 were as follows:
|
|
|
2016 |
|
|
2015 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
General and administrative
expenses excluding the below items |
|
922,071
|
|
|
732,839 |
|
|
Salaries, fees and short-term benefits |
|
574,904 |
|
|
431,039 |
|
|
Deferred share units for
director compensation |
|
270,000
|
|
|
300,000 |
|
|
Share-based compensation |
|
217,434 |
|
|
107,379 |
|
|
|
|
1,984,409 |
|
|
1,571,257 |
|
General and administrative costs for the three months ended
June 30, 2016 were lower than the comparable prior year period due mainly to
lower professional fees. Salaries, fees and short-term benefits increased in the
three months ended June 30, 2016 compared to the same period in the prior year
due to higher administrative staffing. The expense for deferred share units for
the three months ended June 30, 2016 was lower than the same period in the prior
year due to the timing of granting of compensation to directors. Share-based
compensation increased due mainly to a higher number of options granted in the
six months ended June 30, 2016 compared to the same period of 2015.
General and administrative costs for the six months ended
June 30, 2016 were higher than the comparable prior year period due mainly to
higher professional fees including expenses related to the acquisition of Fluorinov. Salaries, fees and short-term benefits increased in the three months
ended June 30, 2016 compared to the same period in the prior year due to higher
administrative staffing. The expense for deferred share units for the three
months ended June 30, 2016 was lower than the same period in the prior year due
to the timing of granting of compensation to directors. Share-based compensation
increased due mainly to a higher number of options granted in the six months
ended June 30, 2016 compared to the same period of 2015.
Finance income and costs
Finance income for the three months ended June 30, 2016 was
lower than the comparable period of the prior year due to no foreign currency
gains and lower interest income on lower average cash balances. Finance income
for the six months ended June 30, 2016 was higher than the prior year comparable
period due mainly to higher average cash balances in the current year.
- 14 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Components of finance cost for the three months ended June 30,
2016 and 2015 were as follows:
|
|
|
2016 |
|
|
2015 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Bank charges |
|
4,830 |
|
|
2,265 |
|
|
Accreted interest |
|
16,554 |
|
|
18,387 |
|
|
Net foreign currency loss |
|
302,864 |
|
|
- |
|
|
|
|
324,248 |
|
|
20,652 |
|
Components of finance cost for the six months ended June 30,
2016 and 2015 were as follows:
|
|
|
2016 |
|
|
2015 |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Bank charges |
|
9,463 |
|
|
4,328 |
|
|
Accreted interest |
|
33,656 |
|
|
37,280 |
|
|
Net foreign currency loss |
|
3,857,160 |
|
|
75,977 |
|
|
|
|
3,900,279 |
|
|
117,585 |
|
Finance costs for the three and six months ended June 30, 2016
were higher than the same periods in the prior year due mainly to a larger net
foreign currency loss from holding larger U.S. dollar denominated cash balances
with a weakening U.S. dollar versus the Canadian dollar.
Liquidity and Capital Resources
Cash, working capital, and debt
Since inception, we have financed our operations primarily from
sales of equity, proceeds from the exercise of warrants and stock options, and
from interest income on funds available for investment. Our primary capital
needs are for funds to support our scientific research and development
activities including staffing, facilities, manufacturing, preclinical studies
and clinical trials, administrative costs and for working capital.
We have experienced operating losses and cash outflows from
operations since incorporation, will require ongoing financing in order to
continue our research and development activities, and we have not earned
significant revenue or reached successful commercialization of our products. Our
future operations are dependent upon our ability to finance our cash
requirements which will allow us to continue our research and development
activities and the commercialization of our products. There can be no assurance
that we will be successful in continuing to finance our operations.
On April 7, 2015, we completed an underwritten public offering
of common shares and non-voting convertible preferred shares in the United
States. In the offering, we sold 1,750,754 common shares and 1,077,605 Series II
Non-Voting Convertible First Preferred Shares at a price of U.S. $19.50 per
share, including 228,359 common shares sold pursuant to the full exercise of the
underwriters’ option to purchase additional common shares. The gross proceeds
from this offering were $68,875,067 (U.S. $55,153,000) before deducting offering
expenses of $4,913,443.
The Series II Non-Voting Convertible First Preferred Shares
sold in the offering are non-voting and are convertible into common shares, on a
one-for-one basis (subject to adjustment), at any time at the option of the
holder, subject to certain restrictions on conversion. Holders may not convert
Series II Non-Voting Convertible First Preferred Shares into common shares if,
after giving effect to the exercise of conversion, the holder and its joint
actors would have beneficial ownership or direction or control over common
shares in excess of 4.99% of the then outstanding common shares. This limit may
be raised at the option of the holder on 61 days’ prior written notice: (i) up
to 9.99%, (ii) up to 19.99%, subject to clearance of a personal
information form submitted by the holder to the Toronto Stock Exchange, and
(iii) above 19.99%, subject to approval by the Toronto Stock Exchange and
shareholder approval.
- 15 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
On May 29, 2015, we filed a base shelf prospectus with the
British Columbia, Alberta, Manitoba, Ontario and Nova Scotia securities
commissions in Canada and a Form F-10 registration statement with the United
States Securities and Exchange Commission, or SEC, that provides that we may
sell under the prospectus from time to time over the following 25 months up to
U.S. $100 million, in one or more offerings, of common shares, First Preferred
shares, warrants to purchase common shares, or units comprising a combination of
common shares, First Preferred shares and/or warrants.
Our cash and cash equivalents and working capital at June 30,
2016 were $60,069,740 and $57,836,268, respectively compared to $86,770,542 and
$85,369,945, respectively at December 31, 2015. The decrease in both cash and
working capital was due mainly to net cash paid on the purchase of Fluorinov of
approximately $9.6 million, $2.6 million of capital purchases mainly related to
leasehold improvements, laboratory equipment, and furniture for our new office
and laboratory facility, cash used in operations of approximately $10.8 million
and a net foreign exchange loss on cash of $3.8 million. Accounts payable and
accrued liabilities as at June 30, 2016 of $3,948,366 were higher than the
balance of $3,233,749 at December 31, 2015 due mainly to the timing of payments
for clinical and manufacturing contracts and capital equipment purchases,
partially offset by the payment of accrued bonus compensation. Amounts
receivable as at June 30, 2016 of $1,014,690 was comparable to the amount of
$974,822 at December 31, 2015.
Trillium is indebted to the Federal Economic Development Agency
for Southern Ontario under a non-interest bearing contribution agreement and is
making monthly repayments of $9,586 through November 2019. As at June 30, 2016
and December 31, 2015, the balance repayable was $383,419 and $440,935,
respectively. The loan payable was discounted using an estimated market interest
rate of 15%. Interest expense accretes on the discounted loan amount until it
reaches its face value at maturity.
As at June 30, 2016 and December 31, 2015, we had a deferred
lease inducement of $439,340 and $348,205, respectively, for a new facility
lease. The inducement benefit will be recognized over the expected
term of the lease.
As at June 30, 2016 and December 31, 2015, we had a long-term
liability of $1,750,000 and nil, respectively, related to contingent
consideration on the acquisition of Fluorinov and a long-term liability of
$58,404 and $60,109, respectively, related to certain discontinued technologies.
Cash flows from operating activities
Cash used in operating activities increased to $10,767,093 for
the six months ended June 30, 2016, compared to $9,403,113 for the six months
ended June 30, 2015, due mainly to higher research and development expenses and
unrealized foreign exchange losses on cash in the current year.
Cash flows from investing activities
Cash used in investing activities totaled $12,194,261 for the
six months ended June 30, 2016, compared to $99,344 for the six months ended
June 30, 2015. The increase was due mainly to the purchase of Fluorinov and
capital purchases related to our new laboratory and office facilities.
Cash flows from financing activities
Cash provided by financing activities totaled $28,315 for the
six months ended June 30, 2016, compared to $72,872,680 for the six months ended
June 30, 2015. The decrease for the six months ended June 30, 2016 was due
mainly to the issuance of share capital in the 2015 period and none in 2016.
- 16 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Contractual Obligations and Contingencies
We enter into research, development and license agreements in
the ordinary course of business where we receive research services and rights to
proprietary technologies. Milestone and royalty payments that may become due
under various agreements are dependent on, among other factors, clinical trials,
regulatory approvals and ultimately the successful development of a new drug,
the outcome and timing of which is uncertain.
Under the license agreement for SIRPαFc, we have future
contingent milestones payable of $35,000 related to successful patent grants,
$200,000 and $300,000 on the first patient dosed in Phase II and III clinical
trials respectively, and regulatory milestones on their first achievement
totalling $5,000,000.We are also required to pay 20% of any sublicensing
revenues to the licensors on the first $50 million of sublicensing revenues, and
pay 15% of any sublicensing revenues to the licensors after the first $50
million of sublicensing revenue received.
Under two agreements with Catalent pursuant to which we
acquired the right to use a proprietary expression system for the manufacture of
two SIRPαFc constructs, we have future contingent milestones on pre-marketing
approval of up to U.S. $875,000 and aggregate sales milestone payments of up to
U.S. $28.8 million for each agreement.
In connection with our acquisition of all the outstanding
shares of Fluorinov, we are obligated to pay up to $35 million of additional
future payments that are contingent on us achieving certain clinical and
regulatory milestones with an existing Fluorinov compound. We will also have an
obligation to pay royalty payments on future sales of such compounds.
We periodically enter into research and license agreements with
third parties that include indemnification provisions customary in the industry.
These guarantees generally require us to compensate the other party for certain
damages and costs incurred as a result of claims arising from research and
development activities undertaken by or on our behalf. In some cases, the
maximum potential amount of future payments that could be required under these
indemnification provisions could be unlimited. These indemnification provisions
generally survive termination of the underlying agreement. The nature of the
indemnification obligations prevents us from making a reasonable estimate of the
maximum potential amount it could be required to pay. Historically, we have not
made any indemnification payments under such agreements and no amount has been
accrued in our consolidated financial statements with respect to these
indemnification obligations.
Other than as disclosed below, we did not have any contractual
obligations relating to long-term debt obligations, capital (finance) lease
obligations, operating lease obligations, purchase obligations or other
long-term liabilities reflected on our balance sheet as at June 30, 2016:
|
|
|
|
Payment due by period |
|
|
|
|
|
|
|
|
Less than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
More than |
|
|
Contractual Obligations(1)(2) |
|
|
Total |
|
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
|
Long-Term Debt
Obligations(3) |
|
$ |
383,419 |
|
$ |
105,446 |
|
$ |
230,064 |
|
$ |
47,909 |
|
$ |
- |
|
|
Capital (Finance) Lease Obligations |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Operating Lease
Obligations(4) |
|
|
2,371,612 |
|
|
233,323 |
|
|
473,395 |
|
|
502,402 |
|
|
1,162,492 |
|
|
Purchase Obligations(5) |
|
|
9,456,702 |
|
|
5,502,688 |
|
|
3,954,014 |
|
|
- |
|
|
- |
|
|
Other Long-Term Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reflected on our Balance Sheet(6)
|
|
|
2,048,200 |
|
|
239,796 |
|
|
58,404 |
|
|
1,409,810 |
|
|
340,190 |
|
|
|
|
$ |
14,259,933 |
|
$ |
6,081,253 |
|
$ |
4,715,877 |
|
$ |
1,960,121 |
|
$ |
1,502,682 |
|
- 17 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Notes:
| |
(1) |
Contractual obligations in the above table do not include
amounts in accounts payable and accrued liabilities on our balance sheet
as at June 30, 2016. Annual technology license fees currently
approximating $50,000 are not included in the above table. |
| |
(2) |
Contingent milestones under the UHN license agreement and
the Catalent expression system agreements are not included in the above
table. |
| |
(3) |
Amounts due to FedDev repayable in equal monthly
installments of $9,586 through November 2019. |
| |
(4) |
Includes operating lease obligations for laboratory and
office facilities. |
| |
(5) |
Purchase obligations include all non-cancellable
contracts, and all cancellable contracts with $100,000 or greater
remaining committed at the period end including agreements related to the
conduct of our TTI-621 Phase I clinical trial, preclinical collaborations
and manufacturing activities. |
| |
(6) |
Includes $1,750,000 of contingent consideration related
to potential future payments of up to $35 million based on the achievement
of clinical and regulatory milestones with an existing Fluorinov compound.
Amount also includes a liability related to an earlier terminated
program. |
Description of Share Capital
The continuity of the number of our issued and outstanding
common and preferred shares for the year ended December 31, 2015, the six months
ended June 30, 2016, and to the date of this MD&A is presented below:
|
|
|
Number of Series I |
|
|
Number of Series II |
|
|
Number of |
|
|
|
|
Preferred Shares(1) |
|
|
Preferred Shares(2) |
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
69,504,689 |
|
|
- |
|
|
4,427,244 |
|
|
Issued on exercise of stock options |
|
- |
|
|
- |
|
|
6,666 |
|
|
Issued on exercise of
warrants |
|
- |
|
|
- |
|
|
1,087,603 |
|
|
Issued in public offering |
|
- |
|
|
1,077,605 |
|
|
1,750,754 |
|
|
Preferred shares converted to common shares |
|
(15,716,110 |
) |
|
- |
|
|
523,870 |
|
|
Balance at December 31, 2015 |
|
53,788,579 |
|
|
1,077,605 |
|
|
7,796,137 |
|
|
Preferred shares converted to common shares |
|
(562,388 |
) |
|
- |
|
|
18,746 |
|
|
Balance at June 30, 2016 and the date of this MD&A |
|
53,226,191 |
|
|
1,077,605 |
|
|
7,814,883 |
|
Notes:
| |
(1) |
Convertible at a ratio of 30 Series I Preferred Shares
for one common share. |
| |
(2) |
Convertible at a ratio of one Series II Preferred Share
for one common share. |
Share capital issued – for the six months ended June 30,
2016
During the six months ended June 30, 2016, 562,388 Series I
First Preferred Shares were converted into 18,746 common shares.
Share capital issued – for the year
ended December 31, 2015
On April 7, 2015, we completed an underwritten public offering
of common shares and non-voting convertible preferred shares in the United
States. In the offering, we sold 1,750,754 common shares and 1,077,605 Series II
Non-Voting Convertible First Preferred Shares at a price of U.S. $19.50 per
share, including 228,359 common shares sold pursuant to the full exercise of the
underwriters’ option to purchase additional common shares. The gross proceeds
from this offering were $68,875,067 (U.S. $55,153,000) before deducting offering
expenses of $4,913,443.
During the year ended December 31, 2015, 1,087,603 common
shares were issued on the exercise of 32,628,425 warrants for proceeds of
$9,515,154 and 6,666 stock options were exercised for proceeds of $49,995.
During the year ended December 31, 2015, 15,716,110 Series I
First Preferred Shares were converted into 523,870 common shares.
- 18 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Warrants
The continuity of the number of issued and outstanding warrants
for the year ended December 31, 2015, the six months ended June 30, 2016, and to
the date of this MD&A is presented below:
|
|
|
Number of |
|
|
|
|
Warrants |
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
138,724,781 |
|
|
Exercised |
|
(32,628,425 |
) |
|
Balance at December 31, 2015, June 30, 2016 and the date
of this MD&A |
|
106,096,356 |
|
The following table shows the number of warrants outstanding,
the exercise prices, and the number of common shares issuable on exercise of the
warrants and the exercise price per common share for 30 warrants at June 30,
2016:
|
|
|
|
|
|
|
|
|
Number of |
|
|
Exercise |
|
|
|
|
|
|
|
|
|
|
Common shares |
|
|
Price per |
|
|
|
|
Number of |
|
|
Exercise |
|
|
Issuable |
|
|
Common Share |
|
|
Expiry dates |
|
Warrants |
|
|
Price |
|
|
on Exercise |
|
|
(30 Warrants |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 15, 2018
|
|
9,213,780 |
|
$ |
0.40 |
|
|
307,126 |
|
$ |
12.00 |
|
|
March 27, 2018 |
|
300,000 |
|
$ |
0.40 |
|
|
10,000 |
|
$ |
12.00 |
|
|
December 13, 2018 |
|
96,582,576 |
|
$ |
0.28 |
|
|
3,219,419 |
|
$ |
8.40 |
|
|
Total |
|
106,096,356 |
|
|
|
|
|
3,536,545 |
|
|
|
|
Our board of directors authorized or ratified the issuances of
the warrants set forth in the table above and the issuance of one common share
upon the due exercise of every 30 warrants in accordance with its terms and the
receipt by us of the designated exercise price payable in respect of the share
prior to the time of expiry on the designated expiry date.
Stock Options
The 2016 Stock Option Plan was approved by the Company’s
shareholders at the annual meeting held on May 27, 2016. Options granted are
equity-settled, have a vesting period of four years and have a maximum term of
ten years. The total number of common shares available for issuance under the
2016 Stock Option Plan is 1,894,501. As at June 30, 2016, the Company was
entitled to issue an additional 612,587 stock options under the 2016 Stock
Option Plan.
- 19 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
The continuity of the number of issued and outstanding stock
options for the year ended December 31, 2015, the six months ended June 30,
2016, and to the date of this MD&A is presented below:
|
|
|
Number of |
|
|
Weighted Average |
|
|
|
|
Options |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
590,141 |
|
|
9.76 |
|
|
Granted |
|
347,359 |
|
|
21.40 |
|
|
Exercised |
|
(6,666 |
)
|
|
7.50 |
|
|
Cancelled/forfeited |
|
(3,000 |
) |
|
30.00 |
|
|
Balance at December 31, 2015
|
|
927,834 |
|
|
14.07 |
|
|
Granted |
|
316,459 |
|
|
13.85 |
|
|
Forfeited |
|
(12,500 |
)
|
|
28.52 |
|
|
Expired |
|
(1,667 |
) |
|
30.00 |
|
|
Balance at June 30, 2016 |
|
1,230,126 |
|
|
13.84 |
|
|
Granted |
|
3,000 |
|
|
11.44 |
|
|
Balance at the date of this MD&A |
|
1,233,126 |
|
$ |
13.84 |
|
Deferred Share Unit Plan
The shareholders of the Company approved the 2014 Deferred
Share Unit Plan, or the 2014 DSU Plan, on May 27, 2014 and the reservation for
issuance of up to 66,667 common shares under the plan. DSUs granted are
equity-settled. There were 23,011 DSUs issued during the year ended December 31,
2015 and no DSUs issued during the six months ended June 30, 2016 for payment of
directors’ fees. A total of 51,788 DSUs were outstanding as at June 30,
2016.
Fully Diluted Share Capital
The number of issued and outstanding common shares, Series I
First Preferred Shares, Series II First Preferred Shares, warrants, stock options
and DSUs on a fully converted basis as at June 30, 2016 was as follows:
|
|
|
Number of common |
|
|
|
|
share equivalents |
|
|
|
|
|
|
|
Common shares |
|
7,814,883 |
|
|
Series I First Preferred Shares |
|
1,774,206 |
|
|
Series II First Preferred
Shares |
|
1,077,605 |
|
|
Warrants |
|
3,536,545 |
|
|
Stock options |
|
1,230,126 |
|
|
Deferred share units |
|
51,788 |
|
|
Total |
|
15,485,153 |
|
Trend Information
Historical patterns of expenditures cannot be taken as an
indication of future expenditures. The amount and timing of expenditures and
therefore liquidity and capital resources vary substantially from period to
period depending on the number of research and development programs being
undertaken at any one time, the stage of the development programs, the timing of
significant expenditures for manufacturing, toxicology and pharmacology studies
and clinical trials, and the availability of funding from investors and
prospective commercial partners.
- 20 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Selected Quarterly Financial Information
|
2016 |
Q2-2016
$ |
Q1-2016
$
|
|
Revenue |
- |
- |
|
Research and development expenses |
6,428,514 |
6,378,672 |
|
General and administrative expenses |
946,892 |
1,037,517 |
|
Net loss for the period |
7,603,277 |
7,204,735 |
|
Basic and diluted net loss per share |
0.97 |
0.92 |
|
Cash and cash equivalents |
60,069,740 |
65,843,711
|
|
2015 |
Q4-2015
$ |
Q3-2015
$ |
Q2-2015
$ |
Q1-2015
$ |
|
Revenue |
- |
- |
- |
- |
|
Research and development expenses |
4,365,583 |
4,954,811 |
4,713,316 |
4,016,381 |
|
General and administrative expenses |
891,541 |
721,549 |
966,438 |
604,819 |
|
Net loss for the period |
2,988,843 |
1,505,979 |
5,568,564 |
4,670,313 |
|
Basic and diluted net loss per share |
0.40 |
0.21 |
0.80 |
0.98 |
|
Cash |
86,770,542 |
89,082,852 |
89,545,097 |
25,702,189
|
|
2014 |
Q4-2014
$ |
Q3-2014
$ |
Q2-2014
$ |
Q1-2014
$ |
|
Revenue |
- |
- |
- |
- |
|
Research and development expenses |
3,834,947 |
2,089,977 |
3,105,402 |
1,565,482 |
|
General and administrative expenses |
439,846 |
500,072 |
1,075,961 |
561,581 |
|
Net loss for the period |
4,214,862 |
2,526,527 |
4,100,371 |
2,040,060 |
|
Basic and diluted net loss per share |
0.97 |
0.60 |
0.99 |
0.50 |
|
Cash |
26,165,056 |
27,754,378 |
30,041,001 |
31,864,387 |
Research and development expenses increased through 2014 as the
SIRPαFc development program progressed and were higher in 2015 due to higher
costs associated with IND-enabling toxicology studies, preparing the IND
submission and initiating the Phase I clinical trial. Research and development
expenses increased in 2016 due to the costs of the Phase I trial and addition of
Fluorinov product development. Research and development expenses for the second
quarter of 2014 were higher due to higher non-cash share-based compensation and
the recognition of an impairment charge on return of the tigecycline rights back
to UHN. General and administrative expenses for the second quarter of 2014 were
higher due mainly to higher non-cash share-based compensation expenses and costs
associated with migrating to the TSX. General and administrative costs for the
second quarter of 2015 were higher than the first quarter of 2015 due mainly to
the issuance of DSUs for director fees. The net loss for the third and fourth
quarters of 2015 were lower due mainly to net foreign exchange gains of
$4,019,251 and $2,163,429, respectively, that resulted mainly from holding U.S.
denominated cash with a strengthening U.S. dollar exchange rate. The net loss for the first quarter of 2016 was higher due
mainly to a net foreign currency loss of $3,554,296 from holding US denominated
cash with a weakening US dollar, the addition of intangible asset amortization
in the amount of $693,322 on the acquisition of Fluorinov intangible assets and
higher research and development spending. This was partially offset by the
recognition of a deferred tax recovery in relation to the acquisition of
Fluorinov of $3,689,674 where we released a portion of our income tax valuation
adjustment to match a net deferred tax liability that was created on the
acquisition of Fluorinov.
- 21 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or
are reasonably likely to have, a current or future effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
Quantitative & Qualitative Disclosures About Market
Risk
Currency risk
We are exposed to currency risk related to the fluctuation of
foreign exchange rates and the degree of volatility of those rates. Currency
risk results mainly from the Company’s expenses and working capital denominated
in currencies other than the Canadian dollar, which are primarily in U.S.
dollars. As at June 30, 2016 and December 31, 2015, we held U.S. dollar cash and
cash equivalents in the amount of U.S. $40,820,835 and U.S. $44,547,591 and had
U.S. dollar denominated accounts payable and accrued liabilities in the amount
of U.S. $1,265,575 and U.S. $1,033,319, respectively. Therefore, a 1% change in
the foreign exchange rate would have a net impact on finance costs as at June
30, 2016 and December 31, 2015 of $526,557 and $556,377, respectively.
U.S. dollar expenses for the six months ended June 30, 2016 and
2015 were approximately U.S. $3,420,000 and U.S. $3,900,000, respectively.
Varying the U.S. exchange rate for the six months ended June 30, 2016 and 2015
to reflect a 5% strengthening of the Canadian dollar would have decreased the
net loss by approximately $227,634 and $240,848, respectively, assuming that all
other variables remained constant.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” under the U.S. Jumpstart
Our Business Startups Act of 2012, or the JOBS Act, and will continue to qualify
as an “emerging growth company” until the earliest to occur of: (a) the last day
of the fiscal year during which we have total annual gross revenues of
$1,000,000,000 (as such amount is indexed for inflation every 5 years by the
SEC) or more; (b) the last day of our fiscal year following the fifth
anniversary of the date of the first sale of our common shares pursuant to an
effective registration statement under the Securities Act; (c) the date on which
we have, during the previous 3-year period, issued more than $1,000,000,000 in
non-convertible debt; or (d) the date on which we are deemed to be a “large
accelerated filer”, as defined in Rule 12b–2 of the Exchange Act.
Generally, a company that registers any class of its securities
under Section 12 of the Exchange Act is required to include in the second and
all subsequent annual reports filed by it under the Exchange Act, a management
report on internal control over financial reporting and, subject to an exemption
available to companies that meet the definition of a “smaller reporting company”
in Rule 12b-2 under the Exchange Act, an auditor attestation report on
management’s assessment of the company’s internal control over financial
reporting. However, for so long as we continue to qualify as an emerging growth
company, we will be exempt from the requirement to include an auditor
attestation report in our annual reports filed under the Exchange Act, even if
we do not qualify as a “smaller reporting company”. In addition, Section
103(a)(3) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, has been
amended by the JOBS Act to provide that, among other things, auditors of an
emerging growth company are exempt from any rules of the Public Company
Accounting Oversight Board requiring mandatory audit firm rotation or a
supplement to the auditor’s report in which the auditor would be required to
provide additional information about the audit and the financial statements of
the company.
- 22 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Any U.S. domestic issuer that is an emerging growth company is
able to avail itself of the reduced disclosure obligations regarding executive
compensation in periodic reports and proxy statements, and to not present to its
shareholders a non-binding advisory vote on executive compensation, obtain
approval of any golden parachute payments not previously approved, or present
the relationship between executive compensation actually paid and our financial
performance. So long as we are a foreign private issuer, we are not subject to
such requirements, and will not become subject to such requirements even if we
were to cease to be an emerging growth company.
As a reporting issuer under the securities legislation of the
Canadian provinces of Ontario, British Columbia, Manitoba, Nova Scotia and
Alberta, we are required to comply with all new or revised accounting standards
that apply to Canadian public companies. Pursuant to Section 107(b) of the JOBS
Act, an emerging growth company may elect to utilize an extended transition
period for complying with new or revised accounting standards for public
companies until such standards apply to private companies. We have elected not
to utilize this extended transition period.
Critical Accounting Estimates
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and
liabilities, revenue and expenses and the related disclosures of contingent
assets and liabilities and the determination of the Company’s ability to
continue as a going concern. Actual results could differ materially from these
estimates and assumptions. The Company reviews its estimates and underlying
assumptions on an ongoing basis. Revisions are recognized in the period in which
the estimates are revised and may impact future periods.
The areas involving a higher degree of judgment or complexity,
or areas where assumptions and estimates are significant to the financial
statements have been set out in note 2 of our annual audited consolidated
financial statements for the year ended December 31, 2015 and note 2 of our unaudited interim condensed consolidated financial statements for the three and
six months ended June 30, 2016.
Accounting Policies
Our significant accounting policies are outlined in our annual
audited consolidated financial statements for the year ended December 31, 2015.
This MD&A should be read in conjunction with the annual audited consolidated
financial statements for the year ended December 31, 2015.
New standards and interpretations not yet
effective
IAS 7, Statement of Cash Flows
In February 2016, the IASB issued amendments to IAS 7,
Statement of Cash Flows, or IAS 7, which requires entities to provide
disclosures that enable investors to evaluate changes in liabilities arising
from financing activities, including changes arising from cash flows and
non-cash changes. The IAS 7 amendments are effective for annual periods
beginning on or after January 1, 2017. The Company is reviewing the standard to
determine the impact that the adoption of this standard may have on the
unaudited interim condensed consolidated financial statements.
IFRS 9, Financial Instruments
In October 2010, the IASB published amendments to IFRS 9,
Financial Instruments, or IFRS 9, which provides added guidance on the
classification and measurement of financial liabilities. In July 2014, the IASB
issued its final version of IFRS 9, which completes the classification and
measurement, impairment and hedge accounting phases of the IASB’s project to
replace IAS 39, Financial Instruments: Recognition and Measurement. The
final standard is mandatorily effective for annual periods beginning on or after
January 1, 2018, with earlier application permitted. The Company is reviewing
the standard to determine the impact that the adoption of this standard may have
on the unaudited interim condensed consolidated financial statements.
- 23 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
IFRS 15, Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts
with Customers, or IFRS 15, which covers principles for reporting about the
nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers. IFRS 15 is effective for annual periods beginning on
or after January 1, 2018. Entities will transition following either a full or
modified retrospective approach. The Company is reviewing the standard to
determine the impact that the adoption of this standard may have on the
unaudited interim condensed consolidated financial statements.
IFRS 16, Leases
In January 2016, the IASB has issued IFRS 16, Leases, or
IFRS 16, its new leases standard that requires lessees to recognize assets and
liabilities for most leases on their balance sheets. Lessees applying IFRS 16
will have a single accounting model for all leases, with certain exemptions.
The new standard will be effective
for annual periods beginning on or after January 1, 2019 with limited early application permitted. The Company has
not yet begun the process of evaluating the impact of this standard on the unaudited interim condensed consolidated financial statements.
Other accounting standards or amendments to existing accounting
standards that have been issued, but have future effective dates, are either not
applicable or are not expected to have a significant impact on our unaudited
interim condensed consolidated financial statements. The Company assesses the
impact of adoption of future standards on its unaudited interim condensed
consolidated financial statements, but does not anticipate significant changes
in 2016.
RISK FACTORS
The following information sets forth material risks and
uncertainties that may affect our business, including our future financing and
operating results and could cause our actual results to differ materially from
those contained in forward-looking statements we have made in this MD&A. The
risks and uncertainties below are not the only ones we face. Additional risks
and uncertainties not presently known to us or that we believe to be immaterial
may also adversely affect our business. Further, if we fail to meet the
expectations of the public market in any given period, the market price of our
common shares could decline. We operate in a highly competitive environment that
involves significant risks and uncertainties, some of which are outside of our
control.
Risks Related to Our Financial Position and Need for
Additional Capital
We expect to incur future losses and we may never become
profitable.
We have incurred losses of $14.8 million, $14.7 million and
$12.9 million for the six months ended June 30, 2016 and for the years ended
December 31, 2015, and 2014, respectively, and expect to incur an operating loss
for the year ending December 31, 2016. We have an accumulated deficit since
inception through June 30, 2016 of $80.1 million. We believe that operating
losses will continue as we are planning to incur significant costs associated
with the clinical development of SIRPαFc. Our net losses have had and will
continue to have an adverse effect on, among other things, our shareholders’
equity, total assets and working capital. We expect that losses will fluctuate
from quarter to quarter and year to year, and that such fluctuations may be
substantial. We cannot predict when we will become profitable, if at all.
We will require additional capital to finance our
operations, which may not be available to us on acceptable terms, or at all. As
a result, we may not complete the development and commercialization of our
product candidates or develop new product candidates.
As a research and development company, our operations have
consumed substantial amounts of cash since inception. We expect to spend
substantial funds to continue the research, development and testing of our
product candidates and to prepare to commercialize products subject to FDA
approval in the U.S. and similar approvals in other jurisdictions. We will also
require significant additional funds if we expand the scope of our current
clinical plans or if we were to acquire any new assets and advance their
development. Therefore, for the foreseeable future, we will have to fund all of
our operations and development expenditures from cash on hand, equity or debt
financings, through collaborations with other biotechnology or
pharmaceutical companies or through financings from other sources. We expect
that our existing cash and cash equivalents at June 30, 2016 of $60,069,740 will
enable us to fund our current operating plan requirements for at least the next
twelve months. Additional financing will be required to meet our long term
liquidity needs. If we do not succeed in raising additional funds on acceptable
terms, we might not be able to complete planned preclinical studies and clinical
trials or pursue and obtain approval of any product candidates from the FDA and
other regulatory authorities. It is possible that future financing will not be
available or, if available, may not be on favorable terms. The availability of
financing will be affected by the achievement of our corporate goals, the
results of scientific and clinical research, the ability to obtain regulatory
approvals, the state of the capital markets generally and with particular
reference to drug development companies, the status of strategic alliance
agreements and other relevant commercial considerations. If adequate funding is
not available, we may be required to delay, reduce or eliminate one or more of
our product development programs, or obtain funds through corporate partners or
others who may require us to relinquish significant rights to product candidates
or obtain funds on less favorable terms than we would otherwise accept. To the
extent that external sources of capital become limited or unavailable or
available on onerous terms, our intangible assets and our ability to continue
our clinical development plans may become impaired, and our assets, liabilities,
business, financial condition and results of operations may be materially or
adversely affected.
- 24 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
We currently have no product revenue and will not be able
to maintain our operations and research and development without additional
funding.
To date, we have generated no product revenue and cannot
predict when and if we will generate product revenue. Our ability to generate
product revenue and ultimately become profitable depends upon our ability, alone
or with partners, to successfully develop our product candidates, obtain
regulatory approval, and commercialize products, including any of our current
product candidates, or other product candidates that we may develop, in-license
or acquire in the future. We do not anticipate generating revenue from the sale
of products for the foreseeable future. We expect our research and development
expenses to increase in connection with our ongoing activities, particularly as
we advance our product candidates through clinical trials.
We are exposed to the financial risk related to the
fluctuation of foreign exchange rates and the degrees of volatility of those
rates.
We may be adversely affected by foreign currency fluctuations.
To date, we have been primarily funded through issuances of equity, proceeds
from the exercise of warrants and stock options and from interest income on
funds available for investment, which are all denominated both in Canadian and
U.S. dollars. Also, a growing portion of our expenditures are in U.S. dollars,
and we are therefore subject to foreign currency fluctuations which may, from
time to time, impact our financial position and results of operations.
Risks Related to Our Business and Our Industry
Our prospects depend on the success of our product
candidates which are at early stages of development, and we may not generate
revenue for several years, if at all, from these products.
Given the early stage of our product development, we can make
no assurance that our research and development programs will result in
regulatory approval or commercially viable products. To achieve profitable
operations, we, alone or with others, must successfully develop, gain regulatory
approval, and market our future products. We currently have no products that
have been approved by the U.S. Food and Drug Administration, or FDA, Health
Canada, or HC, or any similar regulatory authority. To obtain regulatory
approvals for our product candidates being developed and to achieve commercial
success, clinical trials must demonstrate that the product candidates are safe
for human use and that they demonstrate efficacy. While we have commenced a
Phase I trial for SIRPαFc, we have not yet completed a Phase I clinical
trial or subsequent required clinical trials for any of our product candidates.
Many product candidates never reach the stage of clinical
testing and even those that do have only a small chance of successfully
completing clinical development and gaining regulatory approval. Product
candidates may fail for a number of reasons, including, but not limited to,
being unsafe for human use or due to the failure to provide therapeutic benefits
equal to or better than the standard of treatment at the time of testing.
Unsatisfactory results obtained from a particular study relating to a research
and development program may cause us or our collaborators to abandon commitments
to that program. Positive results of early preclinical research may not be
indicative of the results that will be obtained in later stages of preclinical
or clinical research. Similarly, positive results from early-stage clinical
trials may not be indicative of favorable outcomes in later-stage clinical
trials. We can make no assurance that any future studies, if undertaken, will
yield favorable results.
- 25 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
We recently acquired several preclinical and discovery research
programs in our acquisition of Fluorinov, including certain assets relating to
the treatment of central nervous system disorders. While we conducted extensive
due diligence before making this acquisition, our assessment of the Fluorinov
technologies may not be accurate. Therefore, our expectations about whether
various clinical and regulatory milestones with an existing Fluorinov compound
or development of a future program on the Fluorinov development platform will be
achieved may not be borne out fully or at all. We have made a commitment to use
commercially reasonable efforts to monetize the Fluorinov central nervous system
assets and, if successful, to share the net proceeds with the Fluorinov vendors.
As this is not a core competency of the Company, our efforts to monetize these
assets or any other Fluorinov assets may not be successful. We can make no
assurances that toxicology, or other preclinical, studies will yield results
that will allow us to proceed with clinical trials in humans.
The early stage of our product development makes it
particularly uncertain whether any of our product development efforts will prove
to be successful and meet applicable regulatory requirements, and whether any of
our product candidates will receive the requisite regulatory approvals, be
capable of being manufactured at a reasonable cost or be successfully marketed.
If we are successful in developing our current and future product candidates
into approved products, we will still experience many potential obstacles such
as the need to develop or obtain manufacturing, marketing and distribution
capabilities. If we are unable to successfully commercialize any of our
products, our financial condition and results of operations may be materially
and adversely affected.
We rely and will continue to rely on third parties to
plan, conduct and monitor our preclinical studies and clinical trials, and their
failure to perform as required could cause substantial harm to our
business.
We rely and will continue to rely on third parties to conduct a
significant portion of our preclinical and clinical development activities.
Preclinical activities include in vivo studies providing access to specific
disease models, pharmacology and toxicology studies, and assay development.
Clinical development activities include trial design, regulatory submissions,
clinical patient recruitment, clinical trial monitoring, clinical data
management and analysis, safety monitoring and project management. If there is
any dispute or disruption in our relationship with third parties, or if they are
unable to provide quality services in a timely manner and at a feasible cost,
our active development programs will face delays. Further, if any of these third
parties fails to perform as we expect or if their work fails to meet regulatory
requirements, our testing could be delayed, cancelled or rendered
ineffective.
We rely on contract manufacturers over whom we have
limited control. If we are subject to quality, cost or delivery issues with the
preclinical and clinical grade materials supplied by contract manufacturers, our
business operations could suffer significant harm.
We have limited manufacturing experience and rely on contract
manufacturing organizations, or CMOs to manufacture our product candidates for
larger preclinical studies and clinical trials. We produce small quantities of
our product candidates at bench scale in our laboratory facilities for use in
smaller preclinical studies. We rely on CMOs for manufacturing, filling,
packaging, storing and shipping of drug product in compliance with current Good
Manufacturing Practice, or cGMP, regulations applicable to our products. The FDA
ensures the quality of drug products by carefully monitoring drug manufacturers’
compliance with cGMP regulations. The cGMP regulations for drugs contain minimum
requirements for the methods, facilities and controls used in manufacturing,
processing and packing of a drug product.
We contracted with Catalent for the manufacture of the SIRPαFc
protein to supply drug substance for our Phase I clinical trial. The manufacture
of recombinant proteins uses well established processes including a protein
expression system. Catalent is producing SIRPαFc using their proprietary GPEx®
expression system. We believe that Catalent has the capacity, the systems, and
the experience to supply SIRPαFc for our Phase I clinical trial and we may
consider using Catalent for manufacturing for later clinical trials. However,
since the Catalent manufacturing facility where SIRPαFc is being produced was only
recently established, it has not been inspected by the FDA. Any manufacturing
failures or delays or compliance issues could cause delays in the conduct of
SIRPαFc preclinical studies and clinical trials.
- 26 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
There can be no assurances that CMOs will be able to meet our
timetable and requirements. We have not contracted with alternate suppliers for
SIRPαFc drug substance production in the event Catalent is unable to scale up
production, or if Catalent otherwise experiences any other significant problems.
If we are unable to arrange for alternative third-party manufacturing sources on
commercially reasonable terms or in a timely manner, we may be delayed in the
development of our product candidates. Further, contract manufacturers must
operate in compliance with cGMP and failure to do so could result in, among
other things, the disruption of product supplies. Our dependence upon third
parties for the manufacture of our products may adversely affect our profit
margins and our ability to develop and deliver products on a timely and
competitive basis.
If clinical trials of our product candidates fail to
demonstrate safety and efficacy to the satisfaction of regulatory authorities or
do not otherwise produce positive results, we would incur additional costs or
experience delays in completing, or ultimately be unable to complete, the
development and commercialization of our product candidates.
Before obtaining marketing approval from regulatory authorities
for the sale of our product candidates, we must conduct preclinical studies in
animals and extensive clinical trials in humans to demonstrate the safety and
efficacy of the product candidates. Clinical testing is expensive and difficult
to design and implement, can take many years to complete and has uncertain
outcomes. The outcome of preclinical studies and early clinical trials may not
predict the success of later clinical trials, and interim results of a clinical
trial do not necessarily predict final results. A number of companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in advanced clinical trials due to lack of efficacy or unacceptable safety
profiles, notwithstanding promising results in earlier trials. We do not know
whether the clinical trials we may conduct will demonstrate adequate efficacy
and safety to result in regulatory approval to market any of our product
candidates in any jurisdiction. A product candidate may fail for safety or
efficacy reasons at any stage of the testing process. A major risk we face is
the possibility that none of our product candidates under development will
successfully gain market approval from the FDA or other regulatory authorities,
resulting in us being unable to derive any commercial revenue from them after
investing significant amounts of capital in multiple stages of preclinical and
clinical testing.
If we experience delays in clinical testing, we will be
delayed in commercializing our product candidates, and our business may be
substantially harmed.
We cannot predict whether any clinical trials will begin as
planned, will need to be restructured, or will be completed on schedule, or at
all. Our product development costs will increase if we experience delays in
clinical testing. Significant clinical trial delays could shorten any periods
during which we may have the exclusive right to commercialize our product
candidates or allow our competitors to bring products to market before us, which
would impair our ability to successfully commercialize our product candidates
and may harm our financial condition, results of operations and prospects. The
commencement and completion of clinical trials for our products may be delayed
for a number of reasons, including delays related, but not limited, to:
| |
• |
failure by regulatory authorities to grant
permission to proceed or placing the clinical trial on hold; |
| |
• |
patients failing to enroll or remain in our
trials at the rate we expect; |
|
• |
suspension or termination of clinical trials by
regulators for many reasons, including concerns about patient safety or
failure of our contract manufacturers to comply with cGMP requirements;
|
| |
• |
any changes to our manufacturing process that
may be necessary or desired; |
|
• |
delays or failure to obtain clinical supply from contract
manufacturers of our products necessary to conduct clinical trials;
|
| |
• |
product candidates demonstrating a lack of
safety or efficacy during clinical trials; |
|
• |
patients choosing an alternative treatment for the
indications for which we are developing any of our product candidates or
participating in competing clinical trials; |
- 27 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
|
• |
patients failing to complete clinical trials
due to dissatisfaction with the treatment, side effects or other reasons;
|
| |
• |
reports of clinical testing on similar
technologies and products raising safety and/or efficacy concerns; |
| |
• |
competing clinical trials and scheduling
conflicts with participating clinicians; |
|
• |
clinical investigators not performing our clinical trials
on their anticipated schedule, dropping out of a trial, or employing
methods not consistent with the clinical trial protocol, regulatory
requirements or other third parties not performing data collection and
analysis in a timely or accurate manner; |
|
• |
failure of our contract research organizations, or CROs,
to satisfy their contractual duties or meet expected deadlines; |
|
• |
inspections of clinical trial sites by regulatory
authorities or Institutional Review Boards, or IRBs, or ethics committees
finding regulatory violations that require us to undertake corrective
action, resulting in suspension or termination of one or more sites or the
imposition of a clinical hold on the entire study; |
|
• |
one or more IRBs or ethics committees rejecting,
suspending or terminating the study at an investigational site, precluding
enrollment of additional subjects, or withdrawing its approval of the
trial; or |
| |
• |
failure to reach agreement on acceptable terms
with prospective clinical trial sites. |
Our product development costs will increase if we experience
delays in testing or approval or if we need to perform more or larger clinical
trials than planned. Additionally, changes in regulatory requirements and
policies may occur, and we may need to amend study protocols to reflect these
changes. Amendments may require us to resubmit our study protocols to regulatory
authorities or IRBs or ethics committees for re-examination, which may impact
the cost, timing or successful completion of that trial. Delays or increased
product development costs may have a material adverse effect on our business,
financial condition and prospects.
We may not be able to file INDs to commence additional
clinical trials on the timelines we expect, and even if we are able to, the FDA
may not permit us to proceed in a timely manner, or at all.
Prior to commencing clinical trials in the United States for
any of our product candidates, we may be required to have an allowed IND for
each product candidate and to file additional INDs prior to initiating any
additional clinical trials for SIRPαFc. We believe that the data from previous
preclinical studies will support the filing of additional INDs, to enable us to
undertake additional clinical studies as we have planned. However, submission of
an IND may not result in the FDA allowing further clinical trials to begin and,
once begun, issues may arise that will require us to suspend or terminate such
clinical trials. Additionally, even if relevant regulatory authorities agree
with the design and implementation of the clinical trials set forth in an IND,
these regulatory authorities may change their requirements in the future.
Failure to submit or have effective INDs and commence clinical programs will
significantly limit our opportunity to generate revenue.
If we have difficulty enrolling patients in clinical
trials, the completion of the trials may be delayed or cancelled.
As our product candidates advance from preclinical testing to
clinical testing, and then through progressively larger and more complex
clinical trials, we will need to enroll an increasing number of patients that
meet our eligibility criteria. There is significant competition for recruiting
cancer patients in clinical trials, and we may be unable to enroll the patients
we need to complete clinical trials on a timely basis or at all. The factors
that affect our ability to enroll patients are largely uncontrollable and
include, but are not limited to, the following:
| |
• |
size and nature of the patient population;
|
| |
• |
eligibility and exclusion criteria for the
trial; |
| |
• |
design of the study protocol; |
| |
• |
competition with other companies for clinical
sites or patients; |
| |
• |
the perceived risks and benefits of the product
candidate under study; |
| |
• |
the patient referral practices of physicians;
and |
| |
• |
the number, availability, location and
accessibility of clinical trial sites. |
- 28 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
If we are unable to successfully develop companion
diagnostics for our therapeutic product candidates, or experience significant
delays in doing so, we may not achieve marketing approval or realize the full
commercial potential of our therapeutic product candidates.
We may develop companion diagnostics for our therapeutic
product candidates. We expect that, at least in some cases, regulatory
authorities may require the development and regulatory approval of a companion
diagnostic as a condition to approving our therapeutic product candidates. We
have limited experience and capabilities in developing or commercializing
diagnostics and plan to rely in large part on third parties to perform these
functions. We have not begun to develop companion diagnostics for any of our
therapeutic product candidates.
Companion diagnostics are subject to regulation by the FDA, HC,
and comparable foreign regulatory authorities as medical devices and may require
separate regulatory approval or clearance prior to commercialization. If we, or
any third parties that we engage to assist us, are unable to successfully
develop companion diagnostics for our therapeutic product candidates, or
experience delays in doing so, our business may be substantially harmed.
Regulatory approval processes are lengthy, expensive and
inherently unpredictable. Our inability to obtain regulatory approval for our
product candidates would substantially harm our business.
Our development and commercialization activities and product
candidates are significantly regulated by a number of governmental entities,
including the FDA, HC, and comparable authorities in other countries. Regulatory
approvals are required prior to each clinical trial and we may fail to obtain
the necessary approvals to commence or continue clinical testing. We must comply
with regulations concerning the manufacture, testing, safety, effectiveness,
labeling, documentation, advertising, and sale of products and product
candidates and ultimately must obtain regulatory approval before we can
commercialize a product candidate. The time required to obtain approval by such
regulatory authorities is unpredictable but typically takes many years following
the commencement of preclinical studies and clinical trials. Any analysis of
data from clinical activities we perform is subject to confirmation and
interpretation by regulatory authorities, which could delay, limit or prevent
regulatory approval. Even if we believe results from our clinical trials are
favorable to support the marketing of our product candidates, the FDA or other
regulatory authorities may disagree. 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. We have not obtained regulatory approval for any
product candidate and it is possible that none of our existing product
candidates or any future product candidates will ever obtain regulatory
approval.
We could fail to receive regulatory approval for our product
candidates for many reasons, including, but not limited to:
| |
• |
disagreement with the design or implementation
of our clinical trials; |
| |
• |
failure to demonstrate that a product candidate
is safe and effective for its proposed indication; |
| |
• |
failure of clinical trials to meet the level of
statistical significance required for approval; |
| |
• |
failure to demonstrate that a product
candidate’s clinical and other benefits outweigh its safety risks; |
| |
• |
disagreement with our interpretation of data
from preclinical studies or clinical trials; |
|
• |
the insufficiency of data collected from clinical trials
of our product candidates to support the submission and filing of a BLA or
other submission to obtain regulatory approval; |
|
• |
deficiencies in the manufacturing processes or the
failure of facilities of CMOs with whom we contract for clinical and
commercial supplies to pass a pre-approval inspection; or |
|
• |
changes in the approval policies or regulations that
render our preclinical and clinical data insufficient for approval.
|
A regulatory authority may require more information, including
additional preclinical or clinical data to support approval, which may delay or
prevent approval and our commercialization plans, or we may decide to abandon
the development program. If we were to obtain approval, regulatory authorities
may approve any of our product candidates for fewer or more limited indications
than we request, may grant approval contingent on the performance of costly
post-marketing clinical trials, or may approve a product candidate with a label
that does not include the labeling claims necessary or desirable for the
successful commercialization of that product candidate. Moreover, depending on any safety issues associated with our product
candidates that garner approval, the FDA may impose a risk evaluation and
mitigation strategy, thereby imposing certain restrictions on the sale and
marketability of such products.
- 29 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
We may not achieve our publicly announced milestones
according to schedule, or at all.
From time to time, we may announce the timing of certain events
we expect to occur, such as the anticipated timing of results from our clinical
trials. These statements are forward-looking and are based on the best estimates
of management at the time relating to the occurrence of such events. However,
the actual timing of such events may differ from what has been publicly
disclosed. The timing of events such as initiation or completion of a clinical
trial, filing of an application to obtain regulatory approval, or announcement
of additional clinical trials for a product candidate may ultimately vary from
what is publicly disclosed. These variations in timing may occur as a result of
different events, including the nature of the results obtained during a clinical
trial or during a research phase, problems with a CMO or a CRO or any other
event having the effect of delaying the publicly announced timeline. We
undertake no obligation to update or revise any forward-looking information,
whether as a result of new information, future events or otherwise, except as
otherwise required by law. Any variation in the timing of previously announced
milestones could have a material adverse effect on our business plan, financial
condition or operating results and the trading price of common shares.
We face competition from other biotechnology and
pharmaceutical companies and our financial condition and operations will suffer
if we fail to effectively compete.
The biotechnology and pharmaceutical industries are intensely
competitive and subject to rapid and significant technological change. Our
competitors include large, well-established pharmaceutical companies,
biotechnology companies, and academic and research institutions developing
cancer therapeutics for the same indications we are targeting and competitors
with existing marketed therapies. Many other companies are developing or
commercializing therapies to treat the same diseases or indications for which
our product candidates may be useful. Although there are no approved therapies
that specifically target the CD47 pathway, some competitors use therapeutic
approaches that may compete directly with our product candidates. For example,
SIRPαFc is in direct competition with CD47 blocking antibodies from Forty Seven
Inc., Celgene Corporation, Novimmune SA and others.
Many of our competitors have substantially greater financial,
technical and human resources than we do and have significantly greater
experience than us in conducting preclinical testing and human clinical trials
of product candidates, scaling up manufacturing operations and obtaining
regulatory approvals of products. Accordingly, our competitors may succeed in
obtaining regulatory approval for products more rapidly than we do. Our ability
to compete successfully will largely depend on:
|
• |
the efficacy and safety profile of our product candidates
relative to marketed products and other product candidates in development;
|
|
• |
our ability to develop and maintain a
competitive position in the product categories and technologies on which
we focus; |
|
• |
the time it takes for our product candidates to
complete clinical development and receive marketing approval; |
| |
• |
our ability to obtain required regulatory
approvals; |
| |
• |
our ability to commercialize any of our product
candidates that receive regulatory approval; |
|
• |
our ability to establish, maintain and protect
intellectual property rights related to our product candidates; and |
|
• |
acceptance of any of our product candidates that receive
regulatory approval by physicians and other healthcare providers and
payers. |
Competitors have developed and may develop technologies that
could be the basis for products that challenge the differentiated nature and
potential for best-in-class product development programs and discovery research
capabilities of Fluorinov. Some of those products may have an entirely different
approach or means of accomplishing the desired therapeutic effect than our product
candidates and may be more effective or less costly than our product candidates.
The success of our competitors and their products and technologies relative to
our technological capabilities and competitiveness could have a material adverse
effect on the future preclinical studies and clinical trials of our product
candidates, including our ability to obtain the necessary regulatory approvals
for the conduct of such clinical trials. This may further negatively impact our
ability to generate future product development programs with improved
pharmacological properties using Fluorinov technology.
- 30 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
If we are not able to compete effectively against our current
and future competitors, our business will not grow and our financial condition
and operations will substantially suffer.
We heavily rely on the capabilities and experience of our
key executives and scientists and the loss of any of them could affect our
ability to develop our products.
The loss of Dr. Niclas Stiernholm, our President and Chief
Executive Officer, or other key members of our staff, including Dr. Robert Uger,
our Chief Scientific Officer, Dr. Eric Sievers, our Chief Medical Officer, James
Parsons, our Chief Financial Officer, Dr. Penka Petrova, our Chief Development
Officer, or Dr. Malik Slassi, our Senior Vice President, Discovery Research
could harm us. We have employment agreements with Drs. Stiernholm, Uger,
Sievers, Petrova and Slassi and Mr. Parsons, although such employment agreements
do not guarantee their retention. We also depend on our scientific and clinical
collaborators and advisors, all of whom have outside commitments that may limit
their availability to us. In addition, we believe that our future success will
depend in large part upon our ability to attract and retain highly skilled
scientific, managerial, medical, clinical and regulatory personnel, particularly
as we expand our activities and seek regulatory approvals for clinical trials.
We enter into agreements with our scientific and clinical collaborators and
advisors, key opinion leaders and academic partners in the ordinary course of
our business. We also enter into agreements with physicians and institutions who
will recruit patients into our clinical trials on our behalf in the ordinary
course of our business. Notwithstanding these arrangements, we face significant
competition for these types of personnel from other companies, research and
academic institutions, government entities and other organizations. We cannot
predict our success in hiring or retaining the personnel we require for
continued growth. The loss of the services of any of our executive officers or
other key personnel could potentially harm our business, operating results or
financial condition.
Our employees may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements,
which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other
misconduct. Misconduct by employees could include failures to comply with FDA
regulations, provide accurate information to the FDA, comply with manufacturing
standards we have established, comply with federal and state health-care fraud
and abuse laws and regulations, report financial information or data accurately
or disclose unauthorized activities to us. In particular, sales, marketing and
business arrangements in the healthcare industry are subject to extensive laws
and regulations intended to prevent fraud, kickbacks, self-dealing, and other
abusive practices. These laws and regulations may restrict or prohibit a wide
range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee misconduct
could also involve the improper use of information obtained in the course of
clinical trials, which could result in regulatory sanctions and serious harm to
our reputation. If any such actions are instituted against us, and we are not
successful in defending ourselves or asserting our rights, those actions could
have a substantial impact on our business and results of operations, including
the imposition of substantial fines or other sanctions.
The failure to successfully integrate Fluorinov’s
business and operations or fully realize the benefits of this acquisition may
adversely affect our future results.
In January 2016, we acquired all of the outstanding capital
stock of Fluorinov, a small molecule medicinal chemistry company with
preclinical oncology assets and a potential discovery platform. The success of
our acquisition of Fluorinov will depend, in part, on our ability to
successfully integrate Fluorinov’s business and operations and fully realize the
anticipated benefits from combining our business with Fluorinov’s business.
However, to realize these anticipated benefits, we must continue the research
and development activities previously undertaken by Fluorinov as a stand-alone company. If we are unable to achieve these
objectives, the anticipated benefits of our acquisition of Fluorinov may not be
realized fully or at all or may take longer to realize than expected.
- 31 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
The process of integrating the Fluorinov business may create
unforeseen operating difficulties and expenditures including, but not limited
to:
|
• |
the need to implement controls, procedures and policies
appropriate for a public company that, prior to its acquisition, Fluorinov
may have lacked; |
|
• |
potential unknown liabilities associated with the
acquired company, including liability for activities of the acquired
company before the acquisition, including any violations of laws, rules
and regulations, commercial disputes, tax liabilities and other known and
unknown liabilities; |
|
• |
diverting our management’s attention away from other
business concerns, including the continued development of our SIRPαFc
clinical program; and |
|
• |
the potential loss of key employees of the Fluorinov
business, including Dr. Malik Slassi, our Senior Vice President, Discovery
Research. |
Failure to manage the Fluorinov acquisition effectively may
affect our success in executing our business plan and may adversely affect our
business, financial condition and results of operations. We may not realize the
anticipated benefits of the acquisition, or may not realize them in the time
frame expected.
We may expand our business through the acquisition of
companies or businesses or by entering into collaborations or by in-licensing
product candidates, each of which could disrupt our business and harm our
financial condition.
We have in the past and may in the future seek to expand our
pipeline and capabilities by acquiring one or more companies or businesses,
entering into collaborations, or in-licensing one or more product candidates.
Acquisitions, collaborations and in-licenses involve numerous risks, including,
but not limited to:
| |
• |
substantial cash expenditures; |
| |
• |
technology development risks; |
| |
• |
potentially dilutive issuances of equity
securities; |
|
• |
incurrence of debt and contingent liabilities,
some of which may be difficult or impossible to identify at the time of
acquisition; |
| |
• |
difficulties in assimilating the operations of
the acquired companies; |
| |
• |
potential disputes regarding contingent
consideration; |
| |
• |
diverting our management’s attention away from
other business concerns; |
| |
• |
entering markets in which we have limited or no
direct experience; and |
| |
• |
potential loss of our key employees or key
employees of the acquired companies or businesses. |
We have experience in making acquisitions, entering
collaborations, and in-licensing product candidates, however, we cannot provide
assurance that any acquisition, collaboration or in-license will result in
short-term or long-term benefits to us. We may incorrectly judge the value or
worth of an acquired company or business or in-licensed product candidate. In
addition, our future success would depend in part on our ability to manage the
rapid growth associated with some of these acquisitions, collaborations and
in-licenses. We cannot provide assurance that we would be able to successfully
combine our business with that of acquired businesses, manage a collaboration or
integrate in-licensed product candidates. Furthermore, the development or
expansion of our business may require a substantial capital investment by
us.
Negative results from clinical trials or studies of
others and adverse safety events involving the targets of our products may have
an adverse impact on our future commercialization efforts.
From time to time, studies or clinical trials on various
aspects of biopharmaceutical products are conducted by academic researchers,
competitors or others. The results of these studies or trials, when published,
may have a significant effect on the market for the biopharmaceutical product
that is the subject of the study. The publication of negative results of studies or clinical trials or adverse
safety events related to our product candidates, or the therapeutic areas in
which our product candidates compete, could adversely affect our share price and
our ability to finance future development of our product candidates, and our
business and financial results could be materially and adversely affected.
- 32 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
We face the risk of product liability claims, which could
exceed our insurance coverage and produce recalls, each of which could deplete
our cash resources.
We are exposed to the risk of product liability claims alleging
that use of our product candidates caused an injury or harm. These claims can
arise at any point in the development, testing, manufacture, marketing or sale
of our product candidates and may be made directly by patients involved in
clinical trials of our product candidates, by consumers or healthcare providers
or by individuals, organizations or companies selling our products. Product
liability claims can be expensive to defend, even if the product or product
candidate did not actually cause the alleged injury or harm.
Insurance covering product liability claims becomes
increasingly expensive as a product candidate moves through the development
pipeline to commercialization. We currently maintain clinical trial liability
insurance coverage of $10 million. However, there can be no assurance that such
insurance coverage is or will continue to be adequate or available to us at a
cost acceptable to us or at all. We may choose or find it necessary under our
collaborative agreements to increase our insurance coverage in the future. We
may not be able to secure greater or broader product liability insurance
coverage on acceptable terms or at reasonable costs when needed. Any liability
for damages resulting from a product liability claim could exceed the amount of
our coverage, require us to pay a substantial monetary award from our own cash
resources and have a material adverse effect on our business, financial
condition and results of operations. Moreover, a product recall, if required,
could generate substantial negative publicity about our products and business,
inhibit or prevent commercialization of other products and product candidates or
negatively impact existing or future collaborations.
In addition, some of our licensing and other agreements with
third parties require or might require us to maintain product liability
insurance. If we cannot maintain acceptable amounts of coverage on commercially
reasonable terms in accordance with the terms set forth in these agreements, the
corresponding agreements would be subject to termination, which could have a
material adverse impact on our operations.
Risks Related to Intellectual Property
If we are unable to adequately protect and enforce our
intellectual property, our competitors may take advantage of our development
efforts or acquired technology and compromise our prospects of marketing and
selling our key products.
We control two patent families relating to SIRPα. One family
relates to the use of SIRPα to treat cancer. The other family relates our drug
as a composition of matter, SIRPαFc.
More recently, we acquired the patent portfolio of Fluorinov,
which embraces patent filings that cover eleven different inventions. With the
exception of one process scheme, these patent filings each claim a family of
small molecule drugs as compositions of matter, together with claims for their
production and their medical uses. These drugs target cancer for the most part,
and some related medical end-uses.
Our success will depend in part upon our ability to protect our
intellectual property and proprietary technologies and upon the nature and scope
of the intellectual property protection we receive. For example, some of our
patent portfolio covers primarily methods of medical use but not compositions of
matter. The ability to compete effectively and to achieve partnerships will
depend on our ability to develop and maintain proprietary aspects of our
technology and to operate without infringing on the proprietary rights of
others. The presence of such proprietary rights of others could severely limit
our ability to develop and commercialize our products, to conduct our existing
research and could require financial resources to defend litigation, which may
be in excess of our ability to raise such funds. There is no assurance that our
pending patent applications or those that we intend to acquire will be approved
in a form that will be sufficient to protect our proprietary technology and gain
or keep any competitive advantage that we may have or, once approved, will be upheld in any post-grant
proceedings brought by any third parties. The European patent granted to UHN and
licensed exclusively to Trillium has been opposed by two groups. Trillium’s
rights are enforceable during these proceedings. A negative outcome could have
an impact on our patent position in Europe.
- 33 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
The patent positions of pharmaceutical companies can be highly
uncertain and involve complex legal, scientific and factual questions for which
important legal principles remain unresolved. Patents issued to us or our
respective licensors may be challenged, invalidated or circumvented. To the
extent our intellectual property, including licensed intellectual property,
offers inadequate protection, or is found to be invalid or unenforceable, we are
exposed to a greater risk of direct competition. If our intellectual property
does not provide adequate protection against our competitors’ products, our
competitive position could be adversely affected, as could our business,
financial condition and results of operations. Both the patent application
process and the process of managing patent disputes can be time consuming and
expensive, and the laws of some foreign countries may not protect our
intellectual property rights to the same extent as do the laws of Canada and the
United States.
We will be able to protect our intellectual property from
unauthorized use by third parties only to the extent that our proprietary
technologies, key products, and any future products are covered by valid and
enforceable intellectual property rights including patents or are effectively
maintained as trade secrets, and provided we have the funds to enforce our
rights, if necessary.
If we lose our licenses from third-party owners we may be
unable to continue a substantial part of our business.
We are party to licenses that give us rights to intellectual
property that is necessary or useful for a substantial part of our business.
Pursuant to our exclusive license agreement with UHN and the Hospital for Sick
Children, or HSC, under which we license certain patent rights for our key
products and their uses, we are required to use commercially reasonable efforts
to commercialize products based on the licensed rights and pay certain royalties
and sublicensing revenue to UHN and HSC. These licenses require that we pay
development milestone payments, regulatory milestone payments, royalties on net
sales, and sublicensing revenues, as well as annual maintenance fees.
We have also entered into agreements allowing us to manufacture
SIRPαFc using Catalent’s proprietary GPEx® expression system. The consideration
includes payments at the time we successfully reach a series of development and
sales milestones. We may also enter into licenses in the future to access
additional third-party intellectual property.
If we fail to pay annual maintenance fees, development and
sales milestones, or it is determined that we did not use commercially
reasonable efforts to commercialize licensed products, we could lose our
licenses which could have a material adverse effect on our business and
financial condition.
We may require additional third-party licenses to
effectively develop and manufacture our key products and are currently unable to
predict the availability or cost of such licenses.
A substantial number of patents have already been issued to
other biotechnology and pharmaceutical companies. To the extent that valid
third-party patent rights cover our products or services, we or our strategic
collaborators would be required to seek licenses from the holders of these
patents in order to manufacture, use or sell these products and services, and
payments under them would reduce our profits from these products and services.
We are currently unable to predict the extent to which we may wish or be
required to acquire rights under such patents, the availability and cost of
acquiring such rights, and whether a license to such patents will be available
on acceptable terms or at all. There may be patents in the U.S. or in foreign
countries or patents issued in the future that are unavailable to license on
acceptable terms. Our inability to obtain such licenses may hinder or eliminate
our ability to manufacture and market our products.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Changes in patent law and its interpretation could
diminish the value of patents in general, thereby impairing our ability to
protect our product candidates.
As is the case with other biotechnology and pharmaceutical
companies, our success is heavily dependent on intellectual property rights,
particularly patents. Obtaining and enforcing patents in the biopharmaceutical
industry involves technological and legal complexity, and obtaining and
enforcing biopharmaceutical patents is costly, time-consuming and inherently
uncertain. The U.S. Supreme Court has ruled on several patent cases in recent
years, either narrowing the scope of patent protection available in certain
circumstances or weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our and our licensors’ or
collaborators’ ability to obtain patents in the future, this combination of
events has created uncertainty with respect to the value of patents, once
obtained. Depending on decisions by the U.S. Congress, the federal courts, and
the U.S. Patent and Trademark Office, or USPTO, the laws and regulations
governing patents could change in unpredictable ways that would weaken our and
our licensors’ or collaborators’ ability to obtain new patents or to enforce
existing patents and patents we and our licensors or collaborators may obtain in
the future.
Recent patent reform legislation could increase the
uncertainties and costs surrounding the prosecution of our and our licensors’ or
collaborators’ patent applications and the enforcement or defense of our or our
licensors’ or collaborators’ issued patents. On September 16, 2011, the
Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law.
The Leahy-Smith Act includes a number of significant changes to U.S. patent law.
These include provisions that affect the way patent applications are prosecuted
and may also affect patent litigation. The USPTO recently developed new
regulations and procedures to govern administration of the Leahy-Smith Act, and
many of the substantive changes to patent law associated with the Leahy-Smith
Act, and in particular, the first to file provisions, only became effective on
March 16, 2013. Accordingly, it is not clear what, if any, impact the
Leahy-Smith Act will have on the operation of our business. However, the
Leahy-Smith Act and its implementation could increase the uncertainties and
costs surrounding the prosecution of our or our licensors’ or collaborators’
patent applications and the enforcement or defense of our or our licensors’ or
collaborators’ issued patents, all of which could have a material adverse effect
on our business and financial condition.
Litigation regarding patents, patent applications, and
other proprietary rights may be expensive, time consuming and cause delays in
the development and manufacturing of our key products.
Our success will depend in part on our ability to operate
without infringing the proprietary rights of third parties. The pharmaceutical
industry is characterized by extensive patent litigation. Other parties may
have, or obtain in the future, patents and allege that the use of our
technologies infringes these patent claims or that we are employing their
proprietary technology without authorization.
In addition, third parties may challenge or infringe upon our
existing or future patents. Proceedings involving our patents or patent
applications or those of others could result in adverse decisions regarding:
| |
• |
the patentability of our inventions relating to
our key products; and/or |
| |
• |
the enforceability, validity, or scope of
protection offered by our patents relating to our key products.
|
If we are unable to avoid infringing the patent rights of
others, we may be required to seek a license, defend an infringement action, or
challenge the validity of the patents in court. Regardless of the outcome,
patent litigation is costly and time consuming. In some cases, we may not have
sufficient resources to bring these actions to a successful conclusion. In
addition, if we do not obtain a license, develop or obtain non-infringing
technology, fail to defend an infringement action successfully or have infringed
patents declared invalid, we may:
| |
• |
incur substantial monetary damages; |
| |
• |
encounter significant delays in bringing our
key products to market; and/or |
|
• |
be precluded from participating in the manufacture, use
or sale of our key products or methods of treatment requiring licenses.
|
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Even if we are successful in these proceedings, we may incur
substantial costs and divert management time and attention in pursuing these
proceedings, which could have a material adverse effect on us.
Our reliance on third parties requires us to share our
trade secrets, which increases the possibility that a competitor will discover
them.
Because we rely on third parties to develop our products, we
must share trade secrets with them. We seek to protect our proprietary
technology in part by entering into confidentiality agreements and, if
applicable, material transfer agreements, collaborative research agreements,
consulting agreements or other similar agreements with our collaborators,
advisors, employees and consultants prior to beginning research or disclosing
proprietary information. These agreements typically restrict the ability of our
collaborators, advisors, employees and consultants to publish data potentially
relating to our trade secrets. Our academic collaborators typically have rights
to publish data, provided that we are notified in advance and may delay
publication for a specified time in order to secure our intellectual property
rights arising from the collaboration. In other cases, publication rights are
controlled exclusively by us, although in some cases we may share these rights
with other parties. We also conduct joint research and development programs
which may require us to share trade secrets under the terms of research and
development collaboration or similar agreements. Despite our efforts to protect
our trade secrets, our competitors may discover our trade secrets, either
through breach of these agreements, independent development or publication of
information including our trade secrets in cases where we do not have
proprietary or otherwise protected rights at the time of publication. A
competitor’s discovery of our trade secrets may impair our competitive position
and could have a material adverse effect on our business and financial
condition.
Risks Related to Our Common Shares
Our common share price has been volatile in recent years,
and may continue to be volatile.
The market prices for securities of biopharmaceutical
companies, including ours, have historically been volatile. In the six months
ended June 30, 2016, our common shares traded on the TSX at a high of $19.50 and
a low of $9.01 per share. In the year ended December 31, 2015, our common shares
traded on the TSX at a high of $37.27 and a low of $10.50 per share. A number of
factors could influence the volatility in the trading price of our common
shares, including changes in the economy or in the financial markets, industry
related developments, the results of product development and commercialization,
changes in government regulations, and developments concerning proprietary
rights, litigation and cash flow. Our quarterly losses may vary because of the
timing of costs for manufacturing, preclinical studies and clinical trials.
Also, the reporting of adverse safety events involving our products and public
rumors about such events could cause our share price to decline or experience
periods of volatility. Each of these factors could lead to increased volatility
in the market price of our common shares. In addition, changes in the market
prices of the securities of our competitors may also lead to fluctuations in the
trading price of our common shares.
We have never paid dividends and do not expect to do so
in the foreseeable future.
We have not declared or paid any cash dividends on our common
or preferred shares to date. The payment of dividends in the future will be
dependent on our earnings and financial condition in addition to such other
factors as our board of directors considers appropriate. Unless and until we pay
dividends, shareholders may not receive a return on their shares. There is no
present intention by our board of directors to pay dividends on our shares.
We may issue additional common shares to the former
shareholders of Fluorinov as a result of our satisfaction of certain milestones,
resulting in share ownership dilution.
Under the terms of our agreements with Fluorinov and its former
shareholders, at our discretion up to 50% of any future contingent payments can
be satisfied through the issuance of our common shares, provided that the
aggregate number of common shares issuable under such payments will not exceed
1,558,447 common shares, which amount represented 19.99% of the outstanding common shares at the time
of execution of the acquisition, unless shareholder approval has first been
obtained.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
Issuing additional common shares to the former shareholders of
Fluorinov in satisfaction of contingent consideration dilutes the ownership
interests of holders of our common shares on the dates of such issuances. If we
are unable to realize the strategic, operational and financial benefits
anticipated from our acquisition of Fluorinov, our shareholders may experience
dilution of their ownership interests in our company upon any such future
issuances of our common shares without receiving any commensurate benefit.
Future sales or issuances of equity securities and the
conversion of outstanding securities to common shares could decrease the value
of the common shares, dilute investors’ voting power, and reduce our earnings
per share.
We may sell additional equity securities in future offerings,
including through the sale of securities convertible into equity securities, to
finance operations, acquisitions or projects, and issue additional common shares
if outstanding warrants or stock options are exercised, or preferred shares are
converted to common shares, which may result in dilution. See the information in
the section of this MD&A entitled “Description of Share Capital” for details
of our outstanding securities convertible into common shares. We filed a base
shelf prospectus with securities commissions in Canada and a Form F-10
registration statement with the SEC on May 29, 2015 that provides that we may
sell under the prospectus from time to time over the following 25 months up to
U.S. $100 million, in one or more offerings, of common shares, First Preferred
shares, warrants to purchase common shares, or units comprising a combination of
common shares, First Preferred shares and/or warrants. Subject to receipt of any
required regulatory approvals, subscribers of the December 2013 private
placement who purchased a minimum of 10% of the securities sold under the
offering received rights to purchase our securities in future financings to
enable each such shareholder to maintain their percentage holding in our common
shares for so long as the subscriber holds at least 10% of the outstanding
common shares on a fully-diluted basis. Shareholders who do not have this future
financing participation right may be disadvantaged in participating in such
financings.
Our board of directors has the authority to authorize certain
offers and sales of additional securities without the vote of, or prior notice
to, shareholders. Based on the need for additional capital to fund expected
expenditures and growth, it is likely that we will issue additional securities
to provide such capital. Such additional issuances may involve the issuance of a
significant number of common shares at prices less than the current market price
for our common shares.
Sales of substantial amounts of our securities, or the
availability of such securities for sale, as well as the issuance of substantial
amounts of our common shares upon conversion of outstanding convertible equity
securities, could adversely affect the prevailing market prices for our
securities and dilute investors’ earnings per share. A decline in the market
prices of our securities could impair our ability to raise additional capital
through the sale of securities should we desire to do so.
We are likely a “passive foreign investment company,”
which may have adverse U.S. federal income tax consequences for U.S.
shareholders.
U.S. investors should be aware that we believe we were
classified as a passive foreign investment company, or PFIC, during the tax
years ended December 31, 2015 and 2014, and based on current business plans and
financial expectations, we expect that we will be a PFIC for the current tax
year and may be a PFIC in future tax years. If we are a PFIC for any year during
a U.S. shareholder’s holding period of our common shares, then such U.S.
shareholder generally will be required to treat any gain realized upon a
disposition of our common shares, or any so-called “excess distribution”
received on our common shares, as ordinary income, and to pay an interest charge
on a portion of such gain or distributions, unless the shareholder makes a
timely and effective “qualified electing fund” election, or QEF Election,
or a “mark-to-market” election with respect to our shares. A U.S. shareholder
who makes a QEF Election generally must report on a current basis its share of
our net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute
any amounts to our shareholders. A U.S. shareholder who makes the mark-to-market
election generally must include as ordinary income each year the excess of the
fair market value of the common shares over the shareholder’s adjusted tax basis
therein. Each U.S. shareholder should consult its own tax advisors regarding the
PFIC rules and the U.S. federal income tax consequences of the acquisition,
ownership and disposition of our common shares.
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| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
It may be difficult for non-Canadian investors to obtain
and enforce judgments against us because of our Canadian incorporation and
presence.
We are a corporation existing under the laws of the Province of
Ontario, Canada. Several of our directors and officers, and several of the
experts are residents of Canada, and all or a substantial portion of their
assets, and a substantial portion of our assets, are located outside the United
States. Consequently, although we have appointed an agent for service of process
in the United States, it may be difficult for holders of our securities who
reside in the United States to effect service within the United States upon
those directors and officers, and the experts who are not residents of the
United States. It may also be difficult for holders of our securities who reside
in the United States to realize in the United States upon judgments of courts of
the United States predicated upon our civil liability and the civil liability of
our directors, officers and experts under the United States federal securities
laws. Investors should not assume that Canadian courts (i) would enforce
judgments of United States courts obtained in actions against us or such
directors, officers or experts predicated upon the civil liability provisions of
the United States federal securities laws or the securities or “blue sky” laws
of any state or jurisdiction of the United States or (ii) would enforce, in
original actions, liabilities against us or such directors, officers or experts
predicated upon the United States federal securities laws or any securities or
“blue sky” laws of any state or jurisdiction of the United States. In addition,
the protections afforded by Canadian securities laws may not be available to
investors in the United States.
If there are substantial sales of our common shares, the
market price of our common shares could decline.
Sales of substantial numbers of our common shares could cause a
decline in the market price of our common shares. Any sales by existing
shareholders or holders who exercise their warrants or stock options may have an
adverse effect on our ability to raise capital and may adversely affect the
market price of our common shares.
We are an “emerging growth company,” and we cannot be
certain if the reduced reporting requirements applicable to emerging growth
companies will make our common shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS
Act. For as long as we continue to be an emerging growth company, we may take
advantage of exemptions from various reporting requirements that are applicable
to other public companies that are not emerging growth companies, including not
being required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved.
We could be an emerging growth company for up to five years, although
circumstances could cause us to lose that status earlier. We cannot predict if
investors will find our common shares less attractive because we may rely on
these exemptions. If some investors find our common shares less attractive as a
result, there may be a less active trading market for our common shares and our
share price may be more volatile.
Any failure to maintain an effective system of internal
controls may result in material misstatements of our consolidated financial
statements or cause us to fail to meet our reporting obligations or fail to
prevent fraud; and in that case, our shareholders could lose confidence in our
financial reporting, which would harm our business and could negatively impact
the price of our common shares.
Effective internal controls are necessary for us to provide
reliable financial reports and prevent fraud. If we fail to maintain an
effective system of internal controls, we might not be able to report our
financial results accurately or prevent fraud; and in that case, our
shareholders could lose confidence in our financial reporting, which would harm
our business and could negatively impact the price of our common shares. While
we believe that we have sufficient personnel and review procedures to allow us
maintain an effective system of internal controls, we cannot provide assurance
that we will not experience potential material weaknesses in our internal
control. Even if we conclude that our internal control over financial reporting provides
reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external purposes in
accordance with International Financial Reporting Standards, as issued by the
International Accounting Standards Board, because of its inherent limitations,
internal control over financial reporting may not prevent or detect fraud or
misstatements. Failure to implement required new or improved controls, or
difficulties encountered in their implementation, could harm our results of
operations or cause us to fail to meet our future reporting obligations.
- 38 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
If we fail to timely achieve and maintain the adequacy of our
internal control over financial reporting, we may not be able to produce
reliable financial reports or help prevent fraud. Our failure to achieve and
maintain effective internal control over financial reporting could prevent us
from complying with our reporting obligations on a timely basis, which could
result in the loss of investor confidence in the reliability of our consolidated
financial statements, harm our business and negatively impact the trading price
of our common shares.
As a foreign private issuer, we are not subject to
certain United States securities law disclosure requirements that apply to a
domestic United States issuer, which may limit the information which would be
publicly available to our shareholders.
As a foreign private issuer, we are not required to comply with
all the periodic disclosure requirements of the Exchange Act, and therefore,
there may be less publicly available information about us than if we were a
United States domestic issuer. For example, we are not subject to the proxy
rules in the United States and disclosure with respect to our annual meetings
will be governed by Canadian requirements.
Our charter documents and certain Canadian legislation
could delay or deter a change of control, limit attempts by our shareholders to
replace or remove our current management and limit the market price of our
common shares.
Our authorized preferred shares are available for issuance from
time to time at the discretion of our board of directors, without shareholder
approval. Our articles grant our board of directors the authority to determine
the special rights and restrictions granted to or imposed on any unissued series
of preferred shares, and those rights may be superior to those of our common
shares. Further, the Investment Canada Act subjects any acquisition of control
of a company by a non-Canadian to government review if the value of the assets
as calculated pursuant to the legislation exceeds a threshold amount or in other
circumstances determined at the discretion of the Canadian government. A
reviewable acquisition may not proceed unless the relevant minister is satisfied
that the investment is likely to be of net benefit to Canada and the Canadian
government is satisfied that no other important concerns arise from the
acquisition of control. Any of the foregoing could prevent or delay a change of
control and may deprive or limit strategic opportunities to our shareholders to
sell their shares.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL
REPORTING
We have implemented a system of internal controls that we
believe adequately protects our assets and is appropriate for the nature of our
business and the size of our operations. Our internal control system was
designed to provide reasonable assurance that all transactions are accurately
recorded, that transactions are recorded as necessary to permit preparation of
financial statements in accordance with IFRS, and that our assets are
safeguarded.
These internal controls include disclosure controls and
procedures designed to ensure that information required to be disclosed by us is
accumulated and communicated as appropriate to allow timely decisions regarding
required disclosure.
Internal control over financial reporting means a process
designed by or under the supervision of the Chief Executive Officer and the
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS as issued by the IASB. The
internal controls are not expected to prevent and detect all misstatements due
to error or fraud.
- 39 -
| TRILLIUM THERAPEUTICS INC. |
| Management’s
Discussion and Analysis |
There were no changes in our internal control over financial
reporting that occurred during the three months ended June 30, 2016 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. As at June 30, 2016, we have assessed the
effectiveness of our internal control over financial reporting and disclosure
controls and procedures using the Committee of Sponsoring Organizations of the
Treadway Commission’s 2013 framework. Based on their evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that these
controls and procedures are effective.
ADDITIONAL INFORMATION
Additional information for Trillium can be found on SEDAR at
www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml.
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